485BPOS

As filed with the Securities and Exchange Commission on May 1, 2009

Registration No. 333-91938

File No. 811-9044

______________________________________________________________________________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

Form N-6

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 24

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Amendment No. 35

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT (Exact Name of Registrant)

NATIONAL LIFE INSURANCE COMPANY
(Name of Depositor)
One National Life Drive
Montpelier, Vermont 05604
(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
1275 Pennsylvania Avenue, NW
Washington, DC 20004-2404
_______________________________

It is proposed that this filing will become effective:

_X	immediately upon filing pursuant to paragraph (b)
__	on	pursuant to paragraph (b)
	60 days after filing pursuant to paragraph (a)(1)
	on (date) pursuant to paragraph (a)(1) of Rule 485
	This post-effective amendment designates a new effective date for a previously filed post-effective
amendment.

Title of Securities Being Registered: Units of Interests in a variable account under individual flexible premium variable universal life policies

VariTrak
Variable Universal Life Insurance
P R O S P E C T U S
Dated May 1, 2009

National Life Insurance Company National Variable Life Insurance Account Home Office: National Life Drive, Montpelier, Vermont 05604 Telephone: (800) 732-8939

This prospectus describes the VariTrak policy, a variable universal life insurance policy offered by National Life
Insurance Company (“National Life”). This Policy combines insurance and investment features. The policy’s
primary purpose is to provide insurance protection on the life of the insured person. You can make premium
payments at various times and in various amounts. You can also allocate premiums among a number of funds with
different investment objectives, and you can increase or decrease the death benefit payable under your policy.

You may allocate premium payments to the National Variable Life Insurance Account, a Separate Account of
National Life, or to the General Account, or a combination of the two. The General Account pays interest at a
guaranteed rate of at least 4%. The Separate Account currently has several subaccounts. Each subaccount buys
shares of a specific portfolio. The available portfolios are:

Sentinel Asset Management,	Invesco Aim Advisors, Inc.	Fred Alger Management,	AllianceBernstein L.P.
Inc.		Inc.
Sentinel Variable Products Trust	AIM Variable Insurance Funds	Alger American Fund	Alliance Bernstein Variable
Balanced	AIM V.I. Dynamics	Capital Appreciation	Products Series Fund, Inc.
Bond	AIM V.I. Global Health Care	LargeCap Growth	International Growth
Common Stock	AIM V.I. Technology	SmallCap Growth	International Value
Mid Cap Growth			Small/Mid Cap Value
Money Market			Value
Small Company
American Century Investment	The Dreyfus Corporation	Deutsche Investment	Fidelity Management &
Management, Inc. and		Management Americas Inc.	Research Company
American Century Global
Investment Management, Inc.
American Century Variable	Dreyfus Variable Investment	DWS Variable Series II	Fidelity® Variable Insurance
Portfolios, Inc.	Fund	Dreman High Return Equity	Products
VP Income & Growth	VIF Appreciation	VIP*	Contrafund®
VP Inflation Protection	VIF Developing Leaders	Dreman Small Mid Cap	Equity-Income
VP International	VIF Quality Bond	Value VIP	Growth
VP Ultra®			High Income
VP Value	Dreyfus Socially Responsible	DWS Investments VIT Funds	Index 500
VP Vista SM	Growth Fund, Inc.	Small Cap Index VIP	Investment Grade Bond
			Mid Cap
			Overseas
			Value Strategies
Franklin Templeton	J.P. Morgan Investment	Neuberger Berman	Oppenheimer Funds, Inc.
Investments	Management Inc.	Management, Inc.
Franklin Templeton Variable	JPMorgan Insurance Trust	Neuberger Berman Advisers	Oppenheimer Variable
Insurance Products Trust	International Equity Portfolio	Management Trust	Account Funds
Foreign Securities Fund	Small Cap Core Portfolio	Short Duration Bond	Balanced/VA
Global Real Estate Fund	(formerly Small Company	Portfolio	Main Street Small Cap/VA
Mutual Shares Securities Fund	Portfolio)	Mid-Cap Growth Portfolio	Strategic Bond/VA
Small Cap Value Securities		Partners Portfolio
Fund		Small Cap Growth Portfolio
Small-Midcap Growth		Socially Responsive
Securities Fund
U.S Government
Mutual Global Discovery
Securities

T. Rowe Price Associates, Inc.	Van Eck Associates	Wells Fargo Funds
	Corporation	Management, LLC
T. Rowe Price Equity Series, Inc.	Van Eck Worldwide Insurance	Wells Fargo Variable Trust
Personal Strategy Balanced	Trust	VT Discovery
	Worldwide Bond	VT Opportunity
T. Rowe Price Equity Series, Inc.	Worldwide Emerging Markets
Blue Chip Growth II	Worldwide Hard Assets
Equity Income II	Worldwide Real Estate
Health Sciences II

* Effective on or about June 1, 2009 DWS Dreman High Return Equity VIP will be renamed DWS Strategic Value VIP.

The value of your policy will depend upon the investment results of the portfolios you select. The policy’s value
and death benefit will fluctuate based on the investment results of the chosen portfolios, the crediting of interest to
the General Account, and the deduction of charges. You bear the entire investment risk for all amounts allocated to
the Separate Account. There is no guaranteed minimum value for any of the portfolios. We do not guarantee any
minimum policy value. You could lose some or all of your money. You must receive, with this prospectus, current
prospectuses for all of the portfolios. We recommend that you read this prospectus and the prospectuses for the
portfolios carefully. You should keep all prospectuses for later reference.

An investment in the policy is not a bank deposit. Neither the U.S. government nor any governmental agency
insures or guarantees your investment in the policy.

It may not be advantageous to purchase a policy as a replacement for another type of life insurance or as a means to
obtain additional insurance protection if you already own another variable universal life insurance policy. It also
may not be advantageous for you to finance the purchase of this policy through use of a loan or through making
withdrawals from another policy that you already own.

The Securities and Exchange Commission (“SEC”) has not approved or disapproved the policy or
determined if this prospectus is accurate or complete. Any representation to the contrary is a criminal
offense.

TABLE OF CONTENTS
	Page
SUMMARY OF THE BENEFITS AND RISKS OF THE POLICY	1
Summary of Principal Policy Benefits	1
Summary of the Principal Risks of Purchasing a Policy	2
Fee Tables	4
NATIONAL LIFE AND THE GENERAL ACCOUNT	15
National Life	15
The General Account	15
THE SEPARATE ACCOUNT AND THE PORTFOLIOS	16
The Separate Account	16
The Portfolios	16
THE POLICY	29
Premiums	29
Transfers	31
Telephone Transaction Privilege	32
Facsimile Transaction Privilege	32
Electronic Mail Transaction Privilege	33
Disruptive Trading	33
Other Transfer Rights	35
Optional “Illuminations” Investment Advisory Service	35
AVAILABLE AUTOMATED PORTFOLIO MANAGEMENT FEATURES	36
Accumulated Value	37
Change of Address Notification	38
DEATH BENEFIT	38
Ability to Adjust Face Amount	40
Payment of Policy Benefits	41
Settlement Options	41
PAYMENT OF PROCEEDS	42
POLICY LOANS	43
SURRENDERS AND WITHDRAWALS	44
LAPSE AND REINSTATEMENT	47
CHARGES AND DEDUCTIONS	47
Premium Tax Charge	48
Surrender Charge	48
Monthly Deductions	49
Mortality and Expense Risk Charge	52
Withdrawal Charge	52
Transfer Charge	52
Projection Report Charge	52
Other Charges	52
OPTIONAL BENEFITS	53
Additional Protection Benefit	53
Guaranteed Death Benefit	54
No-Lapse Guarantee	54
Accelerated Care Rider	55
Chronic Care Protection	56
Accelerated Benefit	56
Overloan Protection Rider	56
FEDERAL TAX CONSIDERATIONS	57
Tax Status of the Policy	57
Tax Treatment of Policy Benefits	58
Possible Tax Law Changes	61
Possible Charges for National Life’s Taxes	62
LEGAL MATTERS	62
i

DISTRIBUTION OF THE POLICIES	62
OTHER POLICY PROVISIONS	63
FINANCIAL STATEMENTS	64
GLOSSARY	65
APPENDIX A	A-1
APPENDIX B	B-1
APPENDIX C	C-1
APPENDIX D: SAI Table of Contents	D-1

The policy may not be available in all states and its terms may vary by state. This prospectus does not offer
the policy in any state in which we may not legally offer the policy. This policy is no longer sold. You should
rely only on the information contained in this prospectus. We have not authorized anyone to provide you
with information that is different.

The primary purpose of this variable life insurance policy is to provide insurance protection. We do not
claim that the policy is in any way similar or comparable to an investment in a mutual fund.

ii

SUMMARY OF THE BENEFITS AND RISKS OF THE POLICY

This summary provides you with a brief overview of the benefits and risks associated with the Policy. You should
read the entire prospectus before purchasing the Policy. Important details regarding the Policy are contained in
other sections of this prospectus. Please consult your agent and refer to your Policy for details. For your
convenience, we have defined certain terms we use in the Glossary at the end of the prospectus.

Summary of Principal Policy Benefits

Life Insurance Protection. The Policy provides a means for an Owner to accumulate life insurance on the life of a
specified Insured. Proceeds under the Policy can generally pass free of federal and state income tax at the death of
an Insured.

As long as your Policy remains in force, we will pay the Death Benefit to your Beneficiary, when we receive due
proof of the death of the Insured. We will increase the Death Benefit by any additional benefits provided by a
supplementary benefit rider. We will reduce the Death Benefit by any outstanding Policy loans and accrued interest
and any unpaid Monthly Deductions.

Death Benefit Option A and Option B. We offer two Death Benefit options, which we call Option A and Option B.
You may choose which option to apply to your Policy.

If you choose Death Benefit Option A, the Death Benefit will be based on the greater of:

• Face Amount; or
• the Accumulated Value multiplied by a factor specified by federal income tax law.

If you choose Death Benefit Option B, the Death Benefit will be based on the greater of:

• the Face Amount plus the Accumulated Value; or
• the Accumulated Value multiplied by the same factor that applies to option A.

After a year, you may adjust the Death Benefit by changing the Death Benefit option or by increasing or decreasing the Face Amount of your Policy. See “Death Benefit.”

• You can elect to include an optional accelerated death benefit rider in your Policy, which permits you to receive a discounted payment of the Policy’s Death Benefit before the death of the Insured under circumstances where a terminal illness or chronic illness creates a need for access to the Death Benefit.
  There is no additional cost for the accelerated death benefit rider.
• You can also elect to include accelerated care and chronic care protection riders in your Policy. The accelerated care rider provides periodic partial prepayments of the Death Benefit if the Insured becomes chronically ill, and the chronic care protection rider continues to pay benefits after the entire Death Benefit under the Policy has been prepaid under the accelerated care rider. There is an additional cost for the accelerated care rider and the chronic care protection rider.
• You may add additional insurance and other benefits to your Policy by rider. Please see “Optional Benefits”, below, for a description of the other optional benefits that we offer.
• You may receive personalized illustrations in connection with the purchase of this Policy that reflect your own particular circumstances. These hypothetical illustrations may help you to understand the long-term effects of different levels of investment performance, the possibility of lapse, and the charges and deductions under the Policy. They may also help you to compare this Policy to other life insurance policies. The personalized illustrations are based on hypothetical rates of return and are not a representation or guarantee of investment returns or cash value.

1

Cash Benefits. After a year, you may borrow against your Policy. The maximum amount of all loans is the Cash
Surrender Value less three times the most recent Monthly Deduction. When you take a loan we will transfer an
amount equal to the loan to our General Account as Collateral. We charge interest on the loan, and we credit
interest on Collateral. Loans may have adverse tax consequences. When the Death Benefit becomes payable or the
Policy is surrendered, we will deduct Policy loans and accrued interest from the proceeds otherwise payable. We
also currently plan to make preferred loans available when a Policy is 10 years old.

After a year, you may request a Withdrawal of Cash Surrender Value. However:

• You must withdraw at least $500;
• You cannot withdraw more than the Cash Surrender Value on the date we receive your request minus three
  times the most recent Monthly Deduction for the most recent Monthly Policy Date;
• You may not allocate Withdrawals to the General Account until all the value in the Separate Account has been exhausted.
• We may deduct a Withdrawal charge from each Withdrawal. Withdrawals may have tax consequences.

You may surrender your Policy at any time and receive the Cash Surrender Value, if any. The Cash Surrender
Value will equal the Accumulated Value less any Policy loan with accrued interest and any Surrender Charge.

Variety of Investment Options. You may allocate Net Premiums among the subaccounts of the Separate Account
and the General Account. The subaccounts in the Separate Account invest in a wide variety of portfolios that cover
a broad spectrum of investment objectives and risk tolerances.

We will credit interest at an effective annual rate of at least 4.0% on amounts invested in the General Account.

As your needs or financial goals change, you can change your investment mix. You may make transfers among the
Separate Account and the General Account. Currently, you may make an unlimited number of such transfers within
the subaccounts of the Separate Account and from the Separate Account to the General Account, without charge.
You may not make transfers out of the General Account that exceed the greater of: (a) 25% of the non-loaned
Accumulated Value in such account at the time of transfer; (b) or $1,000. We allow only one such transfer out of
the General Account in any Policy Year.

We offer Owners the opportunity to participate in “Illuminations.” Under this investment advisory program,
National Life has arranged for FundQuest, Inc. (“FundQuest”), a registered investment adviser firm that is
independent of National Life, to provide an investment advisory service under which FundQuest maintains an
allocation of the Accumulated Value of your Policy among the available options that is suited to your investment
objective, financial situation and risk tolerance. To participate in Illuminations, you must enter into a Limited
Power of Attorney with FundQuest under which you will authorize FundQuest to direct National Life to implement
changes to your portfolio allocation model as determined by FundQuest, without obtaining your specific approval of
the changes. The Illuminations investment advisory program is available without charge to Owners.

Summary of the Principal Risks of Purchasing a Policy

Investment Risk. We cannot give any assurance that any portfolio will achieve its investment objectives. You bear
the entire investment risk on the value of your Policy you allocate to the Separate Account. In addition, we deduct
Policy fees and charges from your Accumulated Value, which can significantly reduce your Accumulated Value.
During times of poor performance, these deductions will have an even greater impact on your Accumulated Value.
You could lose everything you invest, and your Policy could lapse without value, unless you pay additional
premium prior to the lapse. Please note that frequent, large, or short-term transfers among subaccounts, such as
those associated with “market timing” transactions, can adversely affect the portfolios and the returns achieved by
Owners. Such transfers may dilute the value of portfolio shares, interfere with the efficient management of the
portfolios, and increase brokerage and administrative costs of the portfolios. To protect Owners and portfolios from
such effects, we have developed market timing procedures. See “Disruptive Trading” below.

2

If you allocate premiums to the General Account, we credit your Accumulated Value in the General Account with a
declared rate of interest. You assume the risk that the rate may decrease, although it will never be lower than a
guaranteed minimum effective annual rate of 4%.

Risk of Lapse. If on any Monthly Policy Date the Cash Surrender Value of a Policy is insufficient to cover the
Monthly Deductions and other charges under the Policy, we will notify you of this, and the Policy will enter a 61-
day Grace Period. If the Grace Period expires without a sufficient payment, the Policy will lapse, and will have no
further value. This could happen: (1) if the investment returns on your chosen investment portfolios are lower than
anticipated; (2) if you do not pay premiums at the levels you planned; or (3) if you take Policy loans. Your Policy
generally will not lapse: (1) during the first 5 Policy Years as long as you pay the Minimum Guarantee Premium;
(2) if you purchase the no lapse guarantee rider, the guaranteed death or benefit rider, subject to certain conditions;
or (3) you elect and exercise the overloan protection rider, subject to certain conditions.

Tax Risks. We anticipate that a Policy issued on the basis of a standard rate class should generally be deemed a life
insurance contract under Federal tax law. However, due to limited guidance under the Federal tax law, there is some
uncertainty about the application of the Federal tax law to Policies issued on a substandard basis (i.e., a rate class
involving higher than standard mortality risk), particularly if you pay the full amount of premiums permitted under
the Policy. In addition, if you elect the accelerated death benefit rider, the accelerated care rider or the Chronic Care
Rider, the tax qualification consequences associated with continuing the Policy after a distribution is made are
unclear. Please consult with a tax adviser about these consequences. Assuming that a Policy qualifies as a life
insurance contract for federal income tax purposes, you should not be deemed to be in constructive receipt of the
Policy’s value until there is a distribution from the Policy. Moreover, Death Benefits payable under a Policy should
be excludable from the gross income of the Beneficiary. As a result, your Beneficiary generally should not have to
pay U.S. federal income tax on the Death Benefit, although other taxes, such as estate taxes, may apply.

Depending on the total amount of premiums you pay, the Policy may be treated as a “Modified Endowment
Contract” (“MEC”) under Federal tax laws. If a Policy is treated as a MEC, then surrenders, Withdrawals, and loans
under the Policy will be taxable as ordinary income to the extent there are earnings in the Policy. In addition, a 10%
penalty tax may be imposed on surrenders, Withdrawals and loans taken before you attain age 59½. If a Policy is
not a MEC, distributions generally will be treated first as a return of basis or investment in the contract and then as
taxable income. Moreover, loans will generally not be treated as distributions. However, the tax consequences
associated with preferred loans are uncertain. Finally, neither distributions nor loans from a Policy that is not a
MEC are subject to the 10% penalty tax.

The tax treatment of the overloan protection rider that may be purchased with this Policy is uncertain. In particular,
it is not clear whether the overloan protection rider will be effective to prevent taxation of the outstanding loan
balance as a distribution when the overloan protection rider causes the Policy to convert to a fixed policy. Anyone
contemplating the purchase of the Policy with the overloan protection rider should consult a tax adviser.

See “Federal Tax Considerations,” below. You should consult a qualified tax adviser for assistance in all Policy-
related tax matters.

Withdrawal and Surrender Risks. The Surrender Charge under the Policy applies for 15 Policy Years after the
Policy is issued. An additional Surrender Charge will apply for 15 years from the date of any increase in the Face
Amount. It is possible that you will receive no net Cash Surrender Value if you surrender your Policy in the first
few Policy Years. You should purchase the Policy only if you have the financial ability to keep it in force for a
substantial period of time. You should not purchase the Policy if you intend to surrender all or part of the Policy’s
value in the near future. We designed the Policy to meet long-term financial goals. The Policy is not suitable as a
short-term investment.

Even if you do not ask to surrender your Policy, Surrender Charges may play a role in determining whether your
Policy will lapse (or terminate without value), because Surrender Charges decrease the Cash Surrender Value, which
is a measure we use to determine whether your Policy will enter a Grace Period (and possibly lapse).

Withdrawals are not permitted in the first Policy Year, and we will reduce the Face Amount by the amount of a
Withdrawal if Death Benefit Option A is in effect. A surrender or Withdrawal may have tax consequences.

3

Loan Risks. A Policy loan, whether or not repaid, will affect the Accumulated Value over time because we subtract
the amount of the loan from the subaccounts of the Separate Account and/or the General Account as Collateral, and
this Collateral does not participate in the investment performance of the subaccounts of the Separate Account, or
receive any higher interest rate credited to the General Account.

We reduce the amount we pay on the Insured’s death by the amount of any indebtedness. Your Policy may lapse if
your indebtedness reduces the Cash Surrender Value to zero.

A loan may have tax consequences. In addition, if you surrender your Policy or allow it to lapse while a Policy loan
is outstanding, the amount of the loan, to the extent that it has not previously been taxed, will be added to any
amount you receive and taxed accordingly.

Portfolio Company Risks. A comprehensive discussion of the risks of each portfolio may be found in the prospectus
for such portfolio. Please refer to the portfolios’ prospectuses for more information. There is no assurance that
any portfolio will achieve its stated investment objective.

Fee Tables

The following tables describe the fees and expenses that you will pay when buying, owning, and surrendering the
Policy. If the amount of the charge depends on the personal characteristics of the Insured, then the fee table lists the
minimum and maximum charges we assess under the Policy, and the fees and charges of an Insured with the
characteristics set forth below. These charges may not be typical of the charges you will pay.

The first table describes the fees and expenses that you will pay at the time you buy the Policy, surrender the Policy,
take a Withdrawal from the Policy, or transfer Accumulated Value under the Policy among the subaccounts of the
Separate Account and the General Account.

Transaction Fees
	When Charge is	Amount Deducted - Maximum
Charge	Deducted	Guaranteed Charge	Amount Deducted - Current Charge
Premium Tax Charge1	Upon receipt of	3.25% of each premium	3.25% of each premium payment
	each premium	payment (2.0% for qualified	(2.0% for qualified employee
	payment	employee benefit plans)	benefit plans)
Surrender Charge:2
Deferred	Upon surrender or
Administrative Charge	lapse of the Policy
	during the first 15
	Policy Years, or
	15 Policy Years
	following an
	increase in Face
	Amount
Minimum and		$ 0 - $2 per $1,000 of initial or	$ 0 - $2 per $1,000 of initial or
Maximum Charge3		increased Face Amount	increased Face Amount
Charge for a 45 year		$2 per $1,000 of Face Amount	$2 per $1,000 of Face Amount
old male nonsmoker,
first Policy Year

4

Transaction Fees
	When Charge is	Amount Deducted - Maximum
Charge	Deducted	Guaranteed Charge	Amount Deducted - Current Charge
Deferred Sales Charge	Upon surrender or
	lapse of the Policy
	during the first 15
	Policy Years or
	following an
	increase in Face
	Amount
Deferred Sales Charge		$1.10 to $37.75 per $1,000 of	$1.10 to $37.75 per $1,000 of initial
Minimum and		initial or increased Face	or increased Face Amount
Maximum Charge4		Amount
Charge for a Deferred		$8.26 per $1,000 of Face	$8.26 per $1,000 of Face Amount
Sales Charge – 45 year		Amount
old male nonsmoker,
first Policy Year
Withdrawal Fees	Upon making a	Lesser of 2% of amount	Lesser of 2% of amounts withdrawn
	Withdrawal	withdrawn or $25	or $25
Transfer Fees	Upon transfer	$25 per transfer in excess of 5	None
		transfers in any one Policy Year
Loan Interest Spread5	At the end of each	2% annually of amount held as	1.3% annually of amount held as
	Policy year, or	Collateral	Collateral
	upon death,
	surrender, or
	lapse, if earlier
Projection Report	When report	$25 maximum in New York, no	$25
Charge	requested	maximum elsewhere

1	We may increase the Premium Tax Charge if applicable law changes so that the amounts of taxes on premiums paid by us increase.
2	The Surrender Charge is equal to the deferred administrative charge and the deferred sales charge. The deferred administrative charge is based on the Insured’s issue age (or age on an increase in Face Amount) and Face Amount. The deferred sales charge is based on the Insured’s issue age (or age on an increase in Face Amount), gender, rate class and the Face Amount. The Surrender Charges shown in the table may not be typical of the charges you will pay. Your Policy’s data pages will indicate the charges applicable to your Policy. National Life or your agent will provide more detailed information about the Surrender Charges applicable to you at your request.
3	The minimum charge is based on an Insured with an Issue Age of 5 or less; the maximum charge is based on an Insured with an Issue Age of 25 or more. After the first 5 Policy Years, the charge declines linearly by month through the end of Policy Year 15.
4	The minimum charge is based on a female Insured with an Issue Age of 1; the maximum charge is based on male smoker Insured with an Issue Age of 68 or more. After the first 5 Policy Years, the charge declines linearly by month through the end of Policy Year 15.
5	The loan interest spread is the difference between the amount of interest we charge you for a loan (6.0%, compounded annually) and the amount of interest we credit to the amount in your Collateral loan account (currently 4.7% compounded annually). Currently, after the 10th Policy year, we may credit your Collateral that is in excess of 50% of Accumulated Value with extra interest of 0.5% per annum over what is currently credited to loan Collateral prior to the 11th Policy Year. For loans taken after the 10th Policy year of not more than 50% of Accumulated Value, we may credit your Collateral with interest up to 6.0% compounded annually.

5

The next table describes the fees and expenses that you will pay periodically during the time you own the Policy, not including portfolio fees and expenses.

Periodic Charges Other Than Portfolio Operating Expenses
		Amount Deducted -
		Maximum Guaranteed	Amount Deducted -
Charge	When Charge is Deducted	Charge	Current Charge
Cost of Insurance:1	On the Date of Issue of the
	Policy and on each Monthly
	Policy Date
Minimum and Maximum		$0.057 to $58.01 per	$0.023 to $0.18 per $1,000
Charge2		$1,000 of Net Amount at	of Net Amount at Risk per
		Risk per month	month
Charge for a 45 year old		$0.28 per $1,000 of Net	$0.22 per $1,000 of Net
male nonsmoker in the		Amount at Risk per month	Amount at Risk per month
preferred underwriting
class, Face Amount
between $250,000 and
$999,999, Policy Year 1
Mortality and Expense	On the Date of Issue of the	Annual rate of 0.90% of	Annual rate of 0.90% of
Risk Fees3	Policy and on each day	the average daily net assets	the average daily net assets
		of each subaccount of the	of each subaccount of the
		Separate Account	Separate Account
Administrative Fees	On the Date of Issue of the	$7.50 per month, plus	$7.50 per month
	Policy and on each Monthly	$0.07 per $1,000 of Face
	Policy Date	Amount4
Charges for Optional
Benefits
Additional Protection	On the Date of Issue of the
Benefit5	Policy and on each Monthly
	Policy Date
Minimum and Maximum		$0.057 to $58.01 per	$0.013 to $19.94 per
Charge6		$1,000 of Net Amount at	$1,000 of Net Amount at
		Risk per month	Risk per month
Charge for a 45 year old		$0.28 per $1,000 of Net	$0.055 per $1,000 of Net
male nonsmoker in the		Amount at Risk per month	Amount at Risk per month
preferred underwriting
class, Policy Year 1
Waiver of Monthly	On the Date of Issue of the
Deduction5	Policy and on each Monthly
	Policy Date thereafter
Minimum and Maximum		$0.051 to $0.27 per month	$0.051 to $0.27 per month
Charge		multiplied by the Monthly	multiplied by the Monthly
		Deduction	Deduction
Charge for a 45 year old		$0.075 per month	$0.075 per month
male nonsmoker in the		multiplied by the Monthly	multiplied by the Monthly
preferred underwriting		Deduction	Deduction
class, Policy Year 1

6

Periodic Charges Other Than Portfolio Operating Expenses
		Amount Deducted -
		Maximum Guaranteed	Amount Deducted -
Charge	When Charge is Deducted	Charge	Current Charge
Accidental Death Benefit5	On the Date of Issue of the
	Policy and on each Monthly
	Policy Date thereafter
Minimum and Maximum		$0.023 to $0.18 per month	$0.023 to $0.18 per month
Charge		per $1,000 of net amount	per $1,000 of net amount
		of the increase in Death	of the increase in Death
		Benefit provided by the	Benefit provided by the
		rider	rider
Charge for a 45 year old		$0.086 per month per	$0.086 per month per
male nonsmoker in the		$1,000 of net amount of	$1,000 of net amount of
preferred underwriting		the increase in Death	the increase in Death
class, Policy Year 1		Benefit provided by the	Benefit provided by the
		rider	rider
Guaranteed Insurability	On the Date of Issue of the
Option7	Policy and on each Monthly
	Policy Date thereafter
Minimum and Maximum		$0.022 to $0.16 per month	$0.022 to $0.16 per month
Charge		times the amount the rider	times the amount the rider
		permits you to increase the	permits you to increase the
		Face Amount	Face Amount
Charge for a 35 year old		$0.15 per month times the	$0.15 per month times the
male (not available for		amount the rider permits	amount the rider permits
ages 40 and over)		you to increase the Face	you to increase the Face
		Amount	Amount
Guaranteed Death Benefit	On the Date of Issue of the	$0.01 per $1,000 of Face	$0.01 per $1,000 of Face
	Policy and on each Monthly	Amount per month	Amount per month
	Policy Date thereafter
No Lapse Guaranty	On the Date of Issue of the	$0.05 per $1,000 of Face	$0.05 per $1,000 of Face
	Policy and on each Monthly	Amount per month	Amount per month
	Policy Date
Disability Benefit -	On the Date of Issue of the
Payment of Mission Costs7	Policy and on each Monthly
	Policy Date
Minimum and Maximum		$1.65 to $4.25 per month	$1.65 to $4.25 per month
Charge
Charge for a 45 year old
male nonsmoker in the
preferred underwriting
class, Policy Year 1		$3.06 per month	$3.06 per month

7

Periodic Charges Other Than Portfolio Operating Expenses
		Amount Deducted -
		Maximum Guaranteed	Amount Deducted -
Charge	When Charge is Deducted	Charge	Current Charge
Accelerated Care Rider7	On the Date of Issue of the
	Policy and on each Monthly
	Policy Date
Minimum and Maximum		$0.025 to $4.32 per $1,000	$0.01to $1.98 per $1,000
Charge		of Net Amount at Risk,	of Net Amount at Risk,
		plus from $0.0007 to $0.92	plus from $0.0003 to $0.63
		per dollar of Monthly	per dollar of Monthly
		Deduction, per month	Deduction, per month
Charge for a 45 year old		$0.14 per $1,000 of Net
male nonsmoker in the		Amount at Risk, plus
preferred underwriting		$0.0038 per dollar of
class, ACR1 with inflation		Monthly Deduction, per
protection option, Policy		month
Year 1
Chronic Care Protection	On the Date of Issue of the
Rider7	Policy and on each Monthly
	Policy Date
Minimum and Maximum		$0.0051 to $4.34 per	$0.0051 to $4.34 per
Charge		$1,000 of Face Amount per	$1,000 of Face Amount per
		month	month
Charge for a 45 year old		$0.18 per $1,000 of Face	$0.18 per $1,000 of Face
male nonsmoker in the		Amount per month	Amount per month
preferred underwriting
class, EBR1 with inflation
protection option without
nonforfeiture benefit
option, Policy Year 1
Overloan Protection	At the time of exercise	0%-5% of Accumulated	0%-5% of Accumulated
		Value	Value

1	Cost of insurance charges vary based on the Insured’s age, sex, Rate Class, Net Amount at Risk, and Face Amount, and the current cost of insurance charges also vary based on the Policy’s Duration and size. In addition, current cost of insurance charges for currently issued Policies may be lower than for Policies issued during specified past periods. The Net Amount at Risk is the amount by which the Unadjusted Death Benefit under the Policy exceeds the Accumulated Value of the Policy. The cost of insurance charges shown in the table may not be typical of what you will pay. Your Policy’s data page will indicate the guaranteed cost of insurance charges applicable to your Policy. We will also provide more detailed information concerning your charges at your request.
2	The current minimum charge is based on an Insured with the following characteristics: Issue Age 20, female, elite preferred nonsmoker, Policy year 11, for Face Amounts of $1,000,000 or more; the guaranteed minimum charge is based on an Insured with the following characteristics: Issue Ages 0-10, female, juvenile, the Policy Year in which Attained Age 10 is reached, for all Face Amount bands; the guaranteed maximum charge is based on an Insured with the following characteristics: all Issue Ages, male, all underwriting classes, the Policy Year in which Attained Ages 98, 99 and 100 are reached; and the current maximum charge is based on an Insured with the following characteristics: all Issue Ages, both sexes, all underwriting classes, the Policy Year in which Attained Ages 99 and 100 are reached.
3	We currently intend, starting in Policy Year 11, to partially offset this charge by reducing each Monthly Deduction by an amount equal to 0.50% per annum of the Accumulated Value in the Separate Account, and we also intend, starting in Policy Year 11, to credit interest on non-loaned Accumulated Value in the Fixed Account at rates that are 0.50% per annum higher than those that applies to Policies still in their first 10 Policy Years. These enhancements are not guaranteed, however.
4	$7.50 per month in all states other than New York and Texas.
5	The additional protection benefit, waiver of monthly deduction, and accidental death benefit rider charges vary by the Insured's Issue Age, sex, Rate Class and the Policy's Duration. The rider charges shown in the table may not be representative of the charges you will pay. Charges based

8

	on age may increase as the Insured ages. Your Policy's data page will indicate the guaranteed charges applicable to your Policy. National Life and/or your agent will provide more detailed information concerning your charges at your request.
6	The current minimum charge is based on an Insured with the following characteristics: Issue Age 20, female, elite preferred nonsmoker, Policy year 11; the guaranteed minimum charge is based on an Insured with the following characteristics: Issue Ages 0-10, female, juvenile, the Policy Year in which Attained Age 10 is reached; the guaranteed maximum charge is based on an Insured with the following characteristics: all Issue Ages, male, all underwriting classes, the Policy Year in which Attained Ages 98, 99 and 100 are reached; and the current maximum charge is based on an Insured with the following characteristics: all Issue Ages, male, all underwriting classes, the Policy Year in which Attained Age 100 is reached. For currently issued Policies, the current maximum charge will apply to all Issue Ages, males, preferred and standard smokers, at Attained Ages 98 - 100.
7	The guaranteed insurability option, disability benefit - payment of mission costs, accelerated care, and chronic care rider charges vary by the Insured's age and sex. The rider charges shown in the table may not be representative of the charges you will pay. Charges based on age may increase as the Insured ages. Your Policy's data page will indicate the charge applicable to your Policy. National Life and/or your agent will provide more detailed information concerning your charges at your request.

The following table describes the portfolio fees and expenses that you will pay periodically during the time that you own the
Policy. The table shows the minimum and maximum fees and expenses charged by any of the portfolios for the year ended
December 31, 2008. The expense of the portfolios may be higher or lower in the future. More details concerning each
portfolio’s 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	0.10%	1.98%
and/or service 12b-1 fees, and other expenses).

The annual expenses as of December 31, 2008 (unless otherwise noted) of each Fund, before any fee waivers or expense

reimbursements, are shown below. 1
Fund	Management	12b-1	Other	Acquired	Gross	Waivers,	Net Total
	Fee	Fees2	Expenses	Fund	Total	Reimbursements,	Annual
				Fees	Annual	and Recoupment	Expenses3
					Expenses3
Sentinel VPT
Balanced Fund	0.55%	0.00%	0.30%	0.00%	0.85%	0.00%	0.85%
Bond Fund	0.40%	0.00%	0.26%	0.00%	0.66%	0.00%	0.66%
Common Stock Fund	0.50%	0.00%	0.21%	0.00%	0.71%4	0.00%	0.71%4
Mid Cap Growth Fund	0.50%	0.00%	0.30%	0.00%	0.80%4	0.00%	0.80%4
Money Market Fund	0.25%	0.00%	0.29%	0.00%	0.54%5	0.00%	0.54%5
Small Company Fund	0.50%	0.00%	0.23%	0.00%	0.73%4	0.00%	0.73%4
AIM V.I.
Dynamics Fund -
Series I Shares	0.75%	0.00%	0.47%	0.00%	1.22%6	0.00%	1.22%6
Global Health Care
Fund- Series I Shares	0.75%	0.00%	0.38%	0.01%7	1.14%6	0.00%	1.14%6
Technology Fund-
Series I Shares	0.75%	0.00%	0.41%	0.01%7	1.17%6	0.00%	1.17%6
Alger American
LargeCap Growth
Portfolio - Class O
Shares	0.71%	0.00%	0.12%	0.00%	0.83%	0.00%	0.83%
Capital Appreciation
Portfolio - Class O
Shares	0.81%	0.00%	0.14%	0.00%	0.95%8	0.04%	0.91%8
SmallCap Growth
Portfolio - Class O
Shares	0.81%	0.00%	0.11%	0.00%	0.92%	0.00%	0.92%

9

Fund	Management	12b-1	Other	Acquired	Gross	Waivers,	Net Total
	Fee	Fees2	Expenses	Fund	Total	Reimbursements,	Annual
				Fees	Annual	and Recoupment	Expenses3
					Expenses3
AllianceBernstein VPS
International Growth
Portfolio - Class A
Shares9	0.75%	0.00%	0.35%	0.00%	1.10%	0.00%	1.10%
International Value
Portfolio - Class A
Shares	0.74%	0.00%	0.07%	0.00%	0.81%	0.00%	0.81%
Small/Mid Cap Value
Portfolio - Class A
Shares	0.75%	0.00%	0.11%	0.00%	0.86%	0.00%	0.86%
Value Portfolio - Class
A Shares9	0.55%	0.00%	0.19%	0.00%	0.74%	0.00%	0.74%
American Century VP
Income & Growth
Fund - Class I	0.70%10	0.00%	0.00%	0.00%	0.70%	0.00%	0.70%
Value Fund - Class I	0.94%10	0.00%	0.01%	0.00%	0.95%	0.00%	0.95%
Ultra® Fund - Class I	1.00%10	0.00%	0.01%	0.00%	1.01%	0.00%	1.01%
VistaSM Fund - Class I	1.00%10	0.00%	0.01%	0.00%	1.01%	0.00%	1.01%
International Fund -
Class I	1.34%10	0.00%	0.01%	0.00%	1.35%	0.00%	1.35%
Inflation Protection
Fund - Class I	0.48%10	0.00%	0.01%	0.00%	0.49%	0.00%	0.49%
Dreyfus
VIF Appreciation
Portfolio - Initial
Shares	0.75%	0.00%	0.06%	0.00%	0.81%	0.00%	0.81%
VIF Developing
Leaders Portfolio -
Initial Shares	0.75%	0.00%	0.08%	0.00%	0.83%11	0.13%	0.70%11
VIF Quality Bond
Portfolio - Initial
Shares	0.65%	0.00%	0.11%	0.00%	0.76%	0.00%	0.76%
Dreyfus Socially Responsible
Growth Fund - Initial Shares	0.75%	0.00%	0.10%	0.00%	0.85%	0.00%	0.85%
Fidelity® VIP
Contrafund® Portfolio
- Initial Class	0.56%	0.00%	0.10%	0.00%	0.66%12	0.00%	0.66%12
Equity-Income
Portfolio - Initial Class	0.46%	0.00%	0.11%	0.00%	0.57%12	0.00%	0.57%12
Growth Portfolio -
Initial Class	0.56%	0.00%	0.12%	0.00%	0.68%12	0.00%	0.68%12
High Income Portfolio
- Initial Class	0.57%	0.00%	0.14%	0.00%	0.71%	0.00%	0.71%
Index 500 Portfolio -
Initial Class	0.10%	0.00%	0.00%	0.00%	0.10%13	0.00%	0.10%13
Investment Grade
Bond Portfolio - Initial
Class	0.32%	0.00%	0.11%	0.00%	0.43%	0.00%	0.43%
Mid Cap Portfolio -
Initial Class	0.56%	0.00%	0.12%	0.00%	0.68%12	0.00%	0.68%12

10

Fund	Management	12b-1	Other	Acquired	Gross	Waivers,	Net Total
	Fee	Fees2	Expenses	Fund	Total	Reimbursements,	Annual
				Fees	Annual	and Recoupment	Expenses3
					Expenses3
Overseas Portfolio -
Initial Class	0.71%	0.00%	0.16%	0.00%	0.87%12	0.00%	0.87%12
Value Strategies
Portfolio - Initial Class	0.56%	0.00%	0.18%	0.00%	0.74%	0.00%	0.74%
Franklin Templeton
Mutual Global
Discovery Securities -
Class 1 Shares14	0.80%	0.00%	0.18%	0.00%	0.98%	0.00%	0.98%
Mutual Shares
Securities Fund -
Class 2 shares	0.60%	0.25%	0.13%	0.00%	0.98%	0.00%	0.98%
Small Cap Value
Securities Fund -
Class 2 shares	0.52%	0.25%	0.16%	0.01%	0.94%15	0.00%	0.94%15
Small-Mid Cap
Growth Securities
Fund - Class 2 shares	0.50%	0.25%	0.28%	0.02%	1.05%15	0.00%	1.05%15
Foreign Securities
Fund - Class 2 shares	0.64%	0.25%	0.15%	0.02%	1.06%15	0.00%	1.06%15
Global Real Estate
Fund - Class 2 shares	0.80%	0.25%	0.30%	0.00%	1.35%16	0.32%	1.03%16
U.S. Government -
Class 1 Shares	0.49%	0.00%	0.04%	0.00%	0.53%	0.00%	0.53%
JP Morgan Insurance Trust
International Equity
Portfolio - Class 1
Shares	0.60%	0.00%	0.36%17A	0.00%	0.96%18	0.00%	0.96%18
Small Cap Core
Portfolio - Class 1
Shares	0.65%	0.00%	0.37%17B	0.01%	1.03%18	0.00%	1.03%18
Neuberger Berman AMT
Partners Portfolio - I
Class	0.84%	0.00%	0.11%	0.00%	0.95%20	0.00%	0.95%20
Mid-Cap Growth
Portfolio - I Class	0.83%	0.00%	0.09%	0.00%	0.92%20	0.00%	0.92%20
Small-Cap Growth
Portfolio S Class
Shares	1.15%	0.25%	0.58%	0.00%	1.98%21	0.55%	1.43%21
Short Duration Bond
Portfolio - I Class	0.65%	0.00%	0.09%	0.00%	0.74%20	0.00%	0.74%20
Socially Responsive
Portfolio - I Class	0.83%	0.00%	0.09%	0.00%	0.92%20	0.00%	0.92%20
DWS Variable Series II
DWS Dreman High
Return Equity VIP -
Class B shares	0.64%	0.25%	0.24%22	0.00%	1.13%23	0.02%	1.11%23
DWS Dreman Small
Mid Cap Value VIP -
Class B shares	0.64%	0.25%	0.26%22	0.00%	1.15%	0.00%	1.15%
DWS Investments VIT Funds

11

Fund	Management	12b-1	Other	Acquired	Gross	Waivers,	Net Total
	Fee	Fees2	Expenses	Fund	Total	Reimbursements,	Annual
				Fees	Annual	and Recoupment	Expenses3
					Expenses3
Small Cap Index Fund	0.35%	0.00%	0.19%22	0.00%	0.54%24	0.00%	0.54%24
Oppenheimer Variable Accounts Funds
Balanced Fund/VA -
Service Shares	0.73%	0.25%	0.03%25	0.00%	1.01%26	0.00%	1.01%26
Main Street Small Cap
Fund/VA® - Service
Shares	0.70%	0.25%	0.04%25	0.00%	0.99%	0.00%	0.99%
Strategic Bond
Fund/VA - Service
Shares	0.55%	0.25%	0.04%25	0.01%	0.85%27	0.00%	0.85%27
T. Rowe Price
Blue Chip Growth
Portfolio - Class II
shares	0.78%	0.25%	0.03%	0.04%	1.10%	0.00%	1.10%
Equity Income
Portfolio - Class II
shares	0.83%	0.25%	0.01%	0.01%	1.10%	0.00%	1.10%
Health Sciences
Portfolio - Class II
shares	0.00%	0.25%	0.44%	1.04%	1.73%	0.00%	1.73%
Personal Strategy
Balanced Portfolio
VIP I	0.61%	0.00%	0.08%	0.17%	0.86%	0.00%	0.86%
Wells Fargo Advantage VT
Discovery Fund	0.75%28	0.25%	0.27%29	0.01%	1.28%30	0.12%	1.16%30
Opportunity Fund	0.74%28	0.25%	0.22%29	0.02%	1.23%30	0.14%	1.09%30
Van Eck Worldwide Insurance Trust
Worldwide Bond -
Initial Class	1.00%	0.00%	0.17%	0.00%	1.17%31	0.00%	1.17%31
Worldwide Emerging
Markets - Initial Class	1.00%	0.00%	0.29%	0.00%	1.29%31	0.00%	1.29%31
Worldwide Hard
Assets - Initial Class	0.88%	0.00%	0.11%	0.01%	1.00%31	0.00%	1.00%31
Worldwide Real
Estate - Initial Class	1.00%	0.00%	0.53%	0.00%	1.53%31	0.00%	1.53%31

1. The Fund fees and expenses used to prepare the table above, and the example below, 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 Fund's redemption fee. The redemption fee will be assessed against your Contract Value. For
more information, please see each Fund's prospectus.
2. Our affiliate, Equity Services, Inc., the principal underwriter for the Contracts, will received 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 portfolio's 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. For the Common Stock, Mid Cap Growth and Small Company Funds, Management Fees and Total Annual Fund Operating Expenses based on the Funds’ 2008
fiscal year have been restated as if the advisory fee schedule effective November 19, 2008 had been in place on January 1, 2008.

5. Effective January 22, 2009, the Advisor has agreed to reimburse the advisory fees paid by the Sentinel Variable Products Money Market Fund to the extent
necessary to prevent total expenses paid by the Fund from exceeding the gross income earned on the Fund’s investments. This reimbursement may be discontinued
at any time.
6. The AIM VI Fund's advisor has contractually agreed, through at least April 30, 2010, to waive advisory fees and/or reimburse expenses of Series I shares to the

12

extent necessary to limit Total Annual Fund Operating Expenses (excluding certain items discussed below) of Series I shares to 1.30% of average daily net assets.
In determining the advisor's obligation to waive advisory fees and/or reimburse expenses, the following expenses are not taken into account, and could cause the
Total Annual Fund Operating Expenses to exceed the numbers reflected above: (i) interest; (ii) taxes; (iii) dividend expense on short sales; (iv) extraordinary items;
(v) expenses related to a merger or reorganization, as approved by the Fund's Board of Trustees; and (vi) expenses that the Fund has incurred but did not actually
pay because of an expense offset arrangement. Currently the expense offset arrangements from which the Fund may benefit are in the form of credits that the Fund
receives from banks where the Fund or its transfer agent has deposit accounts in which it holds uninvested cash. In addition, the Fund may also benefit from a one
time credit to be used to offset future custodian expenses. These credits are used to pay certain expenses incurred by the Fund.
7. Acquired Fund Fees are not fees or expenses incurred by the fund directly but are expenses of the investment companies in which the fund invests. You incur
these fees and expenses indirectly through valuation of the fund's investment in those investment companies. As a result, the Net Annual Fund Operating Expenses
may exceed the limit on Total Annual Fund Operating Expenses, if any. The impact of the acquired fund fees and expense are included in the total returns of the
Fund.
8. Effective December 1, 2006, through November 30, 2011, the Manager of Alger American Capital Appreciation Portfolio has contractually agreed to waive
0.035% of its Advisory Fees.
9. Fund Expenses are as of February 28, 2009.
10. The fund has a stepped fee schedule. As a result, the fund's unified management fee rate generally decreases as strategy assets increase and increases as strategy
assets decrease.
11. Through May 1, 2010, The Dreyfus Corporation has undertaken that, if the aggregate expenses, exclusive of shareholder servicing fees, and Rule 12b-1 fees, but
including the management fee, exceed 0.70% of the value of the Portfolio’s average daily net assets, the Portfolio may deduct some of the payment to be made to
Dreyfus under the Management Agreement, or Dreyfus will bear, such excess expense.
12. A portion of the brokerage commissions that the Fidelity® VIP Contrafund® Portfolio, Fidelity® VIP Equity-Income Portfolio, Fidelity® VIP Growth
Portfolio, Fidelity® VIP Mid Cap Portfolio, and Fidelity® Overseas Portfolio pays may be reimbursed and used to reduce the fund's expenses. In addition, through
arrangements with the fund's custodian, credits realized as a result of uninvested cash balances are used to reduce the fund's custodian expenses. These offsets may
be discontinued at any time.
13. Management fees for the fund have been reduced to 0.10%, and class expenses are limited to 0.10% (these limits do not apply to interest, taxes, brokerage
commissions, security lending fees, or extraordinary expenses). This expense limit may not be increased without approval of the fund's shareholders and board of
trustees. Thus, the expense limit is required by contract and is not voluntary on the fund manager's part.
14. Effective May 1, 2009, the Franklin Templeton Mutual Discovery Securities Fund has changed its name to Franklin Templeton Mutual Global Discovery
Securities Fund.
15. The manager has agreed in advance to reduce its fee from assets invested by the Fund in a Franklin Templeton money market fund (the acquired fund) to the
extent that the Fund's fees and expenses are due to those of the acquired fund. This reduction is required by the Trust's board of trustees and an exemptive order of
the SEC.
16. The investment manager and administrator have contractually agreed to waive or limit their respective fees so that the increase in investment management and
fund administration fees paid by the Fund is phased in over a five year period, starting on May 1, 2007, with there being no increase in the rate of such fees for the
first year ending April 30, 2008. For each of four years thereafter through April 30, 2012, the investment manager and administrator will receive one-fifth of the
increase in the rate of fees. Beginning May 1, 2012, the full new investment management and administration fees will then be in effect. Based on Fund total assets of
$382.6 million on December 31, 2008, it is estimated that the increase for the year ending April 30, 2010 will be 0.14%, which is a 0.09% increase in the
management fee and a 0.05% increase in the administration fee, for net annual Fund operating expenses of 0.78%. In future years the fee rates will vary in
accordance with the fee rate schedules and Fund assets.
17A.On 4/24/09 the Portfolio was involved in a reorganization with the JPMorgan International Equity Portfolio where the accounting survivor is the JPMorgan
International Equity Portfolio. Because of the reorganization, “Other Expenses” have been calculated based on the actual other expenses incurred by the accounting
survivor in the most recent fiscal year except that the expenses have been restated to reflect the Portfolio’s fund administration agreement.
17B. On 4/24/09 the Portfolio was involved in a reorganization with the JPMorgan Small Company Portfolio where the accounting survivor is the JPMorgan Small
Company Portfolio. Because of the reorganization, “Other Expenses” have been calculated based on the actual other expenses incurred by the accounting survivor
in the most recent fiscal year except that the expenses have been restated to reflect the Portfolio’s fund administration agreement.
18. J.P. Morgan Investment Management Inc. and JPMorgan Funds Management, Inc. have contractually agreed to waive fees and/or reimburse expenses to the
extent that total annual operating expenses of the JPMorgan Insurance Trust International Equity Portfolio Class 1 Shares and JPMorgan Insurance Trust Small Cap
Core Portfolio Class 1 Shares (excluding Acquired Fund Fees and Expenses, dividend expenses related to short sales, interest, taxes and extraordinary expenses and
expenses related to the Board of Trustees' deferred compensation plan) exceed 1.03% of the average daily net assets through 4/30/10. Without the Acquired Fund
Fees and Expenses, the Gross Total Annual Expenses of JPMorgan Insurance Trust Small Cap Core Portfolio Class 1 Shares would have been 1.02% of the average
daily net assets.
19. Acquired Fund Fees are based on the allocation of the Fund's assets among the acquired funds calculated on a daily basis through the Fund's last fiscal year end.
This amount reflects the allocation only through the fiscal year ending 12/31/08. Acquired Fund Fees will vary with changes in the expenses of the Acquired Funds
as well as allocation of the Fund's assets and may be higher or lower than those shown.
20. Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2011, to waive fees and/or reimburse certain operating expenses,
including the compensation of NBMI (except with respect to Short Duration Bond Portfolio, Mid-Cap Growth Portfolio, and Partners Portfolio) and excluding taxes,
interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, inthe aggregate, 1% of average daily net asset value of the Short
Duration Bond Portfolio, Mid-Cap Growth Portfolio, and Partners Portfolio and 1.30% of average daily net asset value of the Socially Responsive Portfolio. The
expense limitation arrangements for the Portfolios are contractual and any excess expenses can be repaid to NBMI within three years of the year incurred, provided
such recoupment would not cause a Portfolio to exceed its respective limitation.

21. Neuberger Berman Management Inc. ("NBMI") has undertaken through December 31, 2011, to waive fees and/or reimburse certain operating expenses,
including the compensation of NBMI and excluding taxes, interest, extraordinary expenses, brokerage commissions and transaction costs, that exceed, in the
aggregate, 1.4% of the average daily net asset value of the Small-Cap Growth Portfolio. The expense limitation arrangements for the Portfolios are contractual and
any excess expenses can be repaid to NBMI within three years of the year incurred, provided such recoupment would not cause a Portfolio to exceed its respective
limitation.
22. Restated on an annual basis to reflect approved fee changes taking effect on May 1, 2008. Includes a 10% administrative fee paid to the Advisor.
23. Through April 30, 2010, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay certain operating expenses of
the portfolio so that total annual operating expenses of the portfolio will not exceed 1.11% for Class B Shares, excluding certain expenses such as extraordinary
expenses, taxes, brokerage and interest.
24. Through September 30, 2009, the Advisor has contractually agreed to waive all or a portion of its management fee and reimburse or pay operating expenses of

13

the portfolio to the extent necessary to maintain the portfolio's total annual operating expenses at 0.51% for Class A Shares, excluding certain expenses such as
extraordinary expenses, taxes, brokerage and interest.
25. Other Expenses include transfer agent fees, custodial fees, and accounting and legal expenses the Fund pays. The Fund's transfer agent has voluntarily agreed to
limit transfer and shareholder servicing agent fees to 0.35% per fiscal year. That undertaking may be amended or withdrawn at any time. For the Fund's fiscal year
ending December 31, 2008, the transfer agent fees did not exceed the expense limitation described above. The Fund also receives certain credits from the Fund's
custodian that, during the fiscal year, reduced its custodial expenses less than 0.01% of average daily net assets.
26. Effective September 1, 2007, the Manager has voluntarily agreed to waive a portion of the advisory fee and/or reimburse certain expenses so that the total
expenses of the Fund will not exceed 0.92% of average annual net assets. After the waiver Gross Annual Operating Expenses were 0.98%. This voluntary waiver
and/or reimbursement may be withdrawn at any time.
27. The Manager will voluntarily waive fees and/or reimburse Fund expenses in an amount equal to the indirect management fees incurred through the Fund's
investment in Oppenheimer Institutional Money Market Fund, Oppenheimer Master Loan Fund, LLC, and Oppenheimer Master Event-Linked Bond Fund, LLC.
After all of the above waivers and credits, the actual "Total Annual Operating Expenses" excluding acquired fund fees and
expenses, as a percentage of average daily net assets were 0.82% for Service Shares.
28. The Funds’ investment adviser has implemented a breakpoint schedule for the Funds’ management fees. The management fees charged to the Funds will decline
as a Fund’s assets grow and will continue to be based on a percentage of the Fund’s average daily net assets. The breakpoint schedule for the Discovery and
Opportunity Funds is as follows: 0.75% for assets from $0 to $499 million; 0.70% for assets from $500 million to $999 million; 0.65% for assets from $1 billion to
$2.99 billion; 0.625% for assets from $3 billion to $4.99 billion; and 0.60% for assets $5 billion and higher.
29. Other expenses may include expenses payable to affiliates of Wells Fargo & Company.
30. The Wells Fargo Advantage Discovery Fund’s and the Wells Fargo Advantage Opportunity Fund’s adviser has committed through April 30, 2010 to waive fees
and/or reimburse expenses to the extent necessary to maintain the net operating expense ratio at 1.15% and 1.07%, respectively, and may include expenses of any
money market or other fund held by the fund.
31. For the period May 1, 2008 through April 30, 2009, the Advisor contractually agreed to waive fees and reimburse certain operating expenses (excluding interest,
dividends paid on securities sold short, taxes, extraordinary expenses, and acquired fund fees) to the extent Gross Total Annual Expenses exceed 1.10% for
Worldwide Bond, 1.40% for Worldwide Emerging Markets, 1.20% for Worldwide Hard Assets, and 1.10% for Worldwide Real Estate.

For information concerning compensation paid in connection with the sale of the Policies, see “Distribution of the Policies.”

14

NATIONAL LIFE AND THE GENERAL ACCOUNT

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.

The General Account

You may allocate some or all of your Net Premiums, and transfer some or all of the Accumulated Value of your
Policy to our General Account. We bear the full investment risk for all amounts allocated or transferred to the
General Account. We credit interest on Net Premiums and Accumulated Value allocated to the General Account at
rates we declare. These rates will not be less than 4%. The principal, after deductions, is also guaranteed.

We own the assets in the General Account, and use these assets to support our insurance and annuity obligations
other than those funded by Separate Account investments. These assets are subject to National Life’s general
liabilities from business operations.

We have not registered the General Account with the SEC, and the staff of the SEC has not reviewed the disclosure
in this prospectus relating to the General Account. Disclosures regarding 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 the prospectus.

We may credit the non-loaned Accumulated Value in the General Account with current rates in excess of the 4%
minimum guarantee, but we are not obligated to do so. We have no specific formula for determining specific
interest rates. Because we anticipate changing the current interest rate from time to time, in our sole discretion,
allocations to the General Account made at different times are likely to be credited with different current interest
rates. We will declare an interest rate each month to apply to amounts allocated or transferred to the General
Account in that month. The rate declared on such amounts will remain in effect for 12 months. At the end of the
12-month period, we may declare a new current interest rate on such amounts and accrued interest thereon (which
may be a different current interest rate than the current interest rate on new allocations to the General Account on
that date). We will determine any interest credited on the amounts in the General Account in excess of the minimum
guaranteed rate of 4% per year in our sole discretion. You assume the risk that interest credited may not exceed the
guaranteed minimum rate. Amounts allocated to the General Account will not share in the investment performance
of our General Account. We currently intend to credit interest on non-loaned Accumulated Value in the General
Account for Policies in Policy Year 11 and thereafter at rates which are 0.50% per annum higher than those that
apply to Policies still in their first ten Policy Years. This enhancement is not guaranteed, however, except in New
York and Texas. We may in our sole discretion, upon prior notice to Owners, decide not to credit the enhancement.

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

Transfers from the General Account. We allow only one transfer in each Policy Year from the amount of non-
loaned Accumulated Value in the General Account to any or all of the subaccounts of the Separate Account. The
amount you transfer from the General Account may not exceed the greater of 25% of the value of the non-loaned
Accumulated Value in such account at the time of transfer, or $1,000. We will make the transfer as of the Valuation
Day we receive your written or telephone request at our Home Office in good form.

15

THE SEPARATE ACCOUNT AND THE PORTFOLIOS

The Separate Account

The Separate Account is a separate investment account established under Vermont law to which we allocate assets
to support the benefits payable under the Policies, other policies we currently issue, and other variable life insurance
policies we may issue in the future. We own the Separate Account’s assets, and we are obligated to pay all amounts
we promise to pay under the Policies.

The Separate Account’s assets are held separate from our other assets and are not part of our General Account.
Income, gains and losses, whether or not realized, from assets allocated to the Separate Account will be credited or
charged against the Separate Account without regard to our other income, gains or losses. Income, gains, and losses
credited to, or charged against, a subaccount reflect the subaccount’s own investment performance and not the
investment performance of our other assets. As a result, the portion of the Separate Account’s assets equal to the
reserves and other liabilities under the Policies (and other policies) supported by the Separate Account will not be
exposed to liabilities arising out of any other business that we may conduct. If the Separate Account’s assets exceed
the required reserves and other liabilities, we may transfer the excess to our General Account.

The subaccounts of the Separate Account purchase and redeem shares of the portfolios at net asset value. Any
dividend and capital gain distributions from a portfolio are reinvested at net asset value in shares of that portfolio.

If investment in one or more portfolios is no longer possible, in our judgment becomes inappropriate for the
purposes of the Policy, or for any reason, in our sole discretion, we may substitute another portfolio without your
consent. The substituted portfolio may have different fees and expenses. Substitution may be made with respect to
existing investments or the investment of future premiums, or both. However, no such substitution will be made
without any necessary approval of the SEC. Furthermore, we may close subaccounts to allocations of premiums or
Accumulated Value, or both, at any time in our sole discretion. Portfolios, which sell their shares to the subaccounts
under participation agreements, also may terminate these agreements and discontinue offering their shares to the
subaccounts.

We reserve the right to make other structural and operational changes affecting the Separate Account. See
“Addition, Deletion, or Substitution of Investments.”

The Portfolios

The Separate Account invests in shares of certain portfolios. Each portfolio is part of a mutual fund that is
registered with the SEC as an open-end management investment company.

Each portfolio’s assets are held separate from the assets of the other portfolios, and each portfolio has investment
objectives and policies that are different from those of the other portfolios. Thus, each portfolio operates as a
separate investment fund, and the income or losses of one portfolio generally have no effect on the investment
performance of any other portfolio. You should know that during extended periods of low interest rates, and partly
as a result of insurance charges, the yields of the Sentinel Variable Products Trust Money Market Fund in which a
subaccount of our Separate Account invests (“Money Market Subaccount”) may also become extremely low and
possibly negative. There is no assurance that the Sentinel Variable Products Trust Money Market Fund will be able
to maintain a stable net asset value per share.

The following table provides certain information on each portfolio, including its fund type, and its investment
adviser (and subadviser, if applicable). There is no assurance that any of the portfolios will achieve their
investment objective(s). You can find detailed information about the portfolios, including a description of risks
and expenses, in the prospectuses for the portfolios that accompany this prospectus. You should read these
prospectuses carefully 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

16

Fund	Type of Fund	Investment Adviser	Subadviser
	Mid Cap Growth
Mid Cap Growth Fund	Equity	Sentinel Asset Management, Inc.	None
Money Market Fund	Money Market	Sentinel Asset Management, Inc.	None
Small Company Fund	Small Growth Equity	Sentinel Asset Management, Inc.	None
	Investment-Grade
Bond Fund	Bond	Sentinel Asset Management, Inc.	None
	Hybrid Equity and
Balanced Fund	Debt	Sentinel Asset Management, Inc.	None
AIM Variable Insurance Funds:
			Invesco Trimark
			Ltd.; Invesco
			Global Asset
			Management
			(N.A.), Inc.;
			Invesco
			Institutional
			(N.A.), Inc.;
			Invesco Senior
			Secured
			Management,
			Inc.; Invesco
			Hong Kong
			Limited; Invesco
			Asset
			Management
			Limited; Invesco
			Asset
			Management
			(Japan) Limited;
			Invesco Asset
			Management
			Deutschland,
			GmbH; Invesco
			Australia
			Limited and
	Mid Cap Growth		Invesco Trimark
AIM V.I. Dynamics Fund - Series I Shares	Equity	Invesco Aim Advisors, Inc.*	Ltd.

17

Fund	Type of Fund	Investment Adviser	Subadviser
			Invesco Trimark
			Ltd.; Invesco
			Global Asset
			Management
			(N.A.), Inc.;
			Invesco
			Institutional
			(N.A.), Inc.;
			Invesco Senior
			Secured
			Management,
			Inc.; Invesco
			Hong Kong
			Limited; Invesco
			Asset
			Management
			Limited; Invesco
			Asset
			Management
			(Japan) Limited;
			Invesco Asset
			Management
			Deutschland,
			GmbH; Invesco
			Australia
			Limited and
AIM V.I. Global Health Care Fund - Series I			Invesco Trimark
Shares	Sector Equity	Invesco Aim Advisors, Inc.*	Ltd.

18

Fund	Type of Fund	Investment Adviser	Subadviser
			Invesco Trimark
			Ltd.; Invesco
			Global Asset
			Management
			(N.A.), Inc.;
			Invesco
			Institutional
			(N.A.), Inc.;
			Invesco Senior
			Secured
			Management,
			Inc.; Invesco
			Hong Kong
			Limited; Invesco
			Asset
			Management
			Limited; Invesco
			Asset
			Management
			(Japan) Limited;
			Invesco Asset
			Management
			Deutschland,
			GmbH; Invesco
			Australia
			Limited and
			Invesco Trimark
AIM V.I. Technology Fund - Series I Shares	Sector Equity	Invesco Aim Advisors, Inc.*	Ltd.
The Alger American Fund:
Capital Appreciation AllCap Portfolio - Class O
Shares	Growth Equity	Fred Alger Management, Inc.	None
LargeCap Growth Portfolio - Class O Shares	Large Growth Equity	Fred Alger Management, Inc.	None
SmallCap Growth Portfolio - Class O Shares	Small Growth Equity	Fred Alger Management, Inc.	None
Alliance Bernstein Variable Products Series Fund,
Inc.:
International Growth	International Equity	AllianceBernstein L.P.	None
International Value	International Equity	AllianceBernstein L.P.	None
	Small Mid Value
Small/Mid Cap Value	Equity	AllianceBernstein L.P.	None
Value	Large Value Equity	AllianceBernstein L.P.	None
American Century Variable Portfolios, Inc.:
		American Century Investment
VP Income & Growth Portfolio	Large Value Equity	Management, Inc.	None
		American Century Investment	None
VP Inflation Protection Portfolio	Fixed Income	Management, Inc.
		American Century Global Investment
VP International Portfolio	International Equity	Management, Inc.	None
		American Century Investment
VP Ultra® Portfolio	Large Growth Equity	Management, Inc.	None
		American Century Investment
VP Value Portfolio	Mid Cap Value Equity	Management, Inc.	None
	Mid Cap Growth	American Century Investment
VP VistaSM Portfolio	Equity	Management, Inc.	None
Dreyfus Variable Investment Fund

19

Fund	Type of Fund	Investment Adviser	Subadviser
			Fayez Sarofim &
Appreciation Portfolio	Large Blend	The Dreyfus Corporation	Co.
Developing Leaders Portfolio	Aggressive Growth	The Dreyfus Corporation	None
	Investment Grade
Quality Bond Portfolio	Bond	The Dreyfus Corporation	None
Dreyfus Socially Responsible Growth Fund, Inc.	Large Cap Growth	The Dreyfus Corporation	None
DWS Variable Series II:
			Dreman Value
		Deutsche Investment Management	Management,
DWS Dreman High Return Equity VIP	Large Value	Americas, Inc.	LLC
			Dreman Value
		Deutsche Investment Management	Management,
DWS Dreman Small Mid Cap Value VIP	Small Cap Value	Americas, Inc.	LLC
DWS Investments VIT Funds:
			Northern Trust
		Deutsche Investment Management	Investments,
DWS Small Cap Index VIP	Small Index Equity	Americas, Inc.	Inc.
Fidelity® Variable Insurance Products Initial
Class:
		Fidelity Management & Research
Contrafund® Portfolio	Large Growth Equity	Company	None
		Fidelity Management & Research
Equity-Income Portfolio	Large Value Equity	Company	None
		Fidelity Management & Research
Growth Portfolio	Large Growth Equity	Company	None
	Below Investment	Fidelity Management & Research
High Income Portfolio	Grade Bond	Company	None
			Geode Capital
		Fidelity Management & Research	Management,
Index 500 Portfolio	Index Equity	Company	LLC
	Investment Grade	Fidelity Management & Research
Investment Grade Bond Portfolio	Bond	Company	None
		Fidelity Management & Research
Mid Cap Portfolio	Mid Cap Blend	Company	None
			FMR U.K., FMR
			Far East, and
			Fidelity
			International
			Investment
			Advisers;
			Fidelity
		Fidelity Management & Research	Investments
Overseas Portfolio	International Equity	Company	Japan Limited
		Fidelity Management & Research
Value Strategies Portfolio	Value Equity	Company	FMR Co., Inc.
Franklin Templeton Variable Insurance Products
Trust
Foreign Securities Fund	Foreign	Templeton Investment Counsel, LLC	None
Global Real Estate Fund	Sector Equity	Franklin Advisors, Inc.	None
Mutual Shares Securities Fund	Mid Cap Value	Franklin Mutual Advisors, LLC	None
Small Cap Value Securities Fund	Small Cap Value	Franklin Advisory Services, LLC	None
	Small-Mid Cap
Small-Midcap Growth Securities Fund	Growth	Franklin Advisors, Inc.	None
Franklin U.S. Government Fund	Government Bond	Franklin Advisors, Inc.	None

20

Fund	Type of Fund		Investment Adviser	Subadviser
				Franklin
				Templeton
				Investment
				Management
Mutual Discovery Securities Fund	Value Equity		Franklin Mutual Advisors, LLC	Limited
JPMorgan Insurance Trust:
			J.P. Morgan Investment Management
International Equity Portfolio	International Equity		Inc.	None
	Small Cap Blend		J.P. Morgan Investment Management
Small Cap Core Portfolio	Equity		Inc.	None
Neuberger Berman Advisers Management Trust
				Neuberger
Short Duration Bond Portfolio	Short-Term		Neuberger Berman Management, Inc.	Berman, LLC
	Mid-Cap Growth			Neuberger
Mid Cap Growth Portfolio	Equity		Neuberger Berman Management, Inc.	Berman, LLC
				Neuberger
Partners Portfolio	Large Value		Neuberger Berman Management, Inc.	Berman, LLC
				Neuberger
Small Cap Growth Portfolio	Small Cap Blend		Neuberger Berman Management, Inc.	Berman, LLC
	Mid Large Value
	Equity	Socially		Neuberger
Socially Responsive Portfolio	Responsible		Neuberger Berman Management, Inc.	Berman, LLC
Oppenheimer Variable Account Funds
	Hybrid Equity and
Balanced Fund/VA	Debt		Oppenheimer Funds, Inc.	None
Main Street Small Cap Fund/VA	Small Value Equity		Oppenheimer Funds, Inc.	None
Strategic Bond Fund/VA	Bond		Oppenheimer Funds, Inc.	None
T. Rowe Price Equity Series, Inc.
Equity Income Portfolio II	Large Value		T. Rowe Price Associates, Inc.	None
Blue Chip Growth Portfolio II	Large Growth		T. Rowe Price Associates, Inc.	None
Health Sciences Portfolio II	Sector Equity		T. Rowe Price Associates, Inc.	None
Personal Strategy Balanced Portfolio	Blend		T. Rowe Price Associates, Inc.	None
Van Eck Worldwide Insurance Trust
Worldwide Bond Fund	Global Bond		Van Eck Associates Corporation	None
Worldwide Emerging Markets Fund	Foreign Equity		Van Eck Associates Corporation	None
Worldwide Hard Assets Fund	Global Sector Equity		Van Eck Associates Corporation	None
Worldwide Real Estate Fund	Global Real Estate		Van Eck Associates Corporation	None
Wells Fargo Variable Trust
				Wells Capital
	Mid Cap Growth			Management,
Wells Fargo VT Discovery Fund	Equity		Wells Fargo Funds Management, LLC	Incorporated
				Wells Capital
				Management,
Wells Fargo VT Opportunity Fund	Mid Cap Blend		Wells Fargo Funds Management, LLC	Incorporated

*It is anticipated that, on or about the end of the fourth quarter of 2009, Invesco Aim, Invesco Global and Invesco Institutional will be
combined into a single entity, which will be named Invesco Advisers, Inc. The combined entity will serve as the fund’s investment adviser.
Invesco Advisers, Inc. will provide substantially the same services as are currently provided by the three existing separate entities. Further
information about this combination will be posted on http://www.invescoaim.com on or about the closing date of the transaction.

These portfolios are not available for purchase directly by the general public, and are not the same as other mutual
fund portfolios with very similar or nearly identical names that are sold directly to the public. However, the
investment objectives and policies of certain portfolios are very similar to the investment objectives and policies of
other portfolios that are or may be managed by the same investment adviser or manager. Nevertheless, the
investment performance of the portfolios may be lower or higher than the investment performance of these other,

21

publicly available portfolios. There can be no assurance, and we make no representation, that the investment
performance of any of the portfolios available under the Policy will be comparable to the investment performance of
any other portfolio, even if the other portfolio has the same investment adviser or manager, the same investment
objectives and policies, and a very similar name.

National Life may receive compensation from the investment adviser of a portfolio or its affiliates in connection
with administration or other services provided with respect to such portfolio and its availability under the Policies,
which may include answering Owner’s questions about the portfolios, providing prospectuses, shareholder reports
and other portfolio documents, providing portfolios and their Boards information about the Policies and their
operations and/or collecting voting instructions for portfolio shareholder proposals. The amount of this
compensation is based on a percentage of the assets on which the fees are based of the portfolio attributable to the
Policies. These percentages differ, and some advisers (or affiliates) may pay us more than others. In 2008, the
percentages ranged from 0.05% to 0.25%, and the dollar amounts received ranged from $2,446.43 to $93,768.15 per
adviser/affiliate (this includes payments for services rendered in 2007 but not paid until 2008). 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. 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 Policies, will receive 12b-1 fees
deducted from certain portfolio assets pursuant to a 12b-1 plan. The 12b-1 plan is described in more detail in each
portfolio’s prospectus. Because 12b-1 fees are paid out of a portfolio’s assets on an ongoing basis, over time they
will increase the cost of an investment in portfolio shares.

We select the portfolios offered through this Policy based on several criteria, including asset class coverage, the
strength of the adviser’s or subadviser’s reputation and tenure, brand recognition, performance, fees and the
capability and qualification of each investment firm. Another factor we consider during the selection process is
whether the portfolio’s adviser or subadviser is one of our affiliates or whether the portfolio, 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 portfolios’ Investment
Advisors Or Distributors.” We review the portfolios periodically and may remove a portfolio or limit its availability
to new premium payments and/or transfers of Accumulated Value if we determine that the portfolio no longer meets
one or more of the selection criteria, and/or if the portfolio has not attracted significant allocations from Owners.

You bear the risk of any decline in the Accumulated Value of your Policy resulting from the performance of
the portfolios you have chosen.

Owners, through their indirect investment in the portfolios, bear the costs of investment advisory or management
fees that the portfolios pay to their respective investment advisers, and in some cases, subadvisers (see the
portfolios’ prospectuses for more information). As described above, an investment adviser (other than our affiliate,
Sentinel Asset Management, Inc.) or subadviser to a portfolio, 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 portfolio assets.

Conflicts of Interest. The portfolios 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 Separate 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 Separate Account and one or more of the other separate
accounts participating in the underlying portfolios. 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 Beneficiaries, including withdrawal of the Separate Account from participation in
the underlying portfolio(s) involved in the conflict.

22

Addition, Deletion or Substitution of Investments. Where permitted by applicable law, we may make certain
changes to the structure or operation of the Separate Account, if we feel such an action is reasonably necessary. In
doing so we would comply with all applicable laws, including approval of Owners, if so required. These changes
include, among others:

1) making changes in the form of the Separate Account, if in our judgment such changes would serve the
interests of Owners or would be appropriate in carrying out the purposes of the Policies, for example:
(i) operating the Separate Account as a management company under the 1940 Act;
(ii) deregistering the Separate Account under the 1940 Act if registration is no longer
required;
(iii) combining or substituting separate accounts;
(iv) transferring the assets of the Separate Account to another separate account or to the
General Account;
(v) making changes necessary to comply with, obtain or continue any exemptions from the
1940 Act; or
(vi) making other technical changes in the Policy to conform with any action described
herein;

2) if in our judgment a portfolio no longer suits the investment goals of the Policy, or if tax or marketing
conditions so warrant, substituting shares of another investment portfolio for shares of such portfolio (the
new portfolio may have higher fees and expenses than the ones it replaced);

3) eliminating, combining or substituting subaccounts and establish new subaccounts, if in our judgment
marketing needs, tax considerations, or investment conditions so warrant (the new subaccounts may not be
available in all classes of Policies);

4) transferring assets from a subaccount to another subaccount or separate account if the transfer in our
judgment would best serve interests of Owners or would be appropriate in carrying out the purposes of the
Policies; and

5) modifying the provisions of the Policies to comply with applicable laws.

If the underlying portfolio in which a subaccount invests is unaffiliated with us, and your Policy has Accumulated
Value in that subaccount when it is eliminated, we will give you at least 30 days notice before the elimination, and
will request that you name the subaccount or subaccounts (or the General Account) to which the Accumulated Value
in that subaccount should be transferred. If you do not name a new subaccount, then we will use the Money Market
Subaccount. If the underlying portfolio in which such a subaccount invests is affiliated with us, we will not
eliminate such subaccount without first obtaining a substitution order from the SEC. In any case, if in the future we
impose a transfer charge or establish limits on the number of transfers or free transfers, no charge will be made for
this transfer, and it will not count toward any limit on transfers or free transfers.

Voting Portfolio Shares. Even though we are the legal owner of the portfolio shares held in the Separate Account,
and have the right to vote on all matters submitted to shareholders of the portfolios, we will vote our shares only as
Owners instruct, as long as such action is required by law.

Before a vote of a portfolio’s shareholders occurs, you will receive voting materials. We will ask you to instruct us
on how to vote and to return your proxy to us in a timely manner. You will have the right to instruct us on the
number of full and fractional portfolio shares that corresponds to the amount of Accumulated Value you have in the
subaccount investing in that portfolio (as of a date set by the portfolio). The number of portfolio shares attributable
to each Owner is determined by dividing the Owner’s interest in each subaccount by the net asset value of the
portfolio corresponding to the subaccount.

If we do not receive voting instructions on time from some Owners, we will vote those shares “for” or “against” the
proposal or abstain from voting on the proposal in the same percentages as the voting instructions we received on
time. This means that a small number of Owners may control how we vote. Should Federal securities laws,

23

regulations, or interpretations change, we may elect to vote portfolio shares in our own right. If required by state
insurance officials, or if permitted under Federal regulation, we may disregard certain voting instructions of Owners.
If we ever disregard voting instructions, we will send you a summary in the next annual report to Owners advising
you of the action and the reasons we took this action.

Net Investment Return of the Separate Account. The chart below is included to comply with Part 54, Section 54.9 of
the Codes, Rules and Regulations of the State of New York. The chart shows the year-by-year net investment
returns of the subaccounts of the Separate Account since the inception of the subaccounts through December 31,
2008.

The net investment returns reflect investment income and capital gains and losses less investment management fees
and other expenses for the portfolios and the Mortality and Expense Risk Charge. The returns do not reflect the
cost of insurance charge, the Premium Tax Charge, the Monthly Administrative Charge, the charge for any optional
benefits, or potential Surrender Charges, all of which will significantly reduce the returns.

Returns are not annualized for periods under one year.

For the year ended December 31,

	Subaccount
	Effective	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998
	Date
Sentinel VPT
Common
Stock Fund	03/18/96	- -33.64%	9.22%	15.11%	6.69%	8.67%	30.26%	- -18.07%	- -8.92%	8.81%	2.04%	12.49%
Mid Cap
Growth Fund	03/18/96	- -46.54%	20.91%	4.66%	2.84%	11.33%	40.59%	- -24.77%	- -24.94%	- -1.76%	37.57%	14.43%
Small
Company
Fund	03/13/96	- -32.90%	7.63%	15.14%	7.24%	14.88%	38.20%	- -14.69%	4.40%	37.22%	14.88%	6.93%
Balanced Fund	03/13/96	- -24.64%	7.46%	10.49%	4.71%	6.48%	22.63%	- -11.06%	- -7.85%	7.79%	0.00%	11.50%
Bond Fund	03/13/96	2.47%	6.09%	2.78%	1.00%	3.71%	4.91%	8.12%	6.44%	8.61%	- -4.17%	7.26%
Money Market
Fund	03/13/96	0.98%	3.84%	3.78%	1.93%	0.05%	- -0.15%	0.43%	2.78%	5.17%	3.97%	4.39%
Alger American
LargeCap
Growth
Portfolio -
Class O Shares	03/13/96	- -46.64%	18.87%	4.21%	11.04%	4.55%	33.96%	- -33.59%	- -12.61%	- -15.53%	32.55%	46.75%
Capital
Appreciation
Portfolio -
Class O Shares	12/01/00	- -45.63%	32.34%	18.20%	13.43%	7.22%	33.52%	- -34.50%	- -16.68%	- -0.94%	N/A	N/A
SmallCap
Growth
Portfolio -
Class O Shares	03/13/96	- -47.08%	16.19%	18.95%	15.84%	15.53%	41.08%	- -26.88%	- -30.15%	- -27.85%	42.14%	14.50%
American Century VP
Income &
Growth Fund	08/03/98	- -35.17%	- -0.96%	16.05%	3.70%	11.98%	28.20%	- -20.09%	- -9.18%	- -11.41%	16.97%	9.86%
Value Fund	08/03/98	- -27.43%	- -5.99%	17.60%	4.10%	13.31%	27.81%	- -13.40%	11.81%	17.09%	- -1.73%	4.28%
Ultra® Fund	05/01/04	- -42.01%	19.93%	- -4.14%	1.26%	7.90%	N/A	N/A	N/A	N/A	N/A	N/A
Vista Fund	05/01/04	- -49.08%	38.52%	8.04%	7.17%	8.38%	N/A	N/A	N/A	N/A	N/A	N/A
International
Fund	05/01/04	- -45.32%	17.00%	23.91%	12.25%	13.27%	N/A	N/A	N/A	N/A	N/A	N/A

24

	Subaccount
	Effective	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998
	Date
Inflation
Protection
Fund	05/01/04	- -2.16%	8.72%	0.99%	0.92%	5.61%	N/A	N/A	N/A	N/A	N/A	N/A
Dreyfus
VIF
Appreciation
Portfolio -
Initial Shares	05/01/04	- -30.18%	6.17%	15.44%	3.45%	3.49%	N/A	N/A	N/A	N/A	N/A	N/A
VIF
Developing
Leaders
Portfolio -
Initial Shares	05/01/04	- -38.15%	- -11.86%	2.85%	4.86%	9.27%	N/A	N/A	N/A	N/A	N/A	N/A
VIF Quality
Bond Portfolio
- Initial Shares	05/01/04	- -5.04%	2.61%	3.31%	1.57%	4.50%	N/A	N/A	N/A	N/A	N/A	N/A
Socially
Responsible
Growth Fund	12/01/00	- -35.01%	6.82%	8.23%	2.69%	5.26%	24.88%	- -29.58%	- -23.27%	- -0.43%	N/A	N/A
Fidelity® VIP
Contrafund®
Portfolio -
Initial Class	05/01/97	- -43.03%	16.54%	10.72%	15.90%	14.44%	27.32%	- -10.16%	- -13.03%	- -7.45%	23.15%	28.82%
Equity-Income
Portfolio -
Initial Class	03/13/96	- -43.17%	0.62%	19.12%	4.92%	10.53%	29.17%	- -17.69%	- -5.81%	7.46%	5.38%	10.63%
Growth
Portfolio -
Initial Class	03/13/96	- -47.64%	25.83%	5.90%	4.86%	2.45%	31.66%	- -30.73%	- -18.39%	- -11.77%	36.21%	38.25%
High Income
Portfolio -
Initial Class	03/13/96	- -25.66%	1.86%	10.25%	1.79%	8.61%	26.13%	2.52%	- -12.52%	- -23.16%	7.19%	- -5.18%
Index 500
Portfolio -
Initial Class	05/01/97	- -37.56%	4.49%	14.70%	3.89%	9.63%	27.26%	- -22.94%	- -12.89%	- -10.11%	19.44%	27.18%
Investment
Grade Bond
Portfolio -
Initial Class	12/01/00	- -4.11%	3.41%	3.42%	1.28%	3.52%	4.27%	9.36%	7.49%	2.04%	N/A	N/A
Overseas
Portfolio -
Initial Class	03/13/96	- -44.31%	16.26%	17.03%	17.99%	12.62%	42.09%	- -20.99%	- -21.87%	- -19.83%	41.36%	11.75%
Mid Cap
Portfolio -
Initial Class	05/01/04	- -39.99%	14.59%	11.70%	17.25%	23.05%	N/A	N/A	N/A	N/A	N/A	N/A
Value
Strategies
Portfolio -
Initial Class	12/01/08	20.96%	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
Franklin Templeton
Mutual Shares
Securities
Fund - Class 2
shares	05/01/04	- -37.67%	2.55%	17.33%	9.57%	10.04%	N/A	N/A	N/A	N/A	N/A	N/A

25

	Subaccount
	Effective	2008	2007	2006	2005	2004	2003	2002	2001	2000	1999	1998
	Date
Small Cap
Value
Securities
Fund - Class 2
shares	05/01/04	- -33.62%	- -3.26%	15.94%	7.80%	20.44%	N/A	N/A	N/A	N/A	N/A	N/A
Small-Mid
Cap Growth
Securities
Fund - Class 2
shares	05/01/04	- -43.01%	10.24%	7.73%	3.85%	9.86%	N/A	N/A	N/A	N/A	N/A	N/A
Foreign
Securities
Fund - Class 2
shares	05/01/04	- -40.91%	14.42%	20.36%	9.19%	15.74%	N/A	N/A	N/A	N/A	N/A	N/A
Real Estate
Fund - Class 2
shares	05/01/04	- -42.91%	- -21.57%	19.51%	12.47%	36.26%	N/A	N/A	N/A	N/A	N/A	N/A
Mutual Global
Discovery
Securities
Fund - Class 1
shares	12/01/08	3.92%	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
US
Government
Fund - Class 1
shares	12/01/08	1.62%	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
AIM V.I.
Dynamics
Fund - Series I
Shares	12/01/00	- -48.54%	11.18%	15.08%	9.74%	12.33%	36.59%	- -32.51%	- -31.76%	3.22%	N/A	N/A
Global Health
Care Fund -
Series I Shares	12/01/00	- -29.26%	10.85%	4.30%	7.19%	6.61%	26.64%	- -25.13%	- -13.37%	4.81%	N/A	N/A
Technology
Fund - Series I
Shares	12/01/00	- -45.00%	6.74%	9.50%	1.27%	3.70%	44.00%	- -47.32%	- -46.31%	- -4.03%	N/A	N/A
J.P. Morgan
International
Equity
Portfolio -
Series Trust II	08/03/98	- -41.88%	8.35%	20.95%	9.71%	17.31%	31.26%	- -19.04%	- -19.87%	- -16.59%	35.44%	- -2.91%
Small Cap
Core Portfolio
- Series Trust
II	08/03/98	- -32.59%	- -6.52%	13.98%	2.50%	26.03%	34.77%	- -22.35%	- -8.85%	- -12.11%	43.11%	0.03%
Neuberger Berman AMT
Partners
Portfolio - I
Class	08/03/98	- -52.82%	8.36%	11.24%	17.00%	17.91%	33.88%	- -24.82%	- -3.70%	- -0.19%	6.41%	2.11%
Mid-Cap
Growth
Portfolio - I
Class	05/01/04	- -43.88%	21.43%	13.67%	12.73%	15.54%	N/A	N/A	N/A	N/A	N/A	N/A
Fasciano	05/01/04	- -40.02%	- -0.39%	4.32%	1.98%	9.79%	N/A	N/A	N/A	N/A	N/A	N/A

26

Subaccount

Effective

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

Date

Portfolio S

Class Shares

Limited

Maturity Bond

Portfolio - I

Class

05/01/04

- -14.20%

3.83%

3.27%

0.54%

0.02%

N/A

N/A

N/A

N/A

N/A

N/A

Socially

Responsive

Portfolio - I

Class

12/01/08

10.91%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

DWS Variable Series II

DWS Dreman

High Return

Equity VIP

05/01/04

- -46.64%

- -3.06%

17.16%

6.56%

12.70%

N/A

N/A

N/A

N/A

N/A

N/A

DWS Dreman

Small Mid Cap

Value VIP

05/01/04

- -34.27%

1.75%

23.48%

8.80%

19.66%

N/A

N/A

N/A

N/A

N/A

N/A

Small Cap

Index VIP

12/01/08

19.94%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Wells Fargo Advantage VT

Discovery

Fund

08/03/98

- -44.86%

21.23%

13.62%

8.63%

18.09%

33.02%

- -38.10%

- -31.39%

- -15.60%

88.19%

13.20%

Opportunity

Fund

08/03/98

- -40.63%

5.68%

11.22%

6.93%

17.16%

35.79%

- -27.47%

- -4.57%

5.65%

33.70%

4.20%

T. Rowe Price

Blue Chip

Growth

Portfolio -

Class II shares

05/01/04

- -43.16%

11.48%

8.36%

4.70%

8.22%

N/A

N/A

N/A

N/A

N/A

N/A

Equity Income

Portfolio -

Class II shares

05/01/04

- -36.84%

2.11%

17.59%

2.77%

12.48%

N/A

N/A

N/A

N/A

N/A

N/A

Health

Sciences

Portfolio -

Class II shares

05/01/04

- -29.81%

16.66%

7.47%

12.14%

3.95%

N/A

N/A

N/A

N/A

N/A

N/A

Personal

Strategy

Balanced

Portfolio -

Class I shares

12/01/08

9.23%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

AllianceBernstein VPS

Value Fund -

Class A shares

12/01/08

13.55%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Small/Mid

Cap Value

Fund - Class A

shares

12/01/08

21.33%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

International

Value Fund -

Class A shares

12/01/08

15.02%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

International

Growth Fund -

12/01/08

16.27%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

27

Subaccount

Effective

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

Date

Class A shares

Oppenheimer

Main Street

Small Cap/VA

- Service

shares

12/01/08

21.20%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Balanced/VA -

Service shares

12/01/08

9.03%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Strategic

Bond/VA -

Service shares

12/01/08

5.48%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Van Eck Worldwide Insurance Trust

Worldwide

Emerging

Markets -

Initial Class

12/01/08

12.35%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Worldwide

Bond - Initial

Class

12/01/08

6.59%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Worldwide

Real Estate -

Initial Class

12/01/08

19.37%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Worldwide

Hard Assets -

Initial Class

12/01/08

12.13%

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

28

THE POLICY

We describe our basic Policy below. There may be differences in your Policy (such as differences in fees, charges
and benefits) from the one described in this prospectus because of the requirements of the state where we issued
your Policy. Please consult your Policy for its specific terms. We no longer sell the Policy.

Ownership and Beneficiary Rights. The Policy belongs to the Owner named in the application. The Owner is the
Insured unless a different Owner is named in the application or thereafter changed. While the Insured is living, the
Owner is entitled to exercise any of the rights stated in the Policy or otherwise granted by us. If the Insured and
Owner are not the same, and the Owner dies before the Insured, these rights will vest in the estate of the Owner,
unless otherwise provided. The principal rights of the Owner include selecting and changing the Beneficiary,
changing the Owner, and assigning the Policy. The principal right of the Beneficiary is the right to receive the
insurance proceeds under the Policy. Changing the Owner and assigning the Policy may have tax consequences.

Specialized Uses of the Policy. Because the Policy provides for an accumulation of cash value as well as a Death
Benefit, the Policy can be used for various individual and business financial planning purposes. Purchasing the
Policy in part for such purposes entails certain risks. See “Summary of the Principal Risks of Purchasing a Policy.”
Because the Policy is designed to provide benefits on a long-term basis, before purchasing a Policy for a specialized
purpose you should consider whether the long-term nature of the Policy is consistent with your purpose. Using a
Policy for a specialized purpose may have tax consequences. See “Federal Income Tax Considerations.”

For Policies that are intended to be used in multiple employer welfare benefit plans established under § 419A(f)(6)
of the Internal Revenue Code, you should be aware that there is a risk that the intended tax consequences of such a
plan may not be realized. The courts and the Internal Revenue Service (“IRS”) have raised questions about certain
of these arrangements under existing law, and the IRS has issued regulations under section 419A(f)(6). In addition,
the IRS requires that plans substantially similar to those plans listed as abusive tax shelters pursuant to section 6011
must be disclosed to the IRS. We do not guarantee any particular tax consequences of any use of the Policies,
including but not limited to use in these so-called “§ 419 plans.” We recommend that you seek independent advice
on tax consequences. In the case of Policies owned by these 419 plans, if the Owner surrenders the Policy, National
Life will permit the Insured to reinstate the Policy, with the Insured as Owner, subject to its normal reinstatement
rules, within six months of the surrender.

Also, this Policy may be used with certain tax-qualified retirement plans. The Policy includes attributes such as tax
deferral on accumulated earnings. Qualified retirement plans provide their own tax deferral benefits; the purchase of
the Policy does not provide additional tax deferral benefits beyond those provided in the qualified plan.
Accordingly, if you are purchasing this Policy through a qualified plan, you should consider purchasing this Policy
for its Death Benefit and other non-tax related benefits. In addition, life insurance in retirement plans may be
subject to various requirements that are beyond the scope of this prospectus. Please consult a tax advisor for
information specific to your circumstances to determine whether the Policy is an appropriate investment for you.

Premiums

Minimum Initial Premium. No insurance will take effect until the Minimum Initial Premium is paid, and the health
and other conditions of the Insured described in the application must not have changed.

Amount and Timing of Premiums. Each premium payment must be at least $50. You have considerable flexibility
in determining the amount and frequency of premium payments, within the limits discussed below.

You will at the time of application select a Planned Periodic Premium schedule, based on a periodic billing mode of
annual, semi-annual, or quarterly payments. You may request us to send a premium reminder notice at the specified
interval. You may change the Planned Periodic Premium frequency and amount. Also, under an Automatic

Payment Plan, you can select a monthly payment schedule pursuant to which premium payments will be
automatically deducted from a bank account or other source, rather than being “billed.” We may allow, in certain

29

situations, Automatic Payment Plan payments of less than $50. We may require that Automatic Payment Plans be
set up for at least the Minimum Monthly Premium.

You are not required to pay the Planned Periodic Premiums in accordance with the specified schedule. You may
pay premiums whenever you like, and in any amount (subject to the $50 minimum and the limitations described in
the next section). Payment of the Planned Periodic Premiums will not, however, guarantee that the Policy will
remain in force. Instead, the Duration of the Policy depends upon the Policy’s Cash Surrender Value. Thus, even if
you pay the Planned Periodic Premiums, the Policy will lapse whenever the Cash Surrender Value is insufficient to
pay the Monthly Deductions and any other charges under the Policy and if a Grace Period expires without an
adequate payment by you (unless the Policy is in its first five years, or you have purchased the guaranteed death
benefit rider, in either case as long as you have paid the Minimum Guarantee Premium, or you have purchased the
No Lapse Guaranty Rider, as long as you have paid the cumulative monthly guarantee premium into the General
Account, or you have elected, have met the exercise conditions and have exercised the overloan protection rider).

Any payments you make while there is an outstanding Policy loan will be applied as premium payments rather than
loan repayments, unless you notify us in writing that the amount is to be applied as a loan repayment. You may not
make premium payments after the Insured reaches Attained Age 99. However, we permit loan repayments after
Attained Age 99.

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

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

Under either Death Benefit option, if the Unadjusted Death Benefit is the applicable percentage of Accumulated
Value, then higher premium payments will result in a higher Net Amount at Risk, and higher cost of insurance
charges. Lower premium payments will result in a lower Net Amount at Risk, and lower cost of insurance charges.

Premium Limitations. The Internal Revenue Code of 1986 (the “Code”) provides for exclusion of the Death Benefit
from gross income if total premium payments do not exceed certain stated limits. In no event can the total of all
premiums paid under a Policy exceed these limits. If at any time you pay a premium which would result in total
premiums exceeding the limits, we will only accept that portion of the premium which would make total premiums
equal the maximum amount which may be paid under the Policy. We will promptly refund the excess to you. In
cases of premiums paid by check, we will wait until your check has cleared. If you have an outstanding loan, we
may instead apply the payment as a loan repayment. Even if total premiums were to exceed the maximum premium
limitations established by the Code, the excess of (a) a Policy’s Unadjusted Death Benefit over (b) the Policy’s Cash
Surrender Value plus outstanding Policy loans and accrued interest, would still be excludable from gross income
under the Code.

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

Unless the Insured provides satisfactory evidence of insurability, we may limit the amount of any premium payment
if it increases the Unadjusted Death Benefit more than it increases the Accumulated Value.

If mandated under applicable law, we may be required to reject a premium payment.

30

Allocation of Net Premiums. The Net Premium equals the premium paid less the Premium Tax Charge. In your
application for the Policy, you will indicate how Net Premiums should be allocated among the subaccounts of the
Separate Account and/or the General Account. You may change these allocations at any time by giving us written
notice at our Home Office, or if you have elected the telephone transaction privilege, by telephone instructions (See
“Telephone Transaction Privilege,” below). Please note, however, if your Policy is participating in the Illuminations
program described under “Optional ‘Illuminations’ Investment Advisory Service”, below, making a change to your
premium allocations on your own will be treated as a termination of your Policy’s participation in the Illuminations
program. In addition, if you submit a premium allocation change, Portfolio Rebalancing will terminate unless you
request it to continue. You must make allocations in whole number percentages of at least 1%, and the sum of the
allocation percentages must be 100%. We will allocate Net Premiums as of the Valuation Date we receive the
premium at our Home Office, based on the allocation percentages then in effect, except during the free look period.
Please note that if you submit your Premium to your agent, we will not begin processing the Premium until we have
received it from your agent’s selling firm.

We will allocate any portion of the Initial Premium and any subsequent premiums we receive before the end of the
free look period which are to be allocated to the Separate Account, to the Money Market Subaccount. For this
purpose, we will assume that the free look period will end 20 days after the date the Policy is issued. On the first
Valuation Date following 20 days after issue of the Policy, we will allocate the amount in the Money Market
Subaccount to each of the subaccounts selected in the application based on your instructions.

The values of the subaccounts will vary with their investment experience. You bear the entire investment risk.
Please note that during extended periods of low interest rates, the yield on the Money Market Subaccount may
become extremely low, and possibly even negative. You should periodically review your allocation percentages in
light of market conditions and your overall financial objectives.

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 the 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.

Transfers

You may transfer the Accumulated Value between and among the subaccounts of the Separate Account and the
General Account by sending us a written transfer request, or if you have elected the telephone transaction privilege,
by telephone instructions to us. (See “Telephone Transaction Privilege,” below). Transfers between and among the
subaccounts of the Separate Account and the General Account are made as of the Valuation Day that the request for
transfer is received at the Home Office. Please remember that a Valuation Day ends at the close of regular trading
on the New York Stock Exchange, which is usually 4:00 p.m. Eastern Time. We must receive your transfer request
before the closing time for a transfer to be made on that Valuation Day. You may, at any time, transfer all or part of
the amount in one of the subaccounts of the Separate Account to another subaccount and/or to the General Account.
For transfers from the General Account to the Separate Account, see “The General Account,” above.

Currently an unlimited number of transfers are permitted without charge. We have no current intent to impose a
transfer charge in the foreseeable future. However, we may, after giving you prior notice, change this policy so as to
deduct a $25 transfer charge from each transfer in excess of the fifth transfer (twelfth transfer for Policies issued in
New York) during any one Policy Year. We may do this if the expense of administering transfers becomes
burdensome. All transfers requested during one Valuation Period are treated as one transfer transaction. If a
transfer charge is adopted in the future, these types of transfers would not be subject to a transfer charge and would
not count against the five or 12 free transfers in any Policy Year:

• transfers resulting from Policy loans,
• transfers resulting from the operation of the dollar cost averaging or portfolio rebalancing features,

31

- - transfers resulting from the exercise of the transfer rights described under “Other Transfer Rights”, below,
and
- - the reallocation from the Money Market Subaccount following the free look period.

Under present law, transfers are not taxable transactions.

If your Policy is in the Illuminations program described under “Optional ‘Illuminations’ Investment Advisory
Service”, below, you will be allowed to implement portfolio transfers. Please note, however, if you implement
portfolio transfers your allocations will depart from the FundQuest recommendations, and, if you keep the Policy in
the Illuminations program, your transfers will end up being reversed by the next semi-annual rebalancing within the
program.

Telephone Transaction Privilege

If you elect the telephone transaction privilege, either on the application for the Policy or thereafter by written
authorization, you may effect changes in premium allocation, transfers, and loans of up to $25,000, terminate or
make changes in your Illuminations investment advisory program, if your Policy is participating, and initiate or
make changes in Dollar Cost Averaging or Portfolio Rebalancing by providing instructions to us at our Home Office
over the telephone. We may suspend telephone transaction privileges at any time, for any reason, if we deem such
suspension to be in the best interests of Owners. You may, on the application or by a written authorization,
authorize your National Life agent to provide telephone instructions on your behalf.

We will employ reasonable procedures to confirm that instructions we receive 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 we do not follow these reasonable procedures. The procedures to be followed for
telephone transfers will include one or more of the following:

- - requiring some form of personal identification prior to acting on instructions received by telephone,
- - providing written confirmation of the transaction, and
- - making a tape recording of the instructions given by telephone.

Telephone transactions may not always be available. Telephone systems, whether yours, ours or your agent’s, 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.

If you effect a change in premium allocation, initiate Dollar Cost Averaging or change Portfolio Rebalancing on a
Policy that is participating in the Illuminations program, your Policy’s participation in the Illuminations program
will terminate.

Facsimile Transaction Privilege

You may provide instructions by facsimile for all transactions, except for a full surrender, full transfer, incoming
transfer or death claim, by providing instructions to us 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 agent’s,
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.

If you effect a change in premium allocation, initiate Dollar Cost Averaging or change Portfolio Rebalancing on a
Policy that is participating in the Illuminations program, your Policy’s participation in the Illuminations program
will terminate.

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Electronic Mail Transaction Privilege

A National Life agent may provide transfer instructions by e-mail 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 agent’s, 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.

If you effect a change in premium allocation, initiate Dollar Cost Averaging or change Fund Rebalancing on a
Policy that is participating in the Illuminations program, your Policy’s participation in the Illuminations program
will terminate.

Disruptive Trading

Policy. The Policies 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 General Account can cause risks with adverse effects for other Owners (and beneficiaries and
portfolios). These risks include:

· the dilution of interests of long-term investors in a subaccount if purchases or transfers into or out of a
portfolio are made at prices that do not reflect an accurate value for the portfolio’s investments;
· an adverse effect on portfolio management, such as impeding a portfolio manager’s ability to sustain an
investment objective, causing a portfolio to maintain a higher level of cash than would otherwise be the
case, or causing a portfolio to liquidate investments prematurely (or at an otherwise inopportune time) to
pay withdrawals or transfers out of the portfolio; 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 Policy 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 portfolios, we
cannot guarantee that all harmful trading will be detected or that a portfolio 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 Policy on our administrative system so that the system will have to be
overridden by the 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 portfolio
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

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more portfolios in the future, (2) deduct redemption fees imposed by the portfolios, and (3) suspend the transfer
privilege at any time we are unable to purchase or redeem shares of the portfolios. We may be required to share
personal information about you with the portfolios.

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.

Portfolio Frequent Trading Policies. The portfolios may have adopted their own policies and procedures with
respect to frequent purchases and redemptions of their respective shares. The prospectuses for the portfolios
describe any such policies and procedures. The frequent trading policies and procedures of a portfolio may be
different, and more or less restrictive, than the frequent trading policies and procedures of other portfolios 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 portfolios that would be affected by the transfers. Accordingly,
Owners and other persons who have material rights under the Policies 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 Owner’s default allocation
until we receive further instructions from the Owner.

Omnibus Orders. Owners and other persons with material rights under the Policies also should be aware that the
purchase and redemption orders received by the portfolios generally are “omnibus” orders from intermediaries such
as retirement plans and separate accounts funding variable insurance policies. The omnibus orders reflect the
aggregation and netting of multiple orders from individual owners of variable insurance policies and individual
retirement plan participants. The omnibus nature of these orders may limit each portfolio’s ability to apply its
respective frequent trading policies and procedures. We cannot guarantee that the portfolio will not be harmed by
transfer activity relating to the retirement plans or other insurance companies that may invest in the portfolios.
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 portfolio 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 portfolios. In addition, if a portfolio 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 portfolio 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 portfolio could be adversely affected, including by (1) requiring the portfolio
to maintain larger amounts of cash or cash-type securities than the portfolio’s manager might otherwise choose to

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maintain or to liquidate portfolio holdings at disadvantageous times, thereby increasing brokerage, administrative,
and other expenses and (2) diluting returns to long-term shareholders.

Other Transfer Rights

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

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

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

Optional “Illuminations” Investment Advisory Service

National Life makes available to all Owners, at no cost to the Owner, an optional investment advisory service which
National Life calls “Illuminations”. Under this program, National Life has arranged for FundQuest, Incorporated
(“FundQuest”), a registered investment adviser independent of National Life, to provide an investment advisory
service under which it maintains an allocation of the Accumulated Value of your Policy among the available options
which is suited to your investment objective, financial situation and risk tolerance.

Illuminations will be available under employer-sponsored qualified plans, where variable universal life is approved
for use. This option will be available for all policies issued within the plans. The sponsors and fiduciaries of
qualified plans are responsible to determine whether Illuminations is permissible under the legal requirements to
which the plan is subject.

If you elect to participate in Illuminations, you will be asked to fill out a detailed questionnaire, which addresses
your investment objective, financial situation and risk tolerance. FundQuest will then evaluate the completed
questionnaire to determine the allocation best suited to you. FundQuest will maintain a number of different
allocation models for clients with different investment objectives, financial situations and risk tolerances, and you
will be assigned to one of these models. However, you will have the ability to impose reasonable restrictions on the
management of your Policy, including the ability to designate particular portfolios or types of portfolios that should
not receive allocations of Accumulated Value from your Policy. Please contact National Life’s Home Office at
(800) 732-8939 if you wish to impose restrictions on the management of your Policy which contains the
Illuminations management feature. If you place restrictions on a particular fund or type of fund, you must either
suggest an alternative fund or fund type or specify that the assets that would have been allocated to the restricted
fund or fund type be allocated pro rata among the other funds in your model. At the implementation of your
Illuminations program, you will receive a strategy report prepared by FundQuest that discusses the strategy to be
followed in allocating your Accumulated Value among the portfolios.

FundQuest will make changes to its portfolio allocation models from time to time as it deems appropriate based on
changes in the financial markets, portfolio performance, and other factors. FundQuest will communicate these
changes to National Life, which will then automatically implement the changes in each affected Policy, pursuant to a
Limited Power of Attorney executed by Illuminations participants. This Limited Power of Attorney will authorize
FundQuest to direct National Life to implement changes to your model as determined by FundQuest, without
obtaining your specific prior approval of the changes. In addition, FundQuest also currently intends to rebalance
each Illuminations account back to its then-current model allocation semi-annually. This semi-annual rebalancing
will also be implemented pursuant to the Limited Power of Attorney, and will be done automatically without your
specific prior approval.

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Further information regarding FundQuest is included in Part II of FundQuest’s Form ADV, which will be provided
to Owners when they elect to participate in Illuminations.

Once in the Illuminations program, you will receive a quarterly report prepared by FundQuest discussing the
performance of your Policy’s subaccount allocation, all the transactions made within your Policy, and its value at the
beginning and end of the period. In this report, you will be reminded that you should contact National Life if there
have been changes in your financial situation or investment objectives, and that you may impose reasonable
restrictions on the funds in which your account may invest or modify existing restrictions.

In addition, at least annually you will be contacted by your National Life agent to determine whether there have
been any changes in your financial situation or investment objectives, and whether you wish to impose reasonable
restrictions on the funds in which your account may invest or modify existing restrictions.

Once you have elected to participate in the Illuminations program, you may terminate your participation in the
program at any time, by providing written or telephone instructions to National Life. If you terminate the
Illuminations program, we will no longer automatically apply any portfolio rebalancing to your Policy, unless you
specifically elect to begin a Portfolio Rebalancing feature described under section, entitled “Available Automated
Portfolio Management Features”.

If, while your Policy is participating in the Illuminations program, you should need or want to take a Policy loan or
make a Withdrawal from your Policy, you should consider that if the loan or Withdrawal is allocated pro rata among
the subaccounts in the Policy, the proportionate allocations recommended by FundQuest for your Policy will not be
disturbed. If, on the other hand, you allocate the loan or Withdrawal to specific funds, the Policy will depart from
the recommended allocations. However, if the Policy remains in the Illuminations program, at the next semi-annual
rebalancing date the remaining Accumulated Value will be rebalanced back to the recommended model.

While your Policy is in the Illuminations program, you will be allowed to implement fund transfers, but you should
consider that doing so will cause your allocations to depart from the FundQuest recommendations, and, if you keep
the Policy in the Illuminations program, your transfers may end up being reversed by the next semi-annual
rebalancing within the program.

While your Policy is in the Illuminations program, the Dollar Cost Averaging feature described in the next section
below will not be available, and Portfolio Rebalancing will only be available as part of the Illuminations program.
If you do elect to begin Dollar Cost Averaging, or change your Portfolio Rebalancing from the Illuminations
program, such election will automatically terminate your Policy’s participation in the Illuminations program.
Similarly, if you instruct National Life to make a change in the allocation of new Premiums on your Policy, this will
be treated as a termination of your Policy’s participation in the Illuminations program.

If you have elected and exercised the accelerated care rider, any participation in the Illuminations program will
automatically terminate.

AVAILABLE AUTOMATED PORTFOLIO MANAGEMENT FEATURES

We currently offer, at no charge to you, two automated fund management features. Only one of these features may
be active for any single Policy at any time. We are not legally obligated to continue to offer these features.
Although we have no current intention to do so, we may cease offering one or both these features at any time, after
providing 60 days prior written notice to all Owners who are then utilizing the features being discontinued.

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 Dollar Cost Averaging at issue by marking
the appropriate box on the initial application, and completing the appropriate instructions. You may also begin a
Dollar Cost Averaging program after issue by filling out similar information on a change request form and sending it
to us at our Home Office. You may discontinue Dollar Cost Averaging at any time by sending an appropriate change
request form to the Home Office. While your Policy is in the Illuminations program described in the section
immediately above, Dollar Cost Averaging will not be available. If you do elect to begin Dollar Cost Averaging,
such election will automatically terminate your Policy’s participation in the Illuminations program.

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Portfolio Rebalancing. This feature permits you to automatically rebalance the value in the subaccounts on a semi-
annual basis, based on your premium allocation percentages in effect at the time of the rebalancing. You may elect
Portfolio Rebalancing at issue by marking the appropriate box on the application, or, after issue, by completing a
change request form and sending it to our Home Office. You may discontinue Portfolio Rebalancing at any time by
submitting an appropriate change request form to us at our Home Office. In addition, if you submit a premium
allocation change, Portfolio Rebalancing will terminate unless you request it to continue. While your Policy is in
the Illuminations program described in the section immediately above, Portfolio Rebalancing will be available only
as part of the program, which will rebalance semi-annually back to your allocations as determined by FundQuest. If
you do elect to change Portfolio Rebalancing from this Illuminations program, such election will automatically
terminate your Policy’s participation in the Illuminations program.

Accumulated Value

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

The Accumulated Value and Cash Surrender Value will reflect:

- - the Net Premiums paid,
- - the investment performance of the portfolios you have chosen,
- - the crediting of interest on non-loaned Accumulated Value in the General Account and amounts held as
Collateral in the General Account,
- - any transfers,
- - any Withdrawals,
- - any loans,
- - any loan repayments,
- - any loan interest charged, and
- - charges assessed on the Policy.

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

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

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

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

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

37

1) The aggregate of the values attributable to the Policy in the Separate Account, determined by multiplying
the number of units the Policy has in each subaccount of the Separate Account by such subaccount’s unit
value on that date; plus

2) The value attributable to the Policy in the General Account (See “The General Account,” above).

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.

DEATH BENEFIT

General. As long as the Policy remains in force, we will pay the Death Benefit of the Policy, after due proof of the
Insured’s death (and fulfillment of certain other requirements), to the named Beneficiary, unless the claim is
contestable in accordance with the terms of the Policy. You may choose to have the proceeds paid in cash or under
one of the available settlement options. (See “Payment of Policy Benefits,” below.) The Death Benefit payable will
be the Unadjusted Death Benefit under the Death Benefit option that is in effect, increased by any additional
benefits, and decreased by any outstanding Policy loan and accrued interest and any unpaid Monthly Deductions.

If you or your Beneficiary does not select a settlement option, the proceeds are at least $10,000, and the Beneficiary
is an individual, we may deposit the lump-sum payment into an interest bearing special account maintained by a
financial institution and retained by us in our General Account. In that case, we will provide your Beneficiary with
a checkbook within seven days to access those funds. Your Beneficiary will receive interest on the proceeds
deposited in that account.

Death Benefit Options. The Policy provides two Death Benefit options: Option A and Option B. You select the
Death Benefit option in the application and may change it as described in “Change in Death Benefit Option,” below.

Option A. The Unadjusted Death Benefit is equal to the greater of:

(a) the Face Amount of the Policy, and

(b) the Accumulated Value multiplied by the specified percentage shown in the table below:

Attained Age	Percentage	Attained Age	Percentage
40 and under	250%	60	130%
45	215%	65	120%
50	185%	70	115%
55	150%	75 and over	105%

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

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

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

38

Benefit of $375,000 (2.50 x $150,000). Similarly, any time the Accumulated Value exceeds $80,000, each dollar
taken out of the Accumulated Value will reduce the Unadjusted Death Benefit by $2.50. If at any time, however, the
Accumulated Value multiplied by the specified percentage is less than the Face Amount, the Unadjusted Death
Benefit will be the Face Amount of the Policy.

Option B. The Unadjusted Death Benefit is equal to the greater of:

(a) the Face Amount of the Policy plus the Accumulated Value, and

(b) the Accumulated Value multiplied by the specified percentage shown in the table above.

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

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

At Attained Age 99, Option B automatically becomes Option A, unless the Policy matures at that time.

Please note that payment of any amount in excess of Accumulated Value is subject to the financial strength and
claims-paying ability of National Life.

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

Change in Death Benefit Option. After the first Policy Year, you may change the Death Benefit option in effect by
sending us a written request. There is no charge to change the Death Benefit option. The effective date of a change
will be the Monthly Policy Date on or next following the date we receive the written request. Only one change in
Death Benefit option is permitted in any one Policy Year.

On the effective date of a change in Death Benefit option, the Face Amount is adjusted so that there will be no
change in the Death Benefit or the Net Amount at Risk. In the case of a change from Option B to Option A, the
Face Amount must be increased by the Accumulated Value. In the case of a change from Option A to Option B, the
Face Amount must be decreased by the Accumulated Value. The change from Option A to Option B will not be
allowed if it would reduce the Face Amount to less than the Minimum Face Amount.

On the effective date of the change, the Death Benefit, Accumulated Value and Net Amount at Risk (and therefore
the cost of insurance charges) are unchanged. However, after the effective date of the change, the pattern of future
Death Benefits, Accumulated Value, Net Amount at Risk and cost of insurance charges will be different than if the
change had not been made. In determining whether a change is appropriate for you, the considerations described in
“Which Death Benefit Option to Choose” above will apply.

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If a change in the Death Benefit option would result in cumulative premiums exceeding the maximum premium
limitations under the Internal Revenue Code for life insurance, we will not effect the change.

A change in the Death Benefit option may have Federal income tax consequences. (See “Federal Tax
Considerations - Tax Treatment of Policy Benefits,” below)

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

Optional Additional Protection Benefit Rider. As discussed in more detail under “Optional Benefits,” below, we
offer an additional protection benefit rider. This rider provides a Death Benefit upon the death of the Insured that
supplements the Death Benefit under the base Policy. Under this rider, the definition of the Unadjusted Death
Benefit described above will be modified.

Under Option A the Unadjusted Death Benefit will equal the greater of:

(a)	Face Amount of the base Policy plus the additional protection benefit amount; and
(b)	The Accumulated Value multiplied by the specified percentages.

The Unadjusted Death Benefit under Option B will equal the greater of:

(a)	Face Amount of the base Policy plus the additional protection benefit amount described in the rider plus the Accumulated Value; and
(b)	The Accumulated Value multiplied by the specified percentages.

The Death Benefit under the additional protection benefit rider may decrease when the base Policy Death Benefit is
increased due to the operation of federal tax requirements. It is possible that the amount of the Death Benefit under
the Additional Protection Death Benefit Rider may be zero if your base Policy Death Benefit increases enough.

Ability to Adjust Face Amount

You may, at any time after the first Policy Year, increase or decrease the Policy’s Face Amount by submitting a
written application to us. There are some limits on your ability to effect increases or decreases, which are discussed
below. The effective date of an increase will be the Monthly Policy Date on or next following our approval of your
request. The effective date of a decrease is the Monthly Policy Date on or next following the date that we receive
your written request in good form. Employee benefit plan Policies may adjust the Face Amount even in Policy Year
1. An increase or decrease in Face Amount may have federal tax consequences. Consult a tax advisor before
increasing or decreasing the Face Amount. The effect of changes in Face Amount on Policy charges, as well as
other considerations, are described below.

Increase. A request for an increase in Face Amount may not be for less than $25,000, or such lesser amount
required in a particular state (except that the minimum for employee benefit plans is $2,000). You may not increase
the Face Amount after the Insured’s Attained Age 85. To obtain the increase, you must submit an application for
the increase and provide evidence satisfactory to us of the Insured’s insurability.

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

An increase in the Face Amount will generally affect the total Net Amount at Risk. This will normally increase the
monthly cost of insurance charges. In addition, the Insured may be in a different Rate Class as to the increase in

40

insurance coverage. An increase in premium payment or frequency may be appropriate after an increase in Face
Amount. (See “Cost of Insurance Charge,” below).

Each increase in Face Amount will begin a new period of Surrender Charges in effect for 15 years from the date of
the increase. This additional Surrender Charge is based on the Face Amount of the increase only. We describe this
additional Surrender Charge in detail in the “Surrender Charge” section, below.

Decrease. The amount of the Face Amount after a decrease cannot be less than 75% of the largest Face Amount in
force at any time in the 12 months immediately preceding our receipt of your request for the decrease. The Face
Amount after any decrease may not be less than the Minimum Face Amount, which is currently $50,000. If a
decrease in the Face Amount would result in cumulative premiums exceeding the maximum premium limitations
applicable for life insurance under the Internal Revenue Code, we will not allow the decrease.

A decrease in the Face Amount generally will decrease the total Net Amount at Risk, which will decrease your
monthly cost of insurance charges.

For purposes of determining the cost of insurance charge, any decrease in the Face Amount will reduce the Face
Amount in the following order:

(a)	first, the increase in Face Amount provided by the most recent increase;
(b)	then, the next most recent increases, in inverse chronological order; and
(c)	finally, the Initial Face Amount.

Payment of Policy Benefits

You may decide the form in which we pay Death Benefit proceeds. During the Insured’s lifetime, you may arrange
for the Death Benefit to be paid in a lump sum or under a settlement option. These choices are also available upon
surrender of the Policy for its Cash Surrender Value. If you do not make an election, payment will be made in a
lump sum. The Beneficiary may also arrange for payment of the Death Benefit in a lump sum or under a settlement
option. If paid in a lump sum, we will ordinarily pay the Death Benefit (by sending the checkbook referred to
below, unless the Beneficiary elects to receive a National Life check) to the Beneficiary within seven days after we
receive proof of the Insured’s death at our Home Office, and all other requirements are satisfied. If paid under a
settlement option, we will apply the Death Benefit to the settlement option within seven days after we receive proof
of the Insured’s death at our Home Office, and all other requirements are satisfied.

We will pay interest on the Death Benefit from the date of death until interest begins to accrue on the account
accessed by the checkbook referred to below. The interest rate will be the highest of (a) 4% per annum, (b) any
higher rate we declare, or (c) any higher rate required by law.

If you or your Beneficiary elect to receive proceeds in a lump sum payment, unless the Beneficiary requests a
National Life check, we will deposit the payment into an interest bearing special account maintained by a financial
institution and retained by us in our General Account. In that case, we will provide you or your Beneficiary with a
checkbook to access those funds from the special account. We fund the check writing privileges. The interest
bearing special account is not a bank account and is subject to the claims of our creditors. We may profit from
amounts left in the interest bearing special account. Further, the interest bearing special account is not insured nor
guaranteed by the FDIC or any other government agency. We will send the payee the checkbook within seven days
of when we deposited the payment into that account, and the payee will receive any interest on the proceeds
deposited in that account. There is no guaranteed interest rate paid on the proceeds deposited into that account.

Settlement Options

There are several ways of receiving proceeds under the Death Benefit and surrender provisions of the Policy, other
than in a lump sum. None of these options vary with the investment performance of the Separate Account. More
detailed information concerning these settlement options is available in your Policy, upon request from our Home

41

Office, and by referring to the Statement of Additional Information. Even if the Death Benefit under the Policy is
excludible from income, payments under Settlement Options may not be excludible in full. This is because earnings
on the Death Benefit after the Insured’s death are taxable and payments under the Settlement Options generally
include such earnings. You should consult a tax adviser as to the tax treatment of payments under the Settlement
Options.

We will normally pay proceeds of a surrender, Withdrawal, or Policy loan within seven days of when we receive
your written request at our Home Office in a form satisfactory to us. However, in cases where you surrender your
Policy within 30 days of making a premium payment by check or through a check-o-matic payment option (i.e.,
automatic scheduled withdrawals from a bank account), 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 30 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.

PAYMENT OF PROCEEDS

We will generally determine the amount of a payment on the Valuation Day we receive at our Home Office all
required documents in good order. 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 may defer the determination or payment of such amounts if the date for
determining such amounts falls within any period during which:

(1)	the disposal or valuation of a subaccount’s assets is not reasonably practicable because the New York Stock Exchange is closed or conditions are such that, under the SEC’s rules and regulations, trading is restricted or an emergency is deemed to exist; or
(2)	except for Policies issued in New York, the SEC by order permits postponement of such actions for the protection of our policyholders.

We also may defer the determination or payment of amounts from the General Account for up to six months. For
Policies issued in New York, if we do not mail or deliver the amounts owed to you within ten days of when we
receive your request for payment, we will pay interest on the amount at the rate then in effect under Payment Option
1 – Payment of Interest Only, from the date of our receipt of your request for payment to the date we actually make
the payment.

Transactions will not be processed on the following days: New Year’s Day, Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving
Day and Christmas Day. Please remember that we must receive a transaction request before the close of regular
trading on the New York Stock Exchange, which is usually 4:00 p.m. Eastern Time, to process the transaction on
that Valuation Day. If we receive a transaction request after 4:00 p.m. Eastern Time, we will process the transaction
request on the next Valuation Day.

If mandated under applicable law, we may be required to reject a Premium Payment. We may also be required to
provide additional information about your account to government regulators. We may be required to block an
Owner’s account and thereby refuse to honor any request for transfers, Withdrawals, surrenders, loans or Death
Benefits, until instructions are received from the appropriate regulator.

42

POLICY LOANS

General. You may at any time after the first year (and during the first year where required by law) borrow money
from us using the Policy as the only security for the loan. The maximum amount you may borrow is the Policy’s
Cash Surrender Value on the date we receive your loan request, minus three times the Monthly Deduction for the
most recent Monthly Policy Date. You may repay all or a portion of a loan and accrued interest at any time, while
the Insured is alive. To take a loan, you should send us a written request at our Home Office. If you have elected
the telephone transaction privilege, you may also request a loan over the telephone. We limit the amount of a Policy
loan you can take by telephone to $25,000. We will normally pay loan proceeds within seven days of a valid loan
request.

Currently, we are extending your policy's loan privileges to allow loans in the first policy year. This is more
favorable to you than what is guaranteed in the contracts. We may decide to discontinue this privilege in the future
without notice. First year loans are subject to all the loan requirements and restrictions as stated above.

Interest Rate Charged. We charge interest on Policy loans at the fixed rate of 6% per year. We charge interest from
the date of the loan and add it to the loan balance at the end of the Policy Year. When this interest is added to the
loan balance, it bears interest at the same rate.

Allocation of Loans and Collateral. When you take a Policy loan, we hold Accumulated Value in the General
Account as Collateral for the Policy loan. You may specify how you would like the Accumulated Value to be taken
from the subaccounts of the Separate Account to serve as Collateral. If you do not so specify, we will allocate the
Policy loan to the subaccounts in proportion to the Accumulated Value in the subaccounts. If the Accumulated
Value in one or more of the subaccounts is insufficient to carry out your instructions, we will not process the loan
until we receive further instructions from you. Non-loaned Accumulated Value in the General Account will become
Collateral for a loan only to the extent that the Accumulated Value in the Separate Account is insufficient. Please
note that if your Policy is participating in the Illuminations program described under “Optional ‘Illuminations’
Investment Advisory Service”, above, and you allocate the loan pro rata among the subaccounts in the Policy, the
proportionate allocations recommended by FundQuest for your Policy will not be disturbed. If, on the other hand,
you allocate the loan to specific funds, the Policy will depart from the recommended allocations. However, if the
Policy remains in the Illuminations program, at the next semi-annual rebalancing date the remaining Accumulated
Value will be rebalanced back to the recommended model.

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

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

Preferred Policy Loans. We make preferred Policy loans available at the beginning of the eleventh Policy Year.
The maximum amount of the preferred loans will be 50% of the Accumulated Value. For these preferred Policy
loans, the amounts held as Collateral in the General Account will be credited with interest at an annual rate of 6%.
All outstanding loan amounts up to 50% of the Accumulated Value will be treated as preferred loans. Any
outstanding loan amounts in excess of 50% of the Accumulated Value will be treated as non-preferred loans. If both
preferred and non-preferred loans exist at the same time, we will first apply any loan repayment to the non-preferred
loan. We are not obligated to make preferred loans available, and will make such loans available at our sole
discretion. Except for Policies issued in New York, we may also at our discretion, upon prior notice to Owners,
adjust the credited rate on amounts held as Collateral in the General Account for preferred loans. Preferred loans
may not be treated as indebtedness for federal income tax purposes, which may result in adverse tax consequences.

43

Enhancement on Non-preferred Policy Loans Beginning in Policy Year 11. In Policy Year 11 and thereafter, for
loans that do not qualify as preferred loans, we credit interest on amounts held in the General Account as Collateral
at a rate 0.50% per annum higher than for similar amounts for Policies still in their first ten Policy Years. This
enhancement is not guaranteed, however, except for Policies issued in New York. This enhancement will only be
credited to Collateral for non-preferred Policy loans. Upon prior notice to Owners, we may, in our sole discretion,
decide not to credit the enhancement.

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

Loan Repayments. We will assume that any payments you make while there is an outstanding Policy loan are
premium payments, rather than loan repayments, unless you specify in writing that a payment is a loan repayment.
In the event of a loan repayment, the amount held as Collateral in the General Account will be reduced by an
amount equal to the repayment, and such amount will be transferred to the subaccounts of the Separate Account and
to the non-loaned portion of the General Account based on the Net Premium allocations in effect at the time of the
repayment.

Lapse With Loans Outstanding. The amount of an outstanding loan under a Policy plus any accrued interest on
outstanding loans is not part of Cash Surrender Value. Therefore, the larger the amount of an outstanding loan, the
more likely it is that the Policy could lapse. (See “Risk of Lapse,” above and “ Lapse and Reinstatement,” below.)
In addition, if the Policy is not a Modified Endowment Policy, lapse of the Policy with outstanding loans may result
in adverse federal income tax consequences. (See “Federal Tax Considerations - Tax Treatment of Policy Benefits,”
below.)

IRC § 1035 Exchanges of Policies with Existing Policy Loans. We will accept transfers of existing policy loans on
Policies that qualify as § 1035 exchanges. The loan will be limited to 50% of the Accumulation Value of the
transfer. The Accumulation Value held as Collateral for the loan will be placed in the General Account.

Tax Considerations. Any loans taken from a “Modified Endowment Contract” will be treated as a taxable
distribution. In addition, with certain exceptions, a 10% additional income tax penalty will be imposed on the
portion of any loan that is included in income. (See “Federal Tax Considerations – Tax Treatment of Policy Benefits
- - Distributions Other Than Death Benefits from Modified Endowment Contracts,” below.)

SURRENDERS AND WITHDRAWALS

You may surrender your Policy for its Cash Surrender Value at any time before the death of the Insured. The Cash
Surrender Value is the Accumulated Value minus any Policy loan and accrued interest and less any Surrender
Charge. We will calculate the Cash Surrender Value on the Valuation Day we receive, at our Home Office, your
signed written surrender request deemed by us to be in good order, and the Policy. You may not request a surrender
over the telephone or by facsimile. Coverage under the Policy will end on the day you mail or otherwise send your
written surrender request and the Policy to us. We will ordinarily mail surrender proceeds to you within seven days
of when we receive your request in good order. However, in cases where you surrender your Policy within 30 days
of making a premium payment by check or through a check-o-matic payment option (i.e., automatic scheduled
withdrawals from a bank account), 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 30 days from our receipt of the payment item. You may avoid the possibility of this

44

holdback by making premium payments by unconditional means, such as by certified check or wire transfer of
immediately available funds.

A surrender may have Federal income tax consequences. (See “Federal Tax Considerations - Tax Treatment of
Policy Benefits,” below).

You may also withdraw a portion of your Policy’s Cash Surrender Value at any time before the death of the Insured
and, except for employee benefit plans, after the first Policy Anniversary, by writing us at our Home Office. The
minimum amount which you may withdraw is $500, except for employee benefit plans, where the minimum is $100.
The maximum Withdrawal is the Cash Surrender Value on the date of receipt of the Withdrawal request, minus
three times the Monthly Deduction for the most recent Monthly Policy Date. A Withdrawal Charge will be
deducted from the amount of the Withdrawal. For a discussion of the Withdrawal Charge, see “Charges and
Deductions - Withdrawal Charge”, below.

You may specify how you would like us to take a Withdrawal from the subaccounts of the Separate Account. If you
do not so specify, we will take the Withdrawal from the subaccounts in proportion to the Accumulated Value in each
subaccount. If the Accumulated Value in one or more subaccounts is insufficient to carry out your instructions, we
will not process the Withdrawal until we receive further instructions from you. You may take Withdrawals from the
General Account only after the Accumulated Value in the Separate Account has been exhausted. If your Policy is
participating in the Illuminations program described under “Optional ‘Illuminations’ Investment Advisory Service”,
above, and you allocate the Withdrawal pro rata among the subaccounts in the Policy, the proportionate allocations
recommended by FundQuest for your Policy will not be disturbed. If, on the other hand, you allocate the
Withdrawal to specific funds, the Policy will depart from the recommended allocations. However, if the Policy
remains in the Illuminations program, at the next semi-annual rebalancing date the remaining Accumulated Value
will be rebalanced back to the recommended model.

The effect of a Withdrawal on the Death Benefit and Face Amount will vary depending upon the Death Benefit
option in effect and whether the Unadjusted Death Benefit is based on the applicable percentage of Accumulated
Value. (See “Death Benefit Options,” above.)

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

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

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

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

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

45

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

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

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

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

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

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

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

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

You may request a Withdrawal only by sending a signed written request to us at our Home Office or, partial
Withdrawals, by facsimile. You may not request a Withdrawal over the telephone. We will ordinarily pay a
Withdrawal within seven days of receiving at our Home Office a valid Withdrawal request.

A Withdrawal of Cash Surrender Value may have Federal income tax consequences. (See “Federal Tax
Considerations - Tax Treatment of Policy Benefits,” below.)

46

Owners of Policies being used in qualified retirement plans should be aware that the Policy does not contain any
provision for a refund of premium in the event that premiums in excess of those permitted by the “incidental
insurance” rules are paid. In the event that a Withdrawal is necessary to bring a Policy into compliance with the
“incidental insurance” rules, we will waive the Withdrawal Charge in connection with such Withdrawal. However,
such Owners should be aware that it is possible that the Cash Surrender Value of the Policy will not be sufficient to
permit a Withdrawal in the amount necessary to bring the Policy into compliance.

LAPSE AND REINSTATEMENT

Your Policy will remain in force as long as the Cash Surrender Value of the Policy is sufficient to pay the Monthly
Deductions and the charges under the Policy. The failure to make a premium payment will not itself cause a Policy
to lapse. When the Cash Surrender Value is insufficient to pay the charges and the Grace Period expires without an
adequate premium payment by you, the Policy will lapse and terminate without value. However, during the first
five Policy Years the Policy will not lapse, if you have paid the Minimum Guarantee Premium.

In addition, an optional guaranteed death benefit rider is available which will guarantee that the Policy will not lapse
prior to age 70, or 20 years from the Date of Issue of the Policy, if longer, regardless of investment performance, if
you have paid the Minimum Guarantee Premium as of each Monthly Policy Date. If you purchase the guaranteed
death benefit rider, your Minimum Guarantee Premium will be higher than if you do not purchase the guaranteed
death benefit rider. (See “Optional Benefits,” below).

Another way of protecting the Policy against the possibility of lapse is to purchase the no-lapse guarantee rider,
which will guarantee that the Policy will not lapse if you have paid the cumulative monthly guarantee premium into
the General Account. The Monthly Guarantee Premium under the no-lapse guarantee rider will be higher than the
Minimum Guarantee Premium that would apply to the first five years of a Policy that does not include this rider.
You could also elect the overloan protection rider, which will, subject to certain conditions, prevent the lapse of the
Policy if properly exercised. (See “Optional Benefits” below).

The Policy provides for a 61-day Grace Period that is measured from the date we send a lapse notice. The Policy
does not lapse, and the insurance coverage continues, until the expiration of this Grace Period. To prevent lapse,
you must during the Grace Period pay a premium equal to the sum of any amount by which the past Monthly
Deductions have been in excess of Cash Surrender Value, plus three times the Monthly Deduction due the date the
Grace Period began. Our notice will specify the payment required to keep the Policy in force. Failure to make a
payment at least equal to the required amount within the Grace Period will result in lapse of the Policy without
value.

Reinstatement. A Policy that lapses without value may be reinstated at any time within five years (or longer period
required in a particular state) after the beginning of the Grace Period. To do so, you must submit evidence of the
Insured’s insurability satisfactory to us and pay an amount sufficient to provide for two times the Monthly
Deduction due on the date the Grace Period began plus three times the Monthly Deduction due on the effective date
of reinstatement. The effective date of reinstatement, unless otherwise required by state law, will be the Monthly
Policy Date on or next following the date your reinstatement application is approved. Upon reinstatement, the
Accumulated Value will be based upon the premium paid to reinstate the Policy. The Policy will be reinstated with
the same Date of Issue as it had prior to the lapse. None of the five year no lapse guarantee, the guaranteed death
benefit rider or the no-lapse guarantee rider may be reinstated.

CHARGES AND DEDUCTIONS

We deduct the charges described below from your premium payments or your Policy Value. Certain of the charges
depend on a number of variables. The charges are for the services and benefits provided, costs and expenses
incurred and risks assumed by us under the Policy. We intend to profit from these charges.

Services and benefits we provide include:

· the death benefits, cash and loan benefits provided by the Policy;

47

• the funding choices, including net premium allocations, dollar-cost averaging programs, automatic asset
  rebalancing programs, and Illuminations investment advisory service;
• the administration of various elective options under the Policy (including any riders); and
• the distribution of various reports to Owners.

Costs and Expenses we incur include:

• those associated with underwriting applications and changes in Face Amount and any riders;
• various overhead and other expenses associated with providing the services and benefits provided by
  the Policy (and any riders);
• sales and marketing expenses;
• other costs of doing business, such as complying with federal and state regulatory requirements.

Risks we assume include the risks that:

• insureds may die sooner than estimated, resulting in the payment of greater death benefits than expected; and
• the costs of providing the services and benefits under the Policy (and any riders) will exceed the charges deducted.

Premium Tax Charge

We will deduct 3.25% from each premium payment prior to allocation of Net Premiums, to cover state premium
taxes and the federal DAC Tax. This amount may be greater than the premium tax assessed in your state. State
premium taxes currently range from 0 to 3.5%. For qualified employee benefit plans, we will deduct 2.0% of each
premium rather than 3.25%. For policies issued in North Carolina, the state premium tax is 1.90%; we nonetheless
charge 2.0% to cover state premium taxes.

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

Surrender Charge

We impose a Surrender Charge, which consists of a deferred administrative charge and a deferred sales charge, if
the Policy is surrendered or lapses at any time before the end of the fifteenth Policy Year following issue or a Face
Amount increase.

Deferred Administrative Charge. The deferred administrative charge varies by Issue Age, and is based on the Initial
Face Amount and the Face Amount of any increase. After the first five Policy Years since issue or increase, it
declines linearly by policy month through the end of Policy Year 15 following issue or increase, after which it is
zero. Charges per $1,000 of Face Amount for sample Issue Ages are shown below:

Sample	Charge per $1,000
Issue Age	of Face Amount
0 – 5	None
10	$0.50
15	$1.00
20	$1.50
25 – 85	$2.00

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

48

Deferred Sales Charge. The deferred sales charges are presented in Appendix B to this prospectus. Appendix B
expresses the deferred sales charge as a dollar amount per $1,000 of Initial Face Amount. There will be a deferred
sales charge associated with the Initial Face Amount as well as with each subsequent Face Amount increase. Each
such portion of the deferred sales charge will have a duration of fifteen Policy Years as measured from the issue date
of the corresponding Face Amount. Each portion of the deferred sales charge will be level for the first five Policy
Years then decrease linearly by policy month until the end of the fifteenth Policy Year.

To illustrate the calculation of a Policy’s Surrender Charge, assume that the Policy is issued to a male nonsmoker,
Issue Age 45, with a Face Amount of $100,000. This example will illustrate surrenders in the first five Policy Years
and in the first month of the eighth Policy Year.

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

Deferred Sales Charge. The deferred sales charge in effect for the first five Policy Years is $826. This is
calculated by applying the charge of $8.26 per $1,000 of Face Amount for Issue Age 45 found in Appendix
B to the Face Amount of $100,000 ($8.26 × (100,000 ÷ 1,000)). The deferred sales charge reduces linearly
by month in Policy Years 6 through 15. Linear reduction is equivalent to a reduction each month of 1/121^st
of the initial charge. For example, the deferred sales charge in the first month of the 8^th Policy Year (the
25^th month after the end of the 5^th Policy Year) will be $655.34 ($826 – ($826 × (25/121))). After the
completion of the 15^th Policy Year, the deferred sales charge is $0. The schedule of deferred sales charges
in effect for the first fifteen Policy Years is shown in the Policy.

Surrender Charges for Policies Issued Prior to December 1, 2000. For policies issued before December 1, 2000 (or
later date if not approved in your state by December 1, 2000), your Surrender Charge will differ from the Surrender
Charges described above in two respects.

1)	Your deferred sales charge will be the lesser of the deferred sales charge described above and an amount equal to the sum of the following:
	(i)	30% of the premiums actually received up to one Surrender Charge target premium, plus
	(ii)	10% of all the premiums paid in excess of this amount but not greater than twice this amount, plus

(iii)9% of all the premiums paid in excess of twice this amount.

Appendix B to this prospectus contains the Surrender Charge target premiums per $1,000 of Initial Face Amount.

2)      There will be no deferred administrative charge or deferred sales charge with respect to increases in Face Amount.

Monthly Deductions

We will deduct charges from the Accumulated Value on the Date of Issue and on each Monthly Policy Date. The
Monthly Deduction consists of three components:

(a)	the cost of insurance charge;
(b)	the Monthly Administrative Charge; and
(c)	the cost of any additional benefits provided by rider. The monthly charges will be specified in the applicable rider.

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Because portions of the Monthly Deduction (such as the cost of insurance charge) vary from policy month to policy
month, the Monthly Deduction will also vary. We will take the Monthly Deduction on a pro rata basis from the
subaccounts of the Separate Account and the General Account, unless you have requested at the time of application,
or later request in writing, that we take the Monthly Deductions from the Money Market Subaccount. If we cannot
take a Monthly Deduction from the Money Market Subaccount, where you have so asked, we will take the amount
of the deduction in excess of the Accumulated Value available in the Money Market Subaccount on a pro rata basis
from Accumulated Value in the subaccounts of the Separate Account and the General Account. If your Policy is
participating in the Illuminations investment advisory service, we will require that the Monthly Deduction be taken
from your Policy on a pro rata basis from the subaccounts of the Separate Account and the General Account.

Cost of Insurance Charge. The cost of insurance charge is the primary charge for the death benefit provided by your
Policy. We calculate the monthly cost of insurance charge by multiplying the applicable cost of insurance rate or
rates by the Net Amount at Risk for each policy month. Because both the Net Amount at Risk and the variables that
determine the cost of insurance rate, such as the age of the Insured and the Duration of the Policy, may vary, the cost
of insurance charge will likely be different from month to month. We expect to profit from this charge and may use
the charge for lawful purpose, including covering distribution expenses.

Net Amount at Risk. The Net Amount at Risk on any Monthly Policy Date is approximately the amount by which
the Unadjusted Death Benefit on that Monthly Policy Date exceeds the Accumulated Value. It measures the amount
National Life would have to pay in excess of the Policy’s value if the Insured died. The actual calculation uses the
Unadjusted Death Benefit divided by 1.00327234, to take into account assumed monthly earnings at an annual rate
of 4%. We calculate the Net Amount at Risk separately for the Initial Face Amount and any increases in Face
Amount. In determining the Net Amount at Risk for each increment of Face Amount, we first consider the
Accumulated Value part of the Initial Face Amount. If the Accumulated Value exceeds the Initial Face Amount, we
consider it as part of any increases in Face Amount in the order such increases took effect.

Any change in the Net Amount at Risk will affect the total cost of insurance charges paid by the Owner.

Guaranteed Maximum Cost of Insurance Rates. The guaranteed maximum cost of insurance rates will be set forth
in your Policy, and will depend on:

• the Insured’s Attained Age,
• the Insured’s sex,
• the Insured’s Rate Class, and
• the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Table.

For Policies issued in states which require “unisex” policies or in conjunction with employee benefit plans, the
guaranteed maximum cost of insurance rate will use the 1980 Commissioners Standard Ordinary Mortality Tables
NB and SB.

Current Cost of Insurance Rates and How They are Determined. The actual cost of insurance rates used (“current
rates”) will depend on:

• the Insured’s Issue Age,
• the Insured’s sex,
• the Insured’s Rate Class,
• the Policy’s Duration,
• the Policy’s size, and
• the Date of Issue of the Policy.

Generally, the current cost of insurance rate for a given Attained Age will be higher during the first 10 Policy Years
than in subsequent Policy Years, other factors being equal. Cost of insurance rates in Policy Years 11 through 25,
however, will generally be lower than after Policy Year 25, other factors being equal. Cost of insurance rates for
currently issued Policies may be lower than for Policies issued during specified past periods. We periodically
review the adequacy of our current cost of insurance rates and may adjust their level. However, the current rates

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will never exceed guaranteed maximum cost of insurance rates. Any change in the current cost of insurance rates
will apply to all persons of the same Issue Age, Sex, and Rate Class, and with Policies of the same Date of Issue,
Duration and size.

We use separate cost of insurance rates for the Initial Face Amount and any increases in Face Amount. For the
Initial Face Amount we use the rate for the Insured’s Rate Class on the Date of Issue. For each increase in Face
Amount, we use the rate for the Insured’s Rate Class at the time of the increase. If the Unadjusted Death Benefit is
calculated as the Accumulated Value times the specified percentage, we use the rate for the Rate Class for the Initial
Face Amount for the amount of the Unadjusted Death Benefit in excess of the total Face Amount for Option A, and
in excess of the total Face Amount plus the Accumulated Value for Option B.

Death Benefit added through the use of the additional protection benefit rider can offer a cost savings over base
Policy Death Benefit because the current cost of insurance rates for the rider are less than or equal to the current cost
of insurance rates for the base Policy. See the description of the rider under “Optional Benefits,” below.

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

Rate Class. The Rate Class of the Insured will affect both the guaranteed and current cost of insurance rates. We
currently place Insureds into the following Rate Classes:

• elite preferred nonsmoker,
• preferred nonsmoker,
• standard nonsmoker,
• preferred smoker,
• standard smoker,
• juvenile, and
• substandard.

Smoker and substandard classes reflect higher mortality risks. In an otherwise identical Policy, an Insured in an
elite, preferred or standard class will have a lower cost of insurance rate than an Insured in a substandard class with
higher mortality risks. Nonsmoking Insureds will generally incur lower cost of insurance rates than Insureds who
are classified as smokers.

The nonsmoker designation is not available for Insureds under Attained Age 20. Shortly before an Insured attains
age 20, we will notify the Insured about possible classification as a nonsmoker and direct the Insured to his or her
agent to initiate a change in Rate Class. If the Insured qualifies as a nonsmoker, we will change the current cost of
insurance rates to reflect the nonsmoker classification.

Current cost of insurance rates will also vary by Policy size, in the following bands:

• those with Face Amounts less than $250,000;
• those with Face Amounts between $250,000 and $999,999, inclusive; and
• those with Face Amounts of $1,000,000 and over.

Cost of insurance rates will be lower as the Policy size band is larger.

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

Optional Benefit Charges. The Monthly Deduction will include charges for any additional benefits added to the
Policy. The monthly charges are specified in the applicable rider and are set forth in the “Fee Table” section above.
The available riders are listed under “Optional Benefits”. We discuss the charges for certain of the riders below.

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· The charge for the additional protection benefit rider equals the additional protection benefit amount added by
the rider times a cost of insurance rate for the Insured.
· The charge for the guaranteed death benefit rider equals $0.01 per thousand of Face Amount.
· The charge for the no-lapse guarantee rider equals $0.05 per thousand of Face Amount.
· The charge for the accelerated care rider includes an amount per $1,000 of Net Amount at Risk and an amount
per dollar of Monthly Deduction.

Separate Account Enhancement. We currently intend to reduce the Monthly Deductions starting in the eleventh
Policy Year by an amount equal to 0.50% per annum of the Accumulated Value in the Separate Account. This
enhancement is not guaranteed (except in New York and Texas), however. It will only be continued if our mortality
and expense experience with the Policies justifies it. We may notify you before the commencement of the eleventh
Policy Year that we intend to discontinue the enhancement.

Mortality and Expense Risk Charge

We deduct a daily Mortality and Expense Risk Charge from the Separate Account to compensate us for the mortality
and expense risks we incur under the Policy at an annual rate of 0.90% (or a daily rate of .0024548%) of the average
daily net assets of each subaccount of the Separate Account.

Withdrawal Charge

We may assess on each Withdrawal a charge equal to the lesser of 2% of the Withdrawal amount and $25. We will
deduct this Withdrawal Charge from the Withdrawal amount.

Transfer Charge

Currently, unlimited transfers are permitted among the subaccounts, or from the Separate Account to the General
Account. Transfers from the General Account to the Separate Account are permitted within the limits described in
“The General Account”, below. Currently there is no charge for any transfers. We have no present intention to
impose a transfer charge in the foreseeable future. However, we may impose in the future a transfer charge of $25
on each transfer in excess of five transfers (12 transfers in New York) in any Policy Year. We may do this if the
expense of administering transfers becomes burdensome.

If we impose a transfer charge in the future, we will deduct it from the amount being transferred. We would treat all
transfers requested on the same Valuation Date as one transfer transaction. Any future transfer charge will not apply
to transfers resulting from:

• Policy loans,
• the exercise of the transfer rights described under “Other Transfer Rights”, above
• the initial reallocation of account values from the Money Market Subaccount to other subaccounts and
• any transfers made pursuant to the Dollar Cost Averaging and Portfolio Rebalancing features.

The transfers listed above also will not count against the five or 12 free transfers in any Policy Year.

Projection Report Charge

We may impose a charge (not to exceed $25 for Policies issued in New York) for each projection report you request.
This report will project future values and future Death Benefits for the Policy. We will notify you in advance of the
amount of the charge. You may elect to pay the charge in advance. If not paid in advance, we will deduct this
charge from the subaccounts of the Separate Account and/or the General Account in proportion to their
Accumulated Values on the date of the deduction.

Other Charges

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The Separate Account purchases shares of the portfolios at net asset value. The net asset value of those shares
reflect management fees and expenses already deducted from the assets of the portfolios. Historical expense ratio
information for the portfolios is presented in the “Fee Tables” section, above. More detailed information is
contained in the portfolios’ prospectuses which accompany this prospectus.

We sell the Policies 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 Policies.
You do not directly pay these commissions. We do. We intend to recoup commissions and other sales expenses
through fees and charges imposed under the Policies.

OPTIONAL BENEFITS

You may add additional benefits to your Policy by purchasing optional riders. Election of any of these riders
involves an additional cost. The riders are subject to the restrictions and limitations set forth in the applicable Policy
riders. The following riders are available under the Policy.

• Additional Protection Benefit Rider
• Guaranteed Death Benefit Rider
• No-Lapse Guarantee Rider
• Waiver of Monthly Deductions Rider
• Accidental Death Benefit Rider
• Guaranteed Insurability Option Rider
• Rider for Disability Benefit – Payment of Mission Costs
• Accelerated Care Rider
• Chronic Care Protection Rider
• Accelerated Benefit Rider
• Overloan Protection Rider

Any one of these riders may not be available in your states and the terms of the rider may vary by state. We
describe certain of the riders below. More information about the riders is available from your agent and in the
Statement of Additional Information.

Additional Protection Benefit

If this rider has been approved in your state, the additional protection benefit rider may be used to provide a Death
Benefit in addition to the Death Benefit provided on the Insured by the base Policy.

We will issue this rider for Insureds from ages 0 to 85. This rider is available at issue, or after issue by submitting
an application to us with evidence satisfactory to us of insurability. The additional protection benefit amount must
be at least $25,000 (at least $5,000 for employee benefit plans), and cannot exceed three times the coverage of the
base Policy (one times the coverage of the base Policy where you have elected the guaranteed death benefit rider).

As discussed under the “Death Benefit,” above, the base Policy’s Death Benefit will be the Unadjusted Death
Benefit under the Death Benefit Option that is in effect at the time of death, increased by any additional benefits,
and decreased by any outstanding Policy loan (including accrued interest) and any unpaid Monthly Deductions. The
additional protection benefit modifies the Unadjusted Death Benefit under your base Policy so that:

Under Option A the Unadjusted Death Benefit will equal the greater of:

(a)	Face Amount of the base Policy plus the additional protection benefit amount; and
(b)	The Accumulated Value multiplied by the specified percentages.

The Unadjusted Death Benefit under Option B will equal the greater of:

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(a)	Face Amount of the base Policy plus the additional protection benefit amount plus the Accumulated Value; and
(b)	The Accumulated Value multiplied by the specified percentages.

Decreases in coverage apply to coverage segments based on effective date in reverse chronological order. With
respect to base coverage and additional protection benefit coverage with the same effective date, decreases will be
performed against the additional protection benefit amount first.

Adding Death Benefit coverage to the Policy through the use of the additional protection benefit rider can offer a
cost savings over adding coverage to the base Policy. Specifically, there is no Surrender Charge associated with this
rider and the current cost of insurance rates associated with this rider are less than or equal to the current cost of
insurance rates for the base Policy. However, except where a particular state has not yet approved National Life’s
most current form of the rider, the Death Benefit coverage provided by the additional protection benefit rider may
lapse during the first five Policy Years if on any Monthly Policy Date the Accumulated Value under the Policy is
not sufficient to pay the Monthly Deduction due on that date, even if you have paid the Minimum Guarantee
Premium and even if you have elected the guaranteed death benefit rider. In contrast, the coverage provided by the
base Policy is guaranteed not to lapse during the first five Policy Years as long as you pay the Minimum Guarantee
Premium. Furthermore, if the coverage provided by the rider lapses, it may not be reinstated, unlike the base
coverage, unless required by a particular state’s law. The guaranteed cost of insurance rates associated with this
rider are equal to the guaranteed cost of insurance rates for the base Policy.

There is no cash or loan value under the additional protection benefit, and the Additional Protection Death Benefit
may decrease when the base Policy Death Benefit is increased due to the operation of federal tax requirements. It is
possible that the amount of the Additional Protection Death Benefit may be zero if your base Policy Death Benefit
increases enough.

The rider will not terminate if the Additional Protection Death Benefit becomes zero. The rider is not available if a
no-lapse guarantee rider applies to the Policy.

Guaranteed Death Benefit

If you choose this rider, we will guarantee that the Policy will not lapse prior to the Insured’s Attained Age 70, or 20
years from the Date of Issue of the Policy, if longer, regardless of the Policy’s investment performance. To keep
this rider in force, you must pay cumulative premiums greater than the Minimum Guarantee Premium from the Date
of Issue. The Minimum Guarantee Premium for Policies with the guaranteed death benefit rider will be higher than
for those without the guaranteed death benefit rider, all other things being equal. We will test the Policy monthly for
this qualification, and if not met, we will send you a notice, and you will have 61 days from the date we mailed the
notice to pay a premium sufficient to keep the rider in force. The premium required will be the Minimum Guarantee
Premium from the Date of Issue, plus two times the Minimum Monthly Premium, minus premiums previously paid.
The rider will be cancelled if a sufficient premium is not paid during that 61-day period. If cancelled, the rider
cannot be reinstated.

Additional information relating to the guaranteed death benefit rider is provided in the Statement of Additional
Information.

No-Lapse Guarantee

If you elect the no-lapse guarantee rider, we will guarantee that the Policy will not lapse as long as you meet the
conditions of the rider. The no-lapse guarantee ensures that the Death Benefit will be payable as long as the rider is
in force. An example of how the rider works is included after “Effect of Transfers out of General Account,” below.

Availability. This rider is available only at issue, for Issue Ages 0-85. This rider is not available with the
guaranteed death benefit rider, and is currently not available with the additional protection benefit rider. Once
elected, the rider may be cancelled at any time by sending written instructions to cancel the rider to National Life’s
Home Office.

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Condition to keeping the Rider in Force. In order to have the guarantee continue to apply, you must make at least a
specified level of premium payments that are allocated to the Policy’s General Account.

When you elect the no-lapse guarantee rider, we will tell you the required level of premium payments that must be
allocated to the General Account. We call this amount the cumulative monthly guarantee premium. We will check
your Policy for this amount on the date we issue your Policy and on each Monthly Policy Date. If there have been
sufficient premium payments allocated to the General Account, you then may allocate excess premium payments to
the Separate Account.

Mechanics of the Rider. As described in your rider, the cumulative monthly guarantee premium is the accumulation
to and including the current Monthly Policy Date, at an annual effective rate of 6%, of the Monthly Guarantee
Premium in effect on each Monthly Policy Date since the Date of Issue. We will tell you what your initial Monthly
Guarantee Premium is when we issue the rider. When we check your Policy for the cumulative monthly guarantee
premium, we will compare your cumulative monthly guarantee premium to your Cumulative Monthly General
Account Premium. Your cumulative monthly guarantee premium is the amount you allocate to the General Account
with an adjustment for taxes (we provide more information about how we calculate the cumulative monthly
premium in the Statement of Additional Information). To keep your rider in force, on each Monthly Policy Date,
your cumulative monthly guarantee premium must at least equal the cumulative monthly general account premium.

Comparison to guaranteed death benefit rider. This no-lapse guarantee rider is not available simultaneously with
the guaranteed death benefit rider. The no-lapse guarantee rider is similar to the guaranteed death benefit rider in
that they both offer protection from Policy lapse during a specified guarantee period and require you to pay specified
premiums to keep the rider in force. The riders are different in a few key areas as follows:

• The no-lapse guarantee rider requires that you maintain a minimum amount in the General Account to satisfy
  the conditions of the rider, after which you may allocate money to the subaccounts. The guaranteed death
  benefit rider does not place any restrictions on where money is allocated.
• The no-lapse guarantee rider provides a guarantee period for your whole life. The guaranteed death benefit rider
  guarantee period is to age 70 or 20 years from the Date of Issue if longer.
• The no-lapse guarantee rider requires that all Monthly Deductions be directed to the General Account. The guaranteed
  death benefit rider allows you to choose whether the Monthly Deductions will be deducted pro rata from all accounts
  or deducted from the Money Market Subaccount.
• The cost of the no-lapse guarantee rider is $0.05 per thousand of Face Amount per month, while the cost of the
  guaranteed death benefit rider is $0.01 per thousand of Face Amount per month.

Other Possible Products. Features similar to the no-lapse guarantee rider are available in other products that do not
offer subaccount options, including National Life’s NLG120 policy. If you do not plan on funding the contract
above the amount required to be allocated to the General Account, thereby making use of the subaccounts offered in
VariTrak, then NLG120 or another non-variable universal life policy may be more cost effective for you.

Additional information relating to the no-lapse guarantee rider is provided in the Statement of Additional
Information.

Accelerated Care Rider

We offer an optional accelerated care rider, under which we will make periodic partial prepayments to you of all or a
portion of your Death Benefit, including any additional protection benefit amounts, if the Insured becomes
“chronically ill”. A full description of the accelerated care rider is provided in the Statement of Additional
Information.

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Chronic Care Protection

We also offer an optional chronic care protection rider, which provides benefits to pay for expenses incurred by an
Insured for qualified long-term care services beyond the date on which payments under an accelerated care rider
would terminate because the entire Death Benefit of the Policy, including any additional protection benefit amounts,
has been accelerated. A full description of the chronic care protection rider is also provided in the Statement of
Additional Information.

Accelerated Benefit

This rider provides an accelerated Death Benefit prior to the death of the Insured in certain circumstances where a
terminal illness or chronic illness creates a need for access to the Death Benefit. Accelerated Death Benefits paid
under this rider are discounted. There is no cost for this rider. Again, a full description of the Accelerated Benefit
rider is provided in the Statement of Additional Information.

Overloan Protection Rider

If you elect the overloan protection rider, we will guarantee that the Policy will not lapse if you meet the conditions
to exercise and exercise the rider before the Policy lapses. There is no charge for electing the rider, but you will be
charged if the rider is exercised. See Appendix C for more information about the rider.

Availability. This rider is available at any time at or after issue, but only with respect to Policies issued after the date
this rider is first offered. This rider is available regardless of the other riders elected. Once elected, the rider may be
cancelled on the Monthly Policy Date following receipt of a written request to terminate the rider by National Life’s
Home Office.

Mechanics of the Rider. As described in your rider, the rider may be exercised if all the following conditions are
met:

1. the Attained Age of the Insured is greater than or equal to 75; and
2. the Policy to which the rider is attached has been in force for at least fifteen years from the Policy date of
issue; and
3. outstanding debt on the Policy must exceed the total Face Amount of the Policy; and
4. the outstanding debt divided by the excess of the Accumulated Value over the Surrender Charge exceeds
0.95.

We will send you a notification when these conditions have been met. The rider must be exercised within sixty days
of the date we mail notification. If it is not, the rider will terminate.

Other Effects of Exercise. All values from the Separate Account will be transferred to the General Account. No
further transfers from the General Account to the Separate Account may be made. No additional premiums may be
paid into the policy. Withdrawals will no longer be allowed. Monthly Deductions will cease. Any additional
benefit riders whose monthly cost was included in the Monthly Deductions will terminate. The policy Death Benefit
Options will be switched to Option A if Option B is in effect. No adjustments will be made to the policy Face
Amount. No further change in Death Benefit Option will be permitted.

Other Possible Products. Features similar to the overloan protection rider are available in other products that do not
offer subaccount options, including National Life’s Ultra policy. If you do not plan on funding the contract above
the amount required to be allocated to the General Account, thereby making use of the subaccounts offered in
VariTrak, then Ultra or another non-variable universal life policy may be more cost effective for you.

Termination. This rider will terminate on the earliest of:

• the date that your Policy terminates or matures (depending on the state of issue);
• 60 days following our mailing of notification that the conditions for exercising this rider have been met; or
• the Monthly Policy Date following the receipt of your request to terminate this rider.

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If the overloan protection rider is in force at the time your Policy lapses, you may reinstate the rider when you
reinstate your Policy.

Tax matters. With the overloan protection rider, this Policy may be purchased with the intention of accumulating
cash value on a tax-free basis for some period (such as, until retirement) and then periodically borrowing from the
Policy without allowing the Policy to lapse. Anyone contemplating the purchase of the Policy with the intention
of pursuing this strategy or otherwise exercising the “overloan protection” provided under the rider should
be aware that, among other risks, it has not been ruled on by the IRS or the courts and it may be subject to
challenge by the IRS, because it is possible that the loans will be treated as taxable distributions when the
rider causes the Policy to convert into a fixed Policy.

Additional information relating to the overloan protection rider is provided in the Statement of Additional
Information.

FEDERAL TAX CONSIDERATIONS

The following summary provides a general description of the Federal tax considerations associated with the Policy
and does not purport to be complete or to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisors should be consulted for more complete information. This discussion is
based upon our understanding of the present Federal income tax laws. No representation is made as to the
likelihood of continuation of the present Federal income tax laws or as to how they may be interpreted by the
Internal Revenue Service.

Tax Status of the Policy

In order to qualify as a life insurance contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts under Federal tax law, a life insurance policy must satisfy certain
requirements which are set forth in the Internal Revenue Code. Guidance as to how these requirements are to be
applied is limited. Nevertheless, National Life believes that a Policy issued on the basis of a standard rate class
should satisfy the applicable requirements. There is less guidance, however, with respect to a policy issued on a
substandard basis (i.e., a rate class involving higher than standard mortality risk) and it is not clear whether such a
policy will in all cases satisfy the applicable requirements, particularly if the Owner pays the full amount of
premiums permitted under the Policy. In addition, in the case of the accelerated death benefit rider, the accelerated
care rider, or the Chronic Care rider, the tax qualification consequences of continuing the Policy after a distribution
is made are unclear. If it is subsequently determined that a Policy does not satisfy the applicable requirements,
National Life may take appropriate steps to bring the Policy into compliance with such requirements and National
Life reserves the right to modify the policy as necessary in order to do so.

In some circumstances, owners of variable 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 does not address certain aspects of the policies, National
Life believes that the owner of a policy should not be treated as the owner of the underlying assets. While National
Life believes that the policy does not give Owners investment control over Separate Account assets, we reserve the
right to modify the policy as necessary to prevent the Owner from being treated as the owner of the separate account
assets supporting the Policy.

In addition, the Code requires that the investments of the Separate Account be “adequately diversified” in order for
the policy to be treated as a life insurance contract for Federal income tax purposes. It is intended that the Separate
Account, through the portfolios, will satisfy these diversification requirements.

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

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Tax Treatment of Policy Benefits

In General. National Life believes that the death benefit under a Policy should generally be excludible from the
gross income of the beneficiary. Federal, state and local estate, inheritance, transfer, and other tax consequences of
ownership or receipt of Policy proceeds depend on the circumstances of each Owner or beneficiary. A tax advisor
should be consulted on these consequences.

Depending on the circumstances, the exchange of a Policy, an increase or decrease of a Policy’s Face Amount, a
change in the Policy’s Death Benefit Option (i.e., a change from Death Benefit Option A to Death Benefit Option B
or vice versa, a Policy loan, a Withdrawal, a surrender, a change in ownership, or an assignment of the Policy) may
have Federal income tax consequences. A tax advisor should be consulted before effecting any of these policy
changes.

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

Modified Endowment Contracts. Under the Internal Revenue Code, certain life insurance contracts are classified as
“Modified Endowment Contracts” (“MECs”), with less favorable tax treatment than other life insurance contracts.
Due to the flexibility of the Policy as to premiums and benefits, the individual circumstances of each Policy will
determine whether it is classified as a MEC. In general a policy will be classified as a MEC if the amount of
premiums paid into the policy causes the policy to fail the “7-pay test.” A policy will fail the 7-pay test if at any
time in the first seven policy years, the amount paid in the policy exceeds the sum of the level premiums that would
have been paid at that point under a policy that provided for paid-up future benefits after the payment of seven level
annual payments.

If there is a reduction in the benefits under the policy during the first seven years, the 7-pay test will have to be
reapplied as if the policy had originally been issued at the reduced face amount. If there is a “material change” in
the policy’s benefits or other terms, the policy may have to be retested as if it were a newly issued policy. A
material change may occur, for example, when there is an increase in the death benefit which is due to the payment
of an unnecessary premium. Unnecessary premiums are premiums paid into the policy which are not needed in
order to provide a death benefit equal to the lowest death benefit that was payable in the first seven policy years. To
prevent your policy from becoming a MEC, it may be necessary to limit premium payments or to limit reductions in
benefits. A current or prospective Owner should consult a tax advisor to determine whether a policy transaction will
cause the Policy to be classified as a MEC.

Distributions Other Than Death Benefits from Modified Endowment Contracts. Policies classified as Modified
Endowment Contracts are subject to the following tax rules:

(1) All distributions other than death benefits from a Modified Endowment Contract, including
distributions upon surrender and withdrawals, will be treated first as distributions of gain taxable as
ordinary income and as tax-free recovery of the Owner’s investment in the Policy only after all gain has
been distributed.

(2) Loans taken from or secured by a Policy classified as a Modified Endowment Contract are treated
as distributions and taxed accordingly.

(3) A 10 percent additional income tax is imposed on the amount subject to tax except where the
distribution or loan is made when the Owner has attained age 59½ or is disabled, or where the distribution
is part of a series of substantially equal periodic payments for the life (or life expectancy) of the Owner or

58

the joint lives (or joint life expectancies) of the Owner and the Owner’s beneficiary or designated
beneficiary.

If a Policy becomes a modified endowment contract, all distributions that occur during the Policy Year in which the
policy becomes a modified endowment contract and all subsequent distributions will be taxed as distributions from a
modified endowment contract. In addition, distributions from a Policy within two years before it becomes a
modified endowment contract may be taxed in this manner. This means that a distribution made from a Policy that
is not a modified endowment contract could later become taxable as a distribution from a modified endowment
contract.

Distributions Other Than Death Benefits from Policies that are not Modified Endowment Contracts. Distributions
other than death benefits from a Policy that is not classified as a Modified Endowment Contract are generally treated
first as a recovery of the Owner’s investment in the policy and only after the recovery of all investment in the policy
as taxable income. However, certain distributions which must be made in order to enable the Policy to continue to
qualify as a life insurance contract for Federal income tax purposes if Policy benefits are reduced during the first 15
Policy Years may be treated in whole or in part as ordinary income subject to tax.

Loans from or secured by a Policy that is not classified as a Modified Endowment Contract are generally not treated
as distributions. However, the tax consequences associated with loans (like preferred loans available under the
Policy beginning in the 11^th Policy Year) with little or no interest rate spread (e.g., wash loans) are less clear and a
tax advisor should be consulted about such loans.

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

Investment in the Policy. Your investment in the Policy is generally your aggregate premium payments. When a
distribution is taken from the Policy, your investment in the Policy is reduced by the amount of the distribution that
is tax-free.

Policy Loans. In general, interest paid on any loan under a Policy will not be deductible. If a Policy loan is
outstanding when a Policy is canceled or lapses, the amount of the outstanding indebtedness will be added to the
amount distributed and will be taxed accordingly. Before taking out a Policy loan, you should consult a tax adviser
as to the tax consequences.

Overloan Protection Rider. Anyone contemplating the purchase of the Policy with the overloan protection rider
should be aware that the tax consequences of the overloan protection rider have not been ruled on by the IRS or the
courts and it is possible that the IRS could assert that the outstanding loan balance should be treated as a taxable
distribution when the overloan protection rider causes the Policy to be converted into a fixed Policy. You should
consult a tax adviser as to the tax risks associated with the overloan protection rider. See Appendix C for more
information about the rider

Withholding. To the extent that Policy distributions are taxable, they are generally subject to withholding for the
recipient’s federal income tax liability. Recipients can generally elect, however, not to have tax withheld from
distributions.

Exchanges. Generally, there are no tax consequences when you exchange one life insurance policy for another, so
long as the same person is being insured (a change of the insured is a taxable event). Paying additional premiums
under the new policy may cause it to be treated as a modified endowment contract. The new policy may also lose
any “grandfathering” privilege, where you would be exempt from certain legislative or regulatory changes made
after your original policy was issued, if you exchange your policy. Distributions made as part of an exchange, or for
a certain period before and after an exchange, may be treated as earnings regardless of the status of the Policy. You
should consult with a tax advisor if you are considering exchanging any life insurance policy.

Life Insurance Purchases by Nonresident Aliens and Foreign Corporations. The discussion above provides general
information regarding U.S. federal income tax consequences to life insurance 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

59

on taxable distributions from life insurance policies 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 purchaser’s country
of citizenship or residence. Prospective purchasers are advised to consult with a qualified tax adviser regarding U.S.
state, and foreign taxation with respect to a life insurance policy purchase. The Policy is not for sale outside of the
U.S. Life Insurance Purchases by Residents of Puerto Rico. In Rev. Rul. 2004-75, 2004-31 I.R.B. 109, the Internal
Revenue Service announced that income received by residents of Puerto Rico under life insurance or annuity
contracts issued by a Puerto Rico branch of a United States life insurance company is U.S.-source income that is
generally subject to United States Federal income tax.

Multiple Policies. All Modified Endowment Contracts that are issued by National Life (or its affiliates) to the same
Owner during any calendar year are treated as one Modified Endowment Contract for purposes of determining the
amount includible in the Owner’s income when a taxable distribution occurs.

Business Uses of the Policy. Businesses can use the Policy in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans, executive bonus plans, tax exempt
and nonexempt welfare benefit plans, retiree medical benefit plans and others. The tax consequences of such plans
may vary depending on the particular facts and circumstances. If you are purchasing the Policy for any arrangement
the value of which depends in part on its tax consequences, you should consult a qualified tax adviser. In recent
years, moreover, Congress has adopted new rules relating to life insurance owned by businesses and the IRS has
recently issued guidance regarding split dollar insurance. Any business contemplating the purchase of a new Policy
or a change in an existing Policy should consult a tax adviser.

Employer-owned life insurance contracts. Pursuant to recently enacted section 101(j) of the Code, unless certain
eligibility, notice and consent requirements are satisfied, the amount excludible as a death benefit payment under an
employer-owned life insurance contract will generally be limited to the premiums paid for such contract (although
certain exceptions may apply in specific circumstances). An employer-owned life insurance contract is a life
insurance contract owned by an employer that insures an employee of the employer and where the employer is a
direct or indirect beneficiary under such contact. It is the employer’s responsibility to verify the eligibility of the
intended insured under employer-owned life insurance contracts and to provide the notices and obtain the consents
required by section 101(j). These requirements generally apply to employer-owned life insurance contracts issued
or materially modified after August 17, 2006. A tax adviser should be consulted by anyone considering the
purchase or modification of an employer-owned life insurance contract.

Non-Individual Owners and Business Beneficiaries of Policies. If a Policy is owned or held by a corporation, trust
or other non-natural person, this could jeopardize some (or all) of such entity’s interest deduction under Code
Section 264, even where such entity’s indebtedness is in no way connected to the Policy. In addition, if a business
(other than a sole proprietorship) is directly or indirectly a beneficiary of a Policy, this Policy could be treated as
held by the business for purposes of the Section 264(f) entity-holder rules. Therefore, it would be advisable to
consult with a qualified tax advisor before any non-natural person is made an owner or holder of a Policy, or before
a business (other than a sole proprietorship) is made a beneficiary of a Policy.

Split Dollar Arrangements. The IRS and the Treasury Department have issued guidance that substantially affects
split-dollar arrangements. Consult a qualified tax adviser before entering into or paying additional premiums with
respect to such arrangements.

Additionally, on July 30, 2002, President Bush signed into law significant accounting and corporate governance
reform legislation, known as the Sarbanes-Oxley Act of 2002 (the “Act”). The Act prohibits, with limited
exceptions, publicly traded companies, including non-U.S. companies that have securities listed on exchanges in the
United States, from extending, directly or through a subsidiary, many types of personal loans to their directors or
executive officers. It is possible that this prohibition may be interpreted as applying to split-dollar life insurance
policies for directors and executive officers of such companies, because such insurance arguably can be viewed as
involving a loan from the employer for at least some purposes.

Although the prohibition on loans is generally effective as of July 30, 2002, there is an exception for loans
outstanding as of the date of enactment, as long as there is no material modification to the loan terms and the loan is
not renewed after July 30, 2002. Any affected business contemplating the payment of a premium on an existing

60

Policy, or the purchase of a new Policy, in connection with a split-dollar life insurance arrangement should consult
legal counsel.

Alternative Minimum Tax. There may be an indirect tax upon the income in the Policy or the proceeds of a Policy
under the federal corporate alternative minimum tax, if the Owner is subject to that tax.

Estate, Gift and Generation-Skipping Transfer Taxes. The transfer of the policy or designation of a beneficiary may
have federal, state, and/or local transfer and inheritance tax consequences, including the imposition of gift, estate,
and generation-skipping transfer taxes. For example, when the Insured dies, the death proceeds will generally be
includable in the Owner’s estate for purposes of federal estate tax if the Insured owned the policy. If the Owner was
not the Insured, the fair market value of the Policy would be included in the Owner’s estate upon the Owner’s death.
The Policy would not be includable in the Insured’s estate if the Insured neither retained incidents of ownership at
death nor had given up ownership within three years before death.

Moreover, under certain circumstances, the Code may impose a “generation skipping transfer tax” when all or part
of a life insurance Policy 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 Policy, or
from any applicable payment, and pay it directly to the IRS.

Qualified tax advisers should be consulted concerning the estate and gift tax consequences of Policy ownership and
distributions under federal, state and local law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance taxes may be imposed and how
ownership or receipt of policy proceeds will be treated for purposes of federal, state and local estate, inheritance,
generation skipping and other taxes.

Economic Growth and Tax Relief Reconciliation Act of 2001. The Economic Growth and Tax Relief Reconciliation
Act of 2001 (“EGTRRA”) repeals the federal estate tax and replaces it with a carryover basis income tax regime
effective for estates of decedents dying after December 31, 2009. EGTRRA also repeals the generation skipping
transfer tax, but not the gift tax, for transfers made after December 31, 2009. EGTRRA contains a sunset provision,
which essentially returns the federal estate, gift and generation-skipping transfer taxes to their pre-EGTRRA form,
beginning in 2011. Congress may or may not enact permanent repeal between now and then.

During the period prior to 2010, EGTRRA provides for periodic decreases in the maximum estate tax rate coupled
with periodic increases in the estate tax exemption. For 2009, the maximum estate tax rate is 45% and the estate tax
exemption is $3,500,000.

The complexity of the new tax law, along with uncertainty as to how it might be modified in coming years,
underscores the importance of seeking guidance from a qualified advisor to help ensure that your estate plan
adequately addresses your needs and that of your beneficiaries under all possible scenarios.

Tax Consequences Associated with Accelerated Death Benefit, Accelerated Care and Chronic Care Protection
Riders. For a discussion of the tax consequences associated with these riders, see the detailed discussion for each of
these riders in the SAI.

Continuation Beyond Age 100. The tax consequences of continuing the Policy beyond the Insured’s 100th year are
unclear. You should consult a tax adviser if you intend to keep the Policy in force beyond the Insured’s 100th year.

Foreign Tax Credits. We may benefit from any foreign tax credits attributable to taxes paid by certain portfolios 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 policy could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments
and their effect on the Policy.

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Possible Charges for National Life’s Taxes

At the present time, National Life makes no charge for any Federal, state or local taxes (other than the charge for
state premium taxes and the DAC tax) that may be attributable to the subaccounts or to the policies. National Life
reserves the right to charge the subaccounts for any future taxes or economic burden National Life may incur.

LEGAL MATTERS

National Life, like other life insurance companies, is involved in lawsuits, from time to time. Although we cannot
predict the outcome of any litigation with certainty, National Life believes that at the present time, there are no
pending or threatened lawsuits that are reasonably likely to have a material adverse impact on it or the Separate
Account.

DISTRIBUTION OF THE POLICIES

We have entered into a distribution agreement with ESI, our affiliate, for the distribution and sale of the Policies.
Pursuant to this agreement, ESI serves as principal underwriter for the Policies. ESI sells the Policies through its
registered representatives. ESI has also entered into selling agreements with other broker-dealers who in turn sell
the Policies through their registered representatives. ESI is registered as a broker-dealer under 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”).

All life insurance policies sold starting January 1, 2009 are required by state insurance laws to use the 2001 CSO
Mortality Table instead of the 1980 CSO Mortality Table as the basis for maximum mortality charges. In addition,
all applicable factors used to comply with IRC 7702 will be expected to be revised based on the new 2001 CSO
Mortality Table. Therefore, VariTrak is no longer offered to new owners.

ESI’s registered representatives who sell the Policy 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 Policies. The maximum
commissions payable to ESI are: during the first Policy Year, 50% of the premiums paid up to a target amount
(which is a function of Face Amount, and which is used primarily to determine commission payments) and 3% of
the premiums paid in excess of that amount; and for Policy Years 2 through 10, 4% of the premiums paid up to the
target amount and 3% of premiums paid in excess of that amount. For Policy Year 11 and after, commissions
payable to ESI will be 1.5% of all premiums paid. For premiums received in the year following an increase in Face
Amount and attributable to the increase, the maximum commissions that National Life will pay to ESI will be
48.5% up to the target amount for the increase.

National Life general agents also receive compensation on Policies sold through ESI registered representatives.
National Life general agents may also receive fees from ESI relating to sales of the Policies by broker-dealers other
than ESI, where the selling registered representative has a relationship with such general agent’s National Life
agency; such compensation may be as much as 14% of the first year premium up to the target amount.

Most retail broker-dealers, other than ESI, will receive gross dealer concessions during the first Policy Year of 85%
of the premiums paid up to the target amount and 4% of the premiums paid in excess of that amount. In the case of
a few retail broker-dealers, ESI has negotiated a higher dealer concession of 90% of first year premiums up to the
target amount. For Policy Years 2 through 10, the maximum gross dealer concession will be 4% of the premiums
paid. For Policy Year 11 and after, the gross dealer concession will be 1.5% of all premiums paid. For premiums
received in the year following an increase in Face Amount and attributable to the increase, the maximum gross
dealer concession will be 50% up to the target amount for the increase. A portion of the payments made to selling
firms by ESI may be passed on to their registered representatives in accordance with their internal compensation
programs. Those programs 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 firm for which he or she works may receive in connection with your purchase of a Policy.

62

National Life may provide loans to unaffiliated broker-dealers, who in turn provide such 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 Policies, and measures of business quality. Any
loans or forgiveness of outstanding loans based on sales of Policies are provided through the distribution firm’s
registered broker-dealer.

From time to time we may offer specific sales incentives to selling broker-dealers and 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
Life’s or their affiliates’ other products. To the extent, if any, that such bonuses are attributable to the sale of
variable products, including the Policies, such bonuses will be paid through the agent’s 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 Policy owners or to the
Separate Account. We intend to recoup commissions and other sales expenses through fees and charges deducted
under the Policy.

The DWS (with exception of the Small Cap Index Fund) ,Franklin Templeton (with exception of the Mutual Global
Discovery Securities Fund and the U.S. Government Fund), Oppenheimer, T. Rowe Price (with exception of the
Personal Strategy Balanced Fund), and Wells Fargo Funds offered in the Policies, and the Small Cap Growth
Portfolio of Neuberger Berman Advisers Management Trust, make payments to ESI under their 12b-1 plans in
consideration of services provided by ESI in distributing shares of these portfolios. In each case these payments
amount to 0.25% of Separate Account assets invested in the particular portfolio.

See “Distribution of the Policies” in the Statement of Additional Information for more information about
compensation paid for the sale of the Policies.

OTHER POLICY PROVISIONS

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

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

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

63

FINANCIAL STATEMENTS

The financial statements of National Life and of the Separate Account are included in the Statement of Additional
Information. The financial statements of National Life should be distinguished from the financial statements of the
Separate Account and should be considered only as bearing upon National Life’s general financial strength and
claims paying ability, and its ability to meet its obligations under the Policies. In addition to General Account
allocations, General Account assets are used to guarantee the payment of living and death benefits under the Policy.
To the extent that National Life is required to pay you amounts in addition to your Accumulated Value under these
benefits, such amounts will come from General Account assets. You should be aware that National Life’s principal
investments are in fixed-income securities, including corporate bonds, mortgage-backed securities, and commercial
real estate mortgages. National Life enters into equity derivative contracts (futures and options) to hedge exposures
embedded in our equity indexed annuity products. All of National Life’s General Account investments are exposed
to various investment risks. National Life’s financial statements include a further discussion of risks inherent within
general account investments.

Further, you should only consider NLV Financial’s financial statements as bearing on the ability of NLV Financial
to meet its obligations under the keep well and pledge and security agreement.

64

	GLOSSARY
Accumulated Value	The sum of the Policy’s values in the Separate Account and the General
	Account.
Attained Age	The Issue Age of the Insured plus the number of full Policy Years which have
	passed since the Date of Issue.
Beneficiary	The person(s) or entity(ies) designated to receive all or some of the Death
	Benefit when the Insured dies. The Beneficiary is designated in the application
	or if subsequently changed, as shown in the latest change filed with National
	Life. The interest of any Beneficiary who dies before the Insured shall vest in
	the Owner unless otherwise stated.
Cash Surrender Value	The Accumulated Value minus any applicable Surrender Charge, and minus any
	outstanding Policy loans and accrued interest on such loans.
Collateral	The portion of the Accumulated Value in the General Account which secures the
	amount of any Policy loan.
DAC Tax	A tax attributable to Specified Policy Acquisition Expenses under Internal
	Revenue Code Section 848.
Date of Issue	The date on which the Policy is issued, which is set forth in the Policy. It is
	used to determine Policy Years, policy months and Monthly Policy Dates, as
	well as to measure suicide and contestable periods.
Death Benefit	The Policy’s Unadjusted Death Benefit, plus any relevant additional benefits
	provided by a supplementary benefit rider, less any outstanding Policy loan and
	accrued interest, and less any unpaid Monthly Deductions.
Dollar Cost Averaging	Permits you to automatically transfer funds from the Money Market Subaccount
	to any other subaccounts on a monthly basis
Duration	The number of full years the insurance has been in force; for the Initial Face
	Amount, measured from the Date of Issue; for any increase in Face Amount,
	measured from the effective date of such increase.
Face Amount	The Initial Face Amount plus any increases in Face Amount and minus any
	decreases in Face Amount.
General Account	The account which holds the assets of National Life which are available to
	support its insurance and annuity obligations.
Grace Period	A 61-day period measured from the date on which notice of pending lapse is
	sent by National Life, during which the Policy will not lapse and insurance
	coverage continues. To prevent lapse, the Owner must during the Grace Period
	make a premium payment equal to the sum of any amount by which the past
	Monthly Deductions have been in excess of Cash Surrender Value, plus three
	times the Monthly Deduction due the date the Grace Period began.
Home Office	National Life’s Home Office at National Life Drive, Montpelier, Vermont
	05604.

65

Initial Face Amount	The Face Amount of the Policy on the Date of Issue. The Face Amount may be
	increased or decreased after the first Policy Year.
Insured	The person upon whose life the Policy is issued.
Issue Age	The age of the Insured at his or her birthday nearest the Date of Issue. The Issue
	Age is stated in the Policy.
Minimum Face Amount	The Minimum Face Amount is generally $50,000. However, exceptions may be
made in employee benefit plan cases.
Minimum Guarantee Premium	The sum of the Minimum Monthly Premiums in effect on each Monthly Policy
	Date since the Date of Issue (including the current month), plus all Withdrawals
	and outstanding Policy loans and accrued interest.
Minimum Initial Premium	The minimum premium required to issue a Policy. It is equal to the Minimum
	Monthly Premium.
Minimum Monthly Premium	The monthly amount used to determine the Minimum Guarantee Premium. This
	amount, which includes any substandard charges and any applicable rider
	charges, is determined separately for each Policy, based on the requested Initial
	Face Amount, and the Issue Age, sex and Rate Class of the Insured, and the
	Death Benefit option and any optional benefits selected. It is stated in each
	Policy.
Monthly Administrative Charge	A charge of $7.50 per month included in the Monthly Deduction, which is
	intended to reimburse National Life for ordinary administrative expenses. In
	Texas and New York, this charge may be increased, but will never exceed $7.50
plus $0.07 per $1,000 of Face Amount.
Monthly Deduction	The amount deducted from the Accumulated Value on each Monthly Policy
	Date. It includes the Monthly Administrative Charge, the cost of insurance
	charge, and the monthly cost of any benefits provided by riders.
Monthly Policy Date	The day in each calendar month which is the same day of the month as the Date
	of Issue, or the last day of any month having no such date, except that whenever
	the Monthly Policy Date would otherwise fall on a date other than a Valuation
	Day, the Monthly Policy Date will be deemed to be the next Valuation Day.
Net Amount at Risk	The amount by which the Unadjusted Death Benefit exceeds the Accumulated
	Value.
Net Premium	The remainder of a premium after the deduction of the Premium Tax Charge.
Owner	The person(s) or entity(ies) entitled to exercise the rights granted in the Policy.
Planned Periodic Premium	The premium amount which the Owner plans to pay at the frequency selected.
	The Owner may request a reminder notice and may change the amount of the
	Planned Periodic Premium. The Owner is not required to pay the designated
	amount.
Policy Anniversary	The same day and month as the Date of Issue in each later year.
Policy Year	A year that starts on the Date of Issue or on a Policy Anniversary.

66

Portfolio Rebalancing	Permits you to automatically rebalance the value in the subaccounts on a semi-
	annual basis, based on your premium allocation percentages in effect at the time
	of the rebalancing.
Premium Tax Charge	A charge deducted from each premium payment to cover the cost of state and
	local premium taxes, and the federal DAC Tax.
Rate Class	The classification of the Insured for cost of insurance purposes. The Rate
	Classes are: elite preferred nonsmoker; preferred nonsmoker; standard
	nonsmoker; preferred smoker; standard smoker; juvenile; and substandard.
Riders	Optional benefits that an Owner may elect to add to the Policy at an additional
	cost.
Separate Account	National Variable Life Insurance Account.
Surrender Charge	The amount deducted from the Accumulated Value of the Policy upon lapse or
	surrender during the first 15 Policy Years or the first 15 years following an
	increase in coverage. The Surrender Charge is shown in the Policy.
Unadjusted Death Benefit	Under Option A, the greater of the Face Amount or the applicable percentage of
	the Accumulated Value on the date of death; under Option B, the greater of the
	Face Amount plus the Accumulated Value on the date of death, or the applicable
	percentage of the Accumulated Value on the date of death. The Death Benefit
	option is selected at time of application but may be later changed.
Valuation Day	Each day that the New York Stock Exchange is open for business other than the
	day after Thanksgiving and any day on which trading is restricted by directive of
	the SEC. Unless otherwise indicated, whenever under a Policy an event occurs
	or a transaction is to be effected on a day that is not a Valuation Date, it will be
	deemed to have occurred on the next Valuation Date. A Valuation Day ends at
	the close of regular trading of the New York Stock Exchange, usually 4:00 pm
	Eastern Time.
Valuation Period	The time between two successive Valuation Days. Each Valuation Period
	includes a Valuation Day and any non-Valuation Day or consecutive non-
	Valuation Days immediately preceding it.
Withdrawal	A payment made at the request of the Owner pursuant to the right in the Policy
	to withdraw a portion of the Cash Surrender Value of the Policy. The
	Withdrawal Charge will be deducted from the Withdrawal Amount.

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APPENDIX A

Illustration of Death Benefits, Accumulated Values and Cash Surrender Values

The following tables illustrate how the Death Benefits, Accumulated Values and Cash Surrender Values of a Policy
may change with the investment experience of the Separate Account. The tables show how the Death Benefits,
Accumulated Values and Cash Surrender Values of a Policy issued to an Insured of a given age, sex and Rate Class would
vary over time if the investment return on the assets held in each portfolio were a uniform, gross, annual rate of 0%, 6% and
8%. These gross rates of return do not include the deduction of the charges and expenses of the underlying Portfolios.

The tables on pages A-2 to A-7 illustrate a Policy issued to a male Insured, Age 45 in the Preferred Nonsmoker Rate
Class with a Face Amount of $250,000 and Planned Periodic Premiums of $3,000, paid at the beginning of each Policy
Year. The Death Benefits, Accumulated Values and Cash Surrender Values would be lower if the Insured was in a standard
nonsmoker, smoker or substandard class because the cost of insurance charges is higher for these classes. Also, the values
would be different from those shown if the gross annual investment returns averaged 0%, 6% and 8% over a period of
years, but fluctuated above and below those averages during individual Policy Years. The net annual rate of return shown in
the tables is the gross annual rate reduced to reflect the average investment advisory fee and average operating expenses of
the portfolios before reimbursement and the Mortality and Expense Risk Charge.

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

The amounts shown in all tables reflect an averaging of certain other asset charges described below that may be assessed
under the Policy, depending on how premiums are allocated. The total of the asset charges reflected in the Current and
Guaranteed illustrations, including the Mortality and Expense Risk Charge of 0.91%, is 1.81%. This total charge is based on
an assumption that an Owner allocates the Policy values equally among the Subaccounts of the Separate Account.

These asset charges reflect an investment advisory fee of 0.68%, which represents a simple average of the fees
incurred by the Portfolios during 2008, 0.06% for 12b-1 fees, which represents the simple average of the 12b-1 fees incurred
by the Portfolios in 2008, and expenses of 0.19%, which is based on a simple average of the actual expenses incurred by the
Portfolios during 2008. These expenses have not been adjusted to take into account expense reimbursement arrangements. If
the reimbursement arrangements were reflected, the Accumulated Values and Cash Surrender Values of a Policy which
allocates Policy values equally among the Subaccounts would be higher than those shown in the following tables. For
information on portfolio expenses, see the prospectuses for the portfolios accompanying this prospectus.

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

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

Please note: Actual returns will fluctuate over time and likely will be both positive and negative. The actual values
under the Policy could be significantly different from those shown even if actual returns averaged 0%, 6% and 12%, but
fluctuated over and under those averages throughout the years shown. Depending on the timing and degree of fluctuation,
the actual values could be substantially less than those shown, and may, under certain circumstances, result in the lapse of
the Policy unless the owner pays more than the stated premium.

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

A-1

NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
			MALE INSURED ISSUE AGE
$250,000 FACE AMOUNT				45			STANDARD
DEATH BENEFIT
OPTION A			ANNUAL PREMIUM $3,000				NONSMOKER
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0%
(NET ANNUAL RATE OF RETURN -1.83%)
	Premiums		Guaranteed			Current
End of	Accumulated		Cash			Cash
		Accumulate	Surrend		Accumulate	Surrend
Policy	at 5% Interest	d	er	Death	d	er	Death
Year	Per Year	Value	Value	Benefit	Value	Value	Benefit
1	3,150	1,949	549	250,000	1,949	549	250,000
2	6,458	3,803	1,877	250,000	3,803	1,877	250,000
3	9,930	5,560	3,341	250,000	5,560	3,341	250,000
4	13,577	7,217	4,729	250,000	7,217	4,729	250,000
5	17,406	8,768	6,203	250,000	8,768	6,203	250,000
6	21,426	10,209	7,898	250,000	10,209	7,898	250,000
7	25,647	11,528	9,471	250,000	11,528	9,471	250,000
8	30,080	12,710	10,908	250,000	12,710	10,908	250,000
9	34,734	13,744	12,197	250,000	13,744	12,197	250,000
10	39,620	14,613	13,320	250,000	14,613	13,320	250,000
11	44,751	15,303	14,264	250,000	16,270	15,232	250,000
12	50,139	15,799	15,014	250,000	17,805	17,021	250,000
13	55,796	16,091	15,561	250,000	19,224	18,694	250,000
14	61,736	16,167	15,891	250,000	20,595	20,320	250,000
15	67,972	15,999	15,978	250,000	21,895	21,874	250,000
16	74,521	15,563	15,563	250,000	23,059	23,059	250,000
17	81,397	14,827	14,827	250,000	24,153	24,153	250,000
18	88,617	13,750	13,750	250,000	25,116	25,116	250,000
19	96,198	12,279	12,279	250,000	25,883	25,883	250,000
20	104,158	10,360	10,360	250,000	26,467	26,467	250,000
25	150,340	0	0	0	26,591	26,591	250,000
30	209,282	0	0	0	17,901	17,901	250,000

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of
past or future investment results. Actual investment results may be more or less than those shown. The death benefit,
accumulated value and cash surrender value for a policy would be different from those shown if actual rates of investment
return applicable to the policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that
average throughout individual policy years. The death benefit, accumulated value and cash surrender value would also be
different from those shown, depending on the investment allocations made to the subaccounts of the separate account and the
different rates of return of the subaccounts if the actual rates of investment return applicable to the policy averaged 0%, 6%,
or 8%, but varied above or below that average for particular subaccounts. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained over any period of time.

A-2

NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
$250,000 FACE AMOUNT	MALE INSURED ISSUE AGE 45	STANDARD
DEATH BENEFIT OPTION A	ANNUAL PREMIUM $3,000	NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6% (NET ANNUAL RATE OF RETURN 4.06%)

	Premiums		Guaranteed				Current
End of	Accumulated		Cash				Cash
			Surrende				Surrende
Policy	at 5% Interest	Accumulated	r	Death		Accumulated	r	Death
Year	Per Year	Value	Value	Benefit		Value	Value	Benefit
1	3,150	2,091	691		250,000	2,091	691	250,000
2	6,458	4,207	2,281		250,000	4,207	2,281	250,000
3	9,930	6,345	4,126		250,000	6,345	4,126	250,000
4	13,577	8,502	6,013		250,000	8,502	6,013	250,000
5	17,406	10,670	8,105		250,000	10,670	8,105	250,000
6	21,426	12,848	10,537		250,000	12,848	10,537	250,000
7	25,647	15,019	12,963		250,000	15,019	12,963	250,000
8	30,080	17,170	15,368		250,000	17,170	15,368	250,000
9	34,734	19,287	17,739		250,000	19,287	17,739	250,000
10	39,620	21,350	20,057		250,000	21,350	20,057	250,000
11	44,751	23,343	22,304		250,000	24,349	23,311	250,000
12	50,139	25,248	24,463		250,000	27,393	26,609	250,000
13	55,796	27,051	26,521		250,000	30,490	29,960	250,000
14	61,736	28,735	28,460		250,000	33,709	33,434	250,000
15	67,972	30,271	30,250		250,000	37,035	37,014	250,000
16	74,521	31,626	31,626		250,000	40,412	40,412	250,000
17	81,397	32,766	32,766		250,000	43,907	43,907	250,000
18	88,617	33,642	33,642		250,000	47,469	47,469	250,000
19	96,198	34,194	34,194		250,000	51,044	51,044	250,000
20	104,158	34,358	34,358		250,000	54,649	54,649	250,000
25	150,340	26,823	26,823		250,000	73,315	73,315	250,000
30	209,282	0	0		0	90,535	90,535	250,000

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or
future investment results. Actual investment results may be more or less than those shown. The death benefit, accumulated value
and cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the
policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that average throughout individual
policy years. The death benefit, accumulated value and cash surrender value would also be different from those shown, depending
on the investment allocations made to the subaccounts of the separate account and the different rates of return of the subaccounts
if the actual rates of investment return applicable to the policy averaged 0%, 6%, or 8%, but varied above or below that average
for particular subaccounts. No representations can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.

A-3

NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
$250,000 FACE AMOUNT	MALE INSURED ISSUE AGE 45	STANDARD
DEATH BENEFIT OPTION A	ANNUAL PREMIUM $3,000	NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 8% (NET ANNUAL RATE OF RETURN 6.02%)

	Premiums		Guaranteed				Current
End of	Accumulated		Cash				Cash
Policy	at 5% Interest	Accumulated	Surrender	Death		Accumulated	Surrender	Death
Year	Per Year	Value	Value	Benefit		Value	Value	Benefit
1	3,150	2,139	739		250,000	2,139	739	250,000
2	6,458	4,346	2,420		250,000	4,346	2,420	250,000
3	9,930	6,622	4,403		250,000	6,622	4,403	250,000
4	13,577	8,967	6,478		250,000	8,967	6,478	250,000
5	17,406	11,377	8,812		250,000	11,377	8,812	250,000
6	21,426	13,855	11,544		250,000	13,855	11,544	250,000
7	25,647	16,389	14,333		250,000	16,389	14,333	250,000
8	30,080	18,968	17,166		250,000	18,968	17,166	250,000
9	34,734	21,585	20,037		250,000	21,585	20,037	250,000
10	39,620	24,223	22,930		250,000	24,223	22,930	250,000
11	44,751	26,871	25,833		250,000	27,892	26,853	250,000
12	50,139	29,517	28,733		250,000	31,712	30,927	250,000
13	55,796	32,153	31,623		250,000	35,700	35,170	250,000
14	61,736	34,767	34,492		250,000	39,937	39,662	250,000
15	67,972	37,337	37,316		250,000	44,418	44,397	250,000
16	74,521	39,839	39,839		250,000	49,100	49,100	250,000
17	81,397	42,246	42,246		250,000	54,064	54,064	250,000
18	88,617	44,518	44,518		250,000	59,275	59,275	250,000
19	96,198	46,608	46,608		250,000	64,700	64,700	250,000
20	104,158	48,464	48,464		250,000	70,372	70,372	250,000
25	150,340	52,257	52,257		250,000	103,445	103,445	250,000
30	209,282	36,666	36,666		250,000	145,579	145,579	250,000

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or
future investment results. Actual investment results may be more or less than those shown. The death benefit, accumulated value
and cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the
policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that average throughout individual
policy years. The death benefit, accumulated value and cash surrender value would also be different from those shown, depending
on the investment allocations made to the subaccounts of the separate account and the different rates of return of the subaccounts
if the actual rates of investment return applicable to the policy averaged 0%, 6%, or 8%, but varied above or below that average
for particular subaccounts. No representations can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.

A-4

NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
$250,000 FACE AMOUNT	MALE INSURED ISSUE AGE 45	STANDARD
DEATH BENEFIT OPTION B	ANNUAL PREMIUM $4,000	NONSMOKER

ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 0% (NET ANNUAL RATE OF RETURN -1.83%)

	Premiums		Guaranteed			Current
End of	Accumulated		Cash			Cash
Policy	at 5% Interest	Accumulated	Surrender	Death	Accumulated	Surrender	Death
Year	Per Year	Value	Value	Benefit	Value	Value	Benefit
1	4,200	2,891	1,191	252,891	2,891	1,191	252,891
2	8,610	5,662	3,536	255,662	5,662	3,536	255,662
3	13,241	8,311	5,823	258,311	8,311	5,823	258,311
4	18,103	10,835	8,270	260,835	10,835	8,270	260,835
5	23,208	13,227	10,662	263,227	13,227	10,662	263,227
6	28,568	15,483	13,173	265,483	15,483	13,173	265,483
7	34,196	17,590	15,534	267,590	17,590	15,534	267,590
8	40,106	19,532	17,730	269,532	19,532	17,730	269,532
9	46,312	21,298	19,750	271,298	21,298	19,750	271,298
10	52,827	22,869	21,575	272,869	22,869	21,575	272,869
11	59,669	24,230	23,192	274,230	25,303	24,264	275,303
12	66,852	25,367	24,583	275,367	27,590	26,806	277,590
13	74,395	26,271	25,741	276,271	29,735	29,205	279,735
14	82,314	26,928	26,652	276,928	31,813	31,538	281,813
15	90,630	27,314	27,293	277,314	33,798	33,777	283,798
16	99,361	27,404	27,404	277,404	35,617	35,617	285,617
17	108,530	27,171	27,171	277,171	37,345	37,345	287,345
18	118,156	26,576	26,576	276,576	38,912	38,912	288,912
19	128,264	25,574	25,574	275,574	40,247	40,247	290,247
20	138,877	24,118	24,118	274,118	41,364	41,364	291,364
25	200,454	8,716	8,716	258,716	43,669	43,669	293,669
30	279,043	0	0	0	36,313	36,313	286,313

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past
or future investment results. Actual investment results may be more or less than those shown. The death benefit, accumulated
value and cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to
the policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that average throughout individual
policy years. The death benefit, accumulated value and cash surrender value would also be different from those shown,
depending on the investment allocations made to the subaccounts of the separate account and the different rates of return of the
subaccounts if the actual rates of investment return applicable to the policy averaged 0%, 6%, or 8%, but varied above or below
that average for particular subaccounts. No representations can be made that these hypothetical rates of return can be achieved
for any one year or sustained over any period of time.

A-5

NATIONAL LIFE
VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE
$250,000 FACE AMOUNT			MALE INSURED ISSUE AGE 45				STANDARD
DEATH BENEFIT OPTION
B			ANNUAL PREMIUM $4,000				NONSMOKER
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 6%
(NET ANNUAL RATE OF RETURN 4.06%)
	Premiums		Guaranteed			Current
End of	Accumulated		Cash			Cash
Policy	at 5% Interest	Accumulated	Surrender	Death	Accumulated	Surrender	Death
Year	Per Year	Value	Value	Benefit	Value	Value	Benefit
1	4,200	3,090	1,390	253,090	3,090	1,390	253,090
2	8,610	6,236	4,110	256,236	6,236	4,110	256,236
3	13,241	9,436	6,947	259,436	9,436	6,947	259,436
4	18,103	12,687	10,122	262,687	12,687	10,122	262,687
5	23,208	15,981	13,416	265,981	15,981	13,416	265,981
6	28,568	19,315	17,004	269,315	19,315	17,004	269,315
7	34,196	22,672	20,616	272,672	22,672	20,616	272,672
8	40,106	26,035	24,233	276,035	26,035	24,233	276,035
9	46,312	29,390	27,842	279,390	29,390	27,842	279,390
10	52,827	32,713	31,420	282,713	32,713	31,420	282,713
11	59,669	35,985	34,946	285,985	37,146	36,107	287,146
12	66,852	39,183	38,399	289,183	41,663	40,879	291,663
13	74,395	42,292	41,762	292,292	46,272	45,743	296,272
14	82,314	45,290	45,015	295,290	51,053	50,778	301,053
15	90,630	48,143	48,122	298,143	55,985	55,964	305,985
16	99,361	50,813	50,813	300,813	61,000	61,000	311,000
17	108,530	53,260	53,260	303,260	66,175	66,175	316,175
18	118,156	55,429	55,429	305,429	71,446	71,446	321,446
19	128,264	57,255	57,255	307,255	76,740	76,740	326,740
20	138,877	58,668	58,668	308,668	82,069	82,069	332,069
25	200,454	57,180	57,180	307,180	109,194	109,194	359,194
30	279,043	31,646	31,646	281,646	132,237	132,237	382,237

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or
future investment results. Actual investment results may be more or less than those shown. The death benefit, accumulated value
and cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the
policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that average throughout individual
policy years. The death benefit, accumulated value and cash surrender value would also be different from those shown, depending
on the investment allocations made to the subaccounts of the separate account and the different rates of return of the subaccounts
if the actual rates of investment return applicable to the policy averaged 0%, 6%, or 8%, but varied above or below that average
for particular subaccounts. No representations can be made that these hypothetical rates of return can be achieved for any one
year or sustained over any period of time.

A-6

NATIONAL LIFE

VARITRAK FLEXIBLE PREMIUM ADJUSTABLE VARIABLE LIFE INSURANCE

$250,000 FACE AMOUNT			MALE INSURED ISSUE AGE 45				STANDARD
DEATH BENEFIT OPTION B			ANNUAL PREMIUM $4,000				NONSMOKER
ASSUMING HYPOTHETICAL GROSS ANNUAL RATE OF RETURN 8%
(NET ANNUAL RATE OF RETURN 6.02%)
	Premiums		Guaranteed			Current
End of	Accumulated		Cash			Cash
Policy	at 5% Interest	Accumulated Surrender		Death	Accumulated	Surrender	Death
Year	Per Year	Value	Value	Benefit	Value	Value	Benefit
1	4,200	3,156	1,456	253,156	3,156	1,456	253,156
2	8,610	6,433	4,307	256,433	6,433	4,307	256,433
3	13,241	9,832	7,343	259,832	9,832	7,343	259,832
4	18,103	13,356	10,791	263,356	13,356	10,791	263,356
5	23,208	17,003	14,438	267,003	17,003	14,438	267,003
6	28,568	20,774	18,464	270,774	20,774	18,464	270,774
7	34,196	24,659	22,603	274,659	24,659	22,603	274,659
8	40,106	28,647	26,845	278,647	28,647	26,845	278,647
9	46,312	32,729	31,181	282,729	32,729	31,181	282,729
10	52,827	36,887	35,593	286,887	36,887	35,593	286,887
11	59,669	41,107	40,068	291,107	42,303	41,264	292,303
12	66,852	45,373	44,588	295,373	47,955	47,170	297,955
13	74,395	49,674	49,145	299,674	53,861	53,331	303,861
14	82,314	53,996	53,720	303,996	60,114	59,838	310,114
15	90,630	58,308	58,286	308,308	66,708	66,687	316,708
16	99,361	62,578	62,578	312,578	73,589	73,589	323,589
17	108,530	66,770	66,770	316,770	80,852	80,852	330,852
18	118,156	70,834	70,834	320,834	88,448	88,448	338,448
19	128,264	74,708	74,708	324,708	96,320	96,320	346,320
20	138,877	78,323	78,323	328,323	104,500	104,500	354,500
25	200,454	90,142	90,142	340,142	150,635	150,635	400,635
30	279,043	81,184	81,184	331,184	202,617	202,617	452,617

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

It is emphasized that the hypothetical investment results are illustrative only and should not be deemed a representation of past or
future investment results. Actual investment results may be more or less than those shown. The death benefit, accumulated value
and cash surrender value for a policy would be different from those shown if actual rates of investment return applicable to the
policy averaged 0%, 6% or 8% over a period of years, but also fluctuated above or below that average throughout individual policy
years. The death benefit, accumulated value and cash surrender value would also be different from those shown, depending on the
investment allocations made to the subaccounts of the separate account and the different rates of return of the subaccounts if the
actual rates of investment return applicable to the policy averaged 0%, 6%, or 8%, but varied above or below that average for
particular subaccounts. No representations can be made that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.

A-7

APPENDIX B
Surrender Charge Target Premiums (“SCTP”) and Deferred Sales Charges (“DSC”)
(Annual rates per $1,000 of Face Amount)
Issue	Male				Female
Age	Nonsmoker		Smoker		Nonsmoker		Smoker
	SCTP	DSC	SCTP	DSC	SCTP	DSC	SCTP	DSC
0	2.85	1.43	2.85	1.43	2.24	1.12	2.24	1.12
1	2.78	1.39	2.78	1.39	2.20	1.10	2.20	1.10
2	2.87	1.44	2.87	1.44	2.27	1.14	2.27	1.14
3	2.97	1.49	2.97	1.49	2.35	1.18	2.35	1.18
4	3.08	1.54	3.08	1.54	2.43	1.22	2.43	1.22
5	3.19	1.60	3.19	1.60	2.52	1.26	2.52	1.26
6	3.32	1.66	3.32	1.66	2.61	1.31	2.61	1.31
7	3.45	1.73	3.45	1.73	2.71	1.36	2.71	1.36
8	3.59	1.80	3.59	1.80	2.82	1.41	2.82	1.41
9	3.74	1.87	3.74	1.87	2.93	1.47	2.93	1.47
10	3.90	1.95	3.90	1.95	3.05	1.53	3.05	1.53
11	4.08	2.04	4.08	2.04	3.17	1.59	3.17	1.59
12	4.25	2.13	4.25	2.13	3.31	1.66	3.31	1.66
13	4.44	2.22	4.44	2.22	3.45	1.73	3.45	1.73
14	4.63	2.32	4.63	2.32	3.59	1.80	3.59	1.80
15	4.82	2.41	4.82	2.41	3.74	1.87	3.74	1.87
16	5.01	2.51	5.01	2.51	3.90	1.95	3.90	1.95
17	5.21	2.61	5.21	2.61	4.06	2.03	4.06	2.03
18	5.40	2.70	5.40	2.70	4.23	2.12	4.23	2.12
19	5.61	2.81	5.61	2.81	4.41	2.21	4.41	2.21
20	5.18	2.59	6.89	3.45	4.36	2.18	5.19	2.60
21	5.37	2.69	7.15	3.58	4.54	2.27	5.41	2.71
22	5.58	2.79	7.43	3.72	4.73	2.37	5.65	2.83
23	5.80	2.90	7.73	3.87	4.94	2.47	5.90	2.95
24	6.04	3.02	8.05	4.03	5.15	2.58	6.16	3.08
25	6.29	3.15	8.39	4.20	5.38	2.69	6.43	3.22
26	6.56	3.28	8.76	4.38	5.62	2.81	6.73	3.37
27	6.85	3.43	9.16	4.58	5.87	2.94	7.04	3.52
28	7.16	3.58	9.58	4.79	6.14	3.07	7.36	3.68
29	7.49	3.75	10.04	5.02	6.42	3.21	7.70	3.85
30	7.84	3.92	10.52	5.26	6.71	3.36	8.07	4.04
31	8.21	4.11	11.04	5.52	7.03	3.52	8.45	4.23
32	8.61	4.31	11.59	5.80	7.36	3.68	8.85	4.43
33	9.03	4.52	12.17	6.09	7.71	3.86	9.28	4.64
34	9.47	4.74	12.79	6.40	8.08	4.04	9.73	4.87
35	9.95	4.98	13.44	6.72	8.47	4.24	10.21	5.11
36	10.45	5.23	14.14	7.07	8.88	4.44	10.71	5.36
37	10.98	5.49	14.88	7.44	9.32	4.66	11.24	5.62
38	11.54	5.77	15.66	7.83	9.77	4.89	11.80	5.90
39	12.14	6.07	16.49	8.25	10.26	5.13	12.38	6.19
40	12.77	6.39	17.36	8.68	10.77	5.39	12.99	6.50
41	13.43	6.72	18.28	9.14	11.30	5.65	13.63	6.82

B-1

Issue	Male				Female
Age	Nonsmoker		Smoker		Nonsmoker		Smoker
	SCTP	DSC	SCTP	DSC	SCTP	DSC	SCTP	DSC
42	14.14	7.07	19.26	9.63	11.86	5.93	14.30	7.15
43	14.89	7.45	20.28	10.14	12.45	6.23	14.99	7.50
44	15.68	7.84	21.37	10.69	13.07	6.54	15.72	7.86
45	16.52	8.26	22.51	11.26	13.73	6.87	16.49	8.25
46	17.42	8.71	23.72	11.86	14.43	7.22	17.29	8.65
47	18.37	9.19	25.00	12.50	15.16	7.58	18.14	9.07
48	19.38	9.69	26.35	13.18	15.94	7.97	19.03	9.52
49	20.46	10.23	27.79	13.90	16.77	8.39	19.98	9.99
50	21.61	10.81	29.32	14.66	17.65	8.83	20.97	10.49
51	22.83	11.42	30.94	15.47	18.57	9.29	22.02	11.01
52	24.14	12.07	32.65	16.33	19.56	9.78	23.13	11.57
53	25.53	12.77	34.48	17.24	20.61	10.31	24.30	12.15
54	27.02	13.51	36.40	18.20	21.72	10.86	25.54	12.77
55	28.60	14.30	38.44	19.22	22.90	11.45	26.84	13.42
56	30.29	15.15	40.59	20.30	24.15	12.08	28.23	14.12
57	32.08	16.04	42.87	21.44	25.49	12.75	29.70	14.85
58	34.01	17.01	45.29	22.65	26.92	13.46	31.26	15.63
59	36.07	18.04	47.85	23.93	28.46	14.23	32.95	16.48
60	38.27	19.14	50.59	25.30	30.12	15.06	34.77	17.39
61	40.63	20.32	53.51	26.76	31.91	15.96	36.73	18.37
62	43.16	21.58	56.62	28.31	33.85	16.93	38.84	19.42
63	45.88	22.94	59.92	29.96	35.92	17.96	41.11	20.56
64	48.78	24.39	63.42	31.71	38.15	19.08	43.53	21.77
65	51.89	25.95	67.11	33.56	40.54	20.27	46.11	23.06
66	55.21	27.61	71.01	35.51	43.09	21.55	48.84	24.42
67	58.77	29.39	75.13	37.57	45.84	22.92	51.77	25.89
68	62.59	31.30	79.52	37.75	48.81	24.41	54.92	27.46
69	66.71	33.36	84.20	37.75	52.04	26.02	58.36	29.18
70	71.16	35.58	89.20	37.75	55.57	27.79	62.10	31.05
71	75.96	36.00	94.56	37.75	59.43	29.72	66.20	33.10
72	81.04	36.00	100.28	37.75	63.65	31.83	70.68	35.00
73	86.57	36.00	106.35	37.75	68.25	34.00	75.53	35.00
74	92.47	36.00	112.74	37.75	73.23	34.00	80.75	35.00
75	98.73	36.00	119.44	37.75	78.61	34.00	86.34	35.00
76	105.38	36.00	126.39	37.75	84.42	34.00	92.32	35.00
77	112.45	36.00	133.62	37.75	90.68	34.00	98.70	35.00
78	120.00	36.00	141.17	37.75	97.47	34.00	105.57	35.00
79	128.12	36.00	149.15	37.75	104.88	34.00	113.00	35.00
80	136.88	36.00	157.63	37.75	112.98	34.00	121.09	35.00
81	146.36	36.00	166.67	37.75	121.85	34.00	129.91	35.00
82	156.57	36.00	176.28	37.75	131.55	34.00	139.51	35.00
83	167.52	36.00	186.39	37.75	142.10	34.00	149.91	35.00
84	179.12	36.00	196.88	37.75	153.50	34.00	161.12	35.00
85	191.34	36.00	207.71	37.75	165.78	34.00	172.98	35.00

Unisex policies will have Surrender Charge target premiums and maximum deferred sales charges that are higher than those for females above but lower than those for males.

B-2

			APPENDIX C
		Overloan Protection Rider
Exhibit I
Male, Nonsmoker, Attained Age = 75, Option
A Death Benefit		20 Year Projection after Overloan Protection Rider Exercise
		Crediting rate on unloaned Accumulated
Form 7206(0395)		Value			7%
		Variable Loan Rate			6%
						End of Year	End of
Policy Values before					End of Year	Cash	Year
Overloan Protection Rider			Attained	End of	Outstanding	Surrender	Death
exercise:		Year	Age	Year AV	Loan	Value	Benefit
		1	75	102,279	101,230	1,049	107,393
Face Amount	$ 75,000	2	76	108,426	107,304	1,122	113,847
Accumulated Value	$ 100,000	3	77	114,943	113,742	1,201	120,690
GPT Corridor Factor	1.05	4	78	121,851	120,567	1,285	127,944
Death Benefit	$ 105,000	5	79	129,175	127,801	1,375	135,634
Outstanding Loan	$ 95,500	6	80	136,939	135,469	1,471	143,786
		7	81	145,170	143,597	1,574	152,429
Exercise Charge Percentage	3.52%	8	82	153,896	152,212	1,684	161,591
Exercise Charge	3,520	9	83	163,147	161,345	1,802	171,304
		10	84	172,954	171,026	1,928	181,601
Policy Values after
Overloan Protection Rider
exercise:		11	85	183,350	181,288	2,063	192,518
Face Amount	$ 75,000	12	86	194,372	192,165	2,207	204,091
Accumulated Value	$ 96,480	13	87	206,056	203,695	2,362	216,359
GPT Corridor Factor	1.05	14	88	218,443	215,916	2,527	229,365
Death Benefit	$ 101,304	15	89	231,575	228,871	2,704	243,154
Outstanding Loan	$ 95,500	16	90	245,497	242,604	2,893	257,772
		17	91	260,255	257,160	3,096	273,268
		18	92	275,902	272,589	3,312	289,697
		19	93	292,489	288,945	3,544	307,113
		20	94	310,074	306,281	3,792	325,577

C-1

Exhibit II
Male Nonsmoker/Female Nonsmoker, Attained Age = 75/75, Option
A Death Benefit			20 Year Projection after Overloan Protection Rider Exercise
Crediting rate on unloaned Accumulated
Form 7207(0395)		Value			7%
		Variable Loan Rate			6%
						End of Year
Policy Values before					End of Year	Cash	End of
Overloan Protection			Attained	End of	Outstanding	Surrender	Year Death
Rider exercise:		Year	Age	Year AV	Loan	Value	Benefit
		1	75	102,824	101,230	1,594	107,966
Face Amount	$ 75,000	2	76	109,010	107,304	1,706	114,460
Accumulated Value	$ 100,000	3	77	115,567	113,742	1,825	121,346
GPT Corridor Factor	1.05	4	78	122,520	120,567	1,953	128,646
Death Benefit	$ 105,000	5	79	129,890	127,801	2,090	136,385
Outstanding Loan	$ 95,500	6	80	137,705	135,469	2,236	144,590
		7	81	145,989	143,597	2,393	153,289
Exercise Charge
Percentage	3.01%	8	82	154,773	152,212	2,560	162,511
Exercise Charge	3,010	9	83	164,085	161,345	2,739	172,289
		10	84	173,957	171,026	2,931	182,655
Policy Values after
Overloan Protection
Rider exercise:		11	85	184,424	181,288	3,136	193,645
Face Amount	$ 75,000	12	86	195,521	192,165	3,356	205,297
Accumulated Value	$ 96,990	13	87	207,285	203,695	3,591	217,650
GPT Corridor Factor	1.05	14	88	219,758	215,916	3,842	230,746
Death Benefit	$ 101,840	15	89	232,982	228,871	4,111	244,631
Outstanding Loan	$ 95,500	16	90	247,002	242,604	4,399	259,352
		17	91	261,866	257,160	4,707	274,960
		18	92	277,625	272,589	5,036	291,507
		19	93	294,333	288,945	5,389	309,050
		20	94	312,047	306,281	5,766	327,650

C-2

APPENDIX D

Statement of Additional Information Table of Contents

Page #

National Life Insurance Company	1
National Variable Life Insurance Account	1
The Portfolios	1
Premiums	1
Distribution Of The Policies	2
Terms Of Underlying Portfolio Participation Agreements	3
Underwriting Procedures	4
Increases In Face Amount	5
Other Policy Provisions	5
Indefinite Policy Duration	5
Operation At Age 99 With No Lapse Guarantee	5
New York Policies - Reduced Paid–Up Benefit	5
The Policy	5
Change Of Owner And Beneficiary	6
Split Dollar Arrangements	6
Assignments	6
Suicide	6
Arbitration	6
Dividends	7
Correspondence	7
Settlement Options	7
Automated Fund Transfer Features	8
Dollar Cost Averaging	8
Portfolio Rebalancing	8
Optional Benefits	9
Guaranteed Death Benefit	9
No-Lapse Guarantee	9
Waiver Of Monthly Deductions	12
Accidental Death Benefit	12
Guaranteed Insurability Option	12
Rider For Disability Benefit – Payment Of Mission Costs	12
Accelerated Care	12
Chronic Care Protection	15
Tax Consequences Associated With Accelerated Care
And Chronic Care Protection Riders	16
Accelerated Benefit	17
Overloan Protection	17
Policies Issued In Conjunction With Employee Benefit Plans	17
Special Rules For Employee Benefit Plans	18
Legal Developments Regarding Unisex Actuarial Tables	18
Policy Reports	18
Records	19
Legal Matters	19
Experts	19
Financial Statements	19

D-1

Statement of Additional Information

The Statement of Additional Information contains further information about the Policies and is incorporated by
reference (legally considered to be part of this prospectus). A table of contents for the Statement of Additional
Information is on the last page of this prospectus. You may request a free copy by writing to National Life
Insurance Company, National Life Drive, Montpelier, Vermont 05604 or by calling 1-800-732-8939. Please contact
your registered representative or National Life if you have any questions or would like to request other information
about the Policies such as personalized illustrations of an Insured’s Death Benefit, Cash Surrender Value and Policy
Values.

The Statement of Additional Information is also available at National Life’s website at www.nationallife.com.
Information about the Policy (including the Statement of Additional Information) can also be reviewed and copied at
the SEC’s Public Reference Room in Washington, D.C. Call 1-202-551-8090 for information on the operation of
the public reference room. This information is also available on the SEC’s Internet site at http://www.sec.gov, and
copies may be obtained, upon payment of a duplicating fee, by writing to the Public Reference Section of the SEC,
100 F Street, NE, Washington, D.C. 20549

You should rely only on the information contained in this prospectus. No one is authorized to provide you with
information that is different.

Investment Company Act of 1940 File No. 811-9044

NATIONAL LIFE INSURANCE COMPANY

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

VARITRAK VARIABLE UNIVERSAL LIFE INSURANCE POLICY

STATEMENT OF ADDITIONAL INFORMATION

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

This Statement of Additional Information expands upon subjects discussed in the current prospectus for the
VariTrak Variable Universal Life Insurance Policy (“Policy”) offered by National Life Insurance Company. You
may obtain a copy of the prospectus dated May 1, 2009 by calling 1-800-732-8939, by writing to National Life
Insurance Company, One National Life Drive, Montpelier, Vermont 05604, by accessing National Life’s website at
http://www.nationallife.com, or by accessing the SEC’s website at http://www.sec.gov. Definitions of terms used in
the current prospectus for the Policy are incorporated in this Statement of Additional Information.

This Statement of Additional Information is
not a prospectus and should be read only in
conjunction with the prospectus for the Policy.

Dated May 1, 2009

TABLE OF CONTENTS
National Life Insurance Company	1
National Variable Life Insurance Account	1
The Portfolios	1
Premiums	2
Distribution Of The Policies	2
Terms Of Underlying Portfolio Participation Agreements	3
Underwriting Procedures	4
Increases In Face Amount	5
Other Policy Provisions	5
INDEFINITE POLICY DURATION	5
OPERATION AT AGE 99 WITH NO LAPSE GUARANTEE	5
NEW YORK POLICIES - REDUCED PAID–UP BENEFIT	5
THE POLICY	5
CHANGE OF OWNER AND BENEFICIARY	6
SPLIT DOLLAR ARRANGEMENTS	6
ASSIGNMENTS	6
SUICIDE	6
ARBITRATION	7
DIVIDENDS	7
CORRESPONDENCE	7
SETTLEMENT OPTIONS	7
Automated Fund Transfer Features	8
DOLLAR COST AVERAGING	8
PORTFOLIO REBALANCING	8
Optional Benefits	9
GUARANTEED DEATH BENEFIT	9
NO-LAPSE GUARANTEE	9
WAIVER OF MONTHLY DEDUCTIONS	13
ACCIDENTAL DEATH BENEFIT	13
GUARANTEED INSURABILITY OPTION	13
RIDER FOR DISABILITY BENEFIT – PAYMENT OF MISSION COSTS	13
ACCELERATED CARE	13
CHRONIC CARE PROTECTION	16
TAX CONSEQUENCES ASSOCIATED WITH ACCELERATED CARE AND CHRONIC CARE PROTECTION RIDERS	17
ACCELERATED BENEFIT	18
OVERLOAN PROTECTION	18
Policies Issued In Conjunction With Employee Benefit Plans	18
Special Rules For Employee Benefit Plans	19
Legal Developments Regarding Unisex Actuarial Tables	19
Policy Reports	19
Records	20
Legal Matters	20
Experts	20
Financial Statements	20

i

NATIONAL LIFE INSURANCE COMPANY

National Life Insurance Company (“National Life,” “we,” “our,” or “us”) is the insurance company that issues the
Policy. National Life is authorized to conduct a life insurance and annuity business in all 50 states and the District
of Columbia. It was originally chartered as a mutual life insurance company in 1848. It is now a stock life
insurance company. All of its 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. As discussed below,
National Life has entered into a keep well agreement and a pledge and security agreement with NLV Financial, each
dated January 1, 1999, under which NLV Financial agrees to maintain National Life’s capital at a certain level and
to pledge its assets to secure its obligations under the keep well agreement. All policyholders of National Life,
including all the Owners of the Policies, are voting members of National Life Holding Company.

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 Life’s total adjusted capital at
the authorized control level and to grant National Life an unperfected pledge of all of its assets. As of September
30, 2008, National Life’s total adjusted capital of $974.8 million 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 proceeding 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 Vermont Commissioner of Banking,
Insurance, Securities and Health Care Administration, National Life must perfect the pledge against NLV Financial.
The pledge and security agreement terminates upon the termination of the keep well agreement.

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

National Variable Life Insurance Account (the “Separate Account”) was established by National Life on
February 1, 1985. It is a separate investment account to which we allocate assets to support the benefits payable
under the Policies, other policies we currently issue, and other variable life insurance policies we may issue in the
future. The Separate Account is registered with the Securities and Exchange Commission (“SEC”) as a unit
investment trust under the Investment Company Act of 1940, and qualifies as a “separate account” within the
meaning of the federal securities laws. Such registration does not involve any supervision of the management or
investment practices or policies of the Separate Account by the SEC.

National Life acts as custodian for the National Variable Life Insurance Account. Additional protection for the
assets of the National Variable Life Insurance Account is provided by a blanket fidelity bond issued by St. Paul Fire
& Marine Insurance Company providing coverage of $30,000,000 in the aggregate and $15,000,000 per occurrence
(subject to a $250,000 deductible) for all officers and employees of National Life.

The independent registered public accounting firm for the Separate Account is PricewaterhouseCoopers LLP. This
firm annually performs an audit on the financial statements of the Separate Account, and provides a report to the
Board of Directors of National Life. PricewaterhouseCoopers LLP also acts as the independent public accountants
for National Life.

THE PORTFOLIOS

The portfolios invested in by the Separate Account are part of mutual funds registered with the SEC as open-end
investment companies. You should know that such registration does not involve supervision of the management or
investment practices of the portfolios by the SEC.

1

PREMIUMS

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

The amount of the credit will be added to the initial premium payment, if any, you pay and will be treated as part of
the Initial Premium for the Policy. Thus, the credit will be included in premium payments for purposes of
calculating and deducting the Premium Tax Charge. If you surrender your Policy, we will not recapture the credit.
We will not include the amount of the credit for purposes of calculating agent compensation for the sale of the
Policy.

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

DISTRIBUTION OF THE POLICIES

Equity Services, Inc. (“ESI”) is responsible for distributing the Policies pursuant to a distribution agreement with us.
ESI serves as principal underwriter for the Policies. ESI, a Vermont corporation and an affiliate of National Life, is
located at One National Life Drive, Montpelier, Vermont 05604.

Effective January 1, 2009 Sentinel Estate Provider was no longer offered for sale to new owners.

We pay commissions to ESI for sales of the Policies. In addition, to promote sales of the Policies and consistent
with NASD Conduct Rules, 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 Policies, 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; and/or (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 Policy, as well as other incentives or payments, are not charged directly to the Policy
Owners or the Separate Account. We intend to recoup commissions and other sales expenses through fees and
charges imposed under the Policy.

ESI received underwriting commissions in connection with the Policies in the following amounts during the periods
indicated:

			Aggregate Amount of Commissions Retained by ESI
	Aggregate Amount of		After Payments to its Registered Persons and Other
Fiscal Year	Commissions Paid to ESI*		Broker-Dealers
2006	$3,651,765	$0
2007	$4,016,690	$0
2008	$2,659,670	$0

* Includes sales compensation paid to registered persons of ESI.

2

ESI passes through commissions it receives and does not retain any override as distributor for the Policies.

From time to time National Life, in conjunction with ESI, may conduct special sales programs.

CONTRACTUAL ARRANGEMENTS BETWEEN NATIONAL LIFE AND THE PORTFOLIOS’
INVESTMENT ADVISORS OR DISTRIBUTORS

We have entered into or may enter into agreements pursuant to which a Fund’s 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 in the
Fund on behalf of the Separate Account and our other separate accounts. This fee is for administration and other
services we provide. The amount of this compensation with respect to the Policy during 2008, which is based upon
the indicated percentages of assets of each Fund, attributable to the Policy, is shown below:

		Revenues Received by National
Portfolios of the	% of Assets	Life During 2008*
AIM Variable Insurance Funds Series I Shares	0.25%	$ 13,530.69
Alger American Fund	0.10%	24,336.59
American Century Variable Portfolios, Inc.	0.25%1	56,481.43
Dreyfus Variable Investment Fund and
Dreyfus Socially Responsible Growth Fund, Inc.	0.20%	2,446.43
DWS Variable Series II	0.40%3	17,046.41
Fidelity® Variable Insurance Products	0.10%2	93,768.15
Franklin Templeton Variable Insurance Products Trust	0.35%3	23,101.78
J.P. Morgan Series Trust II	0.20%	8,232.07
Neuberger Berman Advisers Management Trust	0.15%4	16,020.50
T. Rowe Price Equity Series, Inc.	0.25%5	14,038.30
Wells Fargo Variable Trust	0.25%3	22,233.95

*Note: Revenues received by National Life during 2008 includes revenues received for services rendered in 2007.
¹0.10% on the VP Inflation Protection Portfolio.
²0.05% with respect to the Index 500 Portfolio.
³Includes 0.25% payable under the Fund’s 12b-1 Plan.
⁴The Small Cap Growth Portfolio offers only an S-Series class, which has a 0.25% 12b-1 fee which is also paid to
ESI.
⁵The 0.25% payment shown in the table is payable under the Fund’s 12b-1 plan. In addition, the Fund’s 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.

These arrangements may change from time to time, and may include more Funds in the future.

In addition, ESI has entered into agreements pursuant to which a Fund’s distributor pays ESI a fee, which may
differ, based upon an annual percentage of average net asset amount we invest on behalf of the Separate Account
and our other separate accounts. That fee is for other services ESI provides.

TERMS OF UNDERLYING PORTFOLIO PARTICIPATION AGREEMENTS

The participation agreements under which the Funds sell their shares to subaccounts of the Separate Account contain
varying termination provisions. In general, each party may terminate at its option with specified advance written
notice, and may also terminate in the event of specific regulatory or business developments.

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

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Additionally, in certain circumstances, it is possible that a Fund or a Portfolio of a Fund may refuse to sell its shares
to a subaccount despite the fact that the participation agreement between the Fund and us has not been terminated.
Should a Fund or Portfolio of such Fund decide not to sell its shares to us, we will not be able to honor your requests
to allocate cash values or Net Premiums to subaccounts investing in shares of that Fund or Portfolio.

The Funds are available to registered separate accounts of insurance companies, other than National Life, offering
variable annuity contracts and variable life insurance policies or qualified retirement plans, or to certain pension or
retirement plans qualifying under Section 401 of the Internal Revenue Code. As a result, there is a possibility that a
material conflict may arise as a result of such “mixed and shared” investing. That is, it is possible that a material
conflict could arise between the interests of Owners with Accumulated Value allocated to the Separate Account and
the owners of life insurance policies, variable annuity contracts, or of certain retirement or pension plans issued by
such other companies whose values are allocated to one or more other separate accounts investing in any one of the
Funds.

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

UNDERWRITING PROCEDURES

In most cases we will perform an evaluation of a proposed Insured’s health and other mortality risk factors before
issuing a Policy. This process is often referred to as “underwriting”. We will request that a number of questions
about the proposed Insured be answered on the application for a Policy, and we may require a telephone conference,
certain medical tests, and/or a medical examination. When we have evaluated all the necessary information, we will
place a proposed Insured into one of the following Rate Classes:

• elite preferred nonsmoker;
• preferred nonsmoker;
• standard nonsmoker;
• preferred smoker;
• standard smoker;
• juvenile and
• substandard.

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

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

The guaranteed maximum cost of insurance rates will be set forth in your Policy, and will depend on:

• the Insured’s Attained Age;
• the Insured’s sex;
• the Insured’s Rate Class and
• the 1980 Commissioners Standard Ordinary Smoker/Nonsmoker Mortality Table.

For Policies issued in states which require “unisex” policies or in conjunction with employee benefit plans, the
guaranteed maximum cost of insurance rate will use the 1980 Commissioners Standard Ordinary Mortality Tables
NB and SB.

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From time to time, we may also offer promotional programs under which a proposed Insured may apply for a Policy
subject to minimal underwriting subject to certain restrictions (e.g., if the proposed Insured has purchased a fully
underwritten life insurance policy at Preferred or Standard rates from a company on our approved list (a) within the
past three years or (b) within the past five years and had a full physical exam in the last 24 months).

INCREASES IN FACE AMOUNT

You should be aware that if you increase the Face Amount of your Policy, this will generally affect the total Net
Amount at Risk. This will normally increase the monthly Cost of Insurance Charges. In addition, the Insured may
be in a different Rate Class as to the increase in insurance coverage. We use separate cost of insurance rates for the
Initial Face Amount and any increases in Face Amount. For the Initial Face Amount we use the rate for the
Insured’s Rate Class on the Date of Issue. For each increase in Face Amount, we use the rate for the Insured’s Rate
Class at the time of the increase. If the Unadjusted Death Benefit is calculated as the Accumulated Value times the
specified percentage, we use the rate for the Rate Class for the Initial Face Amount for the amount of the Unadjusted
Death Benefit in excess of the total Face Amount for Option A, and in excess of the total Face Amount plus the
Accumulated Value for Option B.

We calculate the Net Amount at Risk separately for the Initial Face Amount and increases in Face Amount. In
determining the Net Amount at Risk for each increment of Face Amount, we first consider the Accumulated Value
part of the Initial Face Amount. If the Accumulated Value exceeds the Initial Face Amount, we consider it as part of
any increases in Face Amount in the order such increases took effect.

Each increase in Face Amount will begin a new period of Surrender Charges in effect for 15 years from the date of
the increase. This additional Surrender Charge is based on the Face Amount of the increase only. We describe this
additional Surrender Charge in detail in the “Surrender Charge” section of the prospectus.

OTHER POLICY PROVISIONS

Indefinite Policy Duration

The Policy can remain in force indefinitely (in New York, Texas and Maryland, however, the Policy matures at
Attained Age 99 at which time we will pay the Cash Surrender Value to you in one sum unless you have chosen a
Payment Option, and the Policy will terminate). However, for a Policy to remain in force after the Insured reaches
Attained Age 99, if the Face Amount plus any Additional Protection Benefit coverage is greater than the
Accumulated Value, the Face Amount plus any Additional Protection Benefit coverage will automatically be
decreased to the current Accumulated Value. Also, at Attained Age 99 Option B automatically becomes Option A.
No premium payments are allowed after Attained Age 99, although loan repayments are allowed. The tax treatment
of a Policy’s Accumulated Value after Age 100 is unclear, and you may wish to discuss this treatment with a tax
advisor.

Operation at Age 99 with No Lapse Guarantee

The presence of no lapse guarantee rider changes the normal operation of the Policy at age 99 (as described in Other
Policy Provisions – Indefinite Policy Duration, above). First, the Face Amount will not be decreased to the
Accumulated Value at age 99. Second, all Monthly Deductions on the Policy will stop at age 99. All other aspects
of the Policy operation at age 99 will be unchanged.

New York Policies - Reduced Paid–Up Benefit

Prior to maturity, Owners of Policies issued in New York may elect to continue the Policy in force as paid-up
General Account life insurance coverage. All or a portion of the Cash Surrender Value of the Policy will be applied
to paid-up life insurance coverage. We will pay in one lump sum any amount of the Cash Surrender Value which
you do not apply toward paid-up life insurance coverage. You may thereafter surrender any paid-up General
Account life insurance at any time for its value.

The Policy

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

Change of Owner and Beneficiary

As long as the Policy is in force, you may change the Owner or Beneficiary by sending us an acceptable written
request. The change will take effect as of the date the request is signed, whether or not the Insured is living when
we receive the request. We will not be responsible for any payment made or action taken before we receive the
written request. A change of Owner may have tax consequences.

Split Dollar Arrangements

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

For example, an employer and employee might agree that under a Policy on the life of the employee, the employer
will pay the premiums and will have the right to receive the Cash Surrender Value. The employee may designate
the Beneficiary to receive any Death Benefit in excess of the Cash Surrender Value. If the employee dies while such
an arrangement is in effect, the employer would receive from the Death Benefit the amount which the employer
would have been entitled to receive upon surrender of the Policy and the employee’s Beneficiary would receive the
balance of the proceeds.

No transfer of Policy rights pursuant to a Split Dollar Arrangement will be binding on us unless it is in writing and
received by us. We do not assess any specific charge for Split Dollar Arrangements.

The IRS has issued guidance affecting Split Dollar Arrangements. Any parties who elect to enter into a Split Dollar
Arrangement should consult their own tax advisers regarding the tax consequences of such an arrangement.

Assignments

You may assign any and all rights under the Policy. We are not bound by an assignment unless it is in writing and
we receive it at our Home Office. We assume no responsibility for determining whether an assignment is valid, or
the extent of the assignee’s interest. All assignments will be subject to any Policy loan. The interest of any
Beneficiary or other person will be subordinate to any assignment. A payee who is not also the Owner may not
assign or encumber Policy benefits, and to the extent permitted by applicable law, such benefits are not subject to
any legal process for the payment of any claim against the payee. An assignment of the Policy may have tax
consequences.

Suicide

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

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

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Arbitration

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

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

Dividends

The Policy is participating; however, no dividends are expected to be paid on the Policy. If dividends are ever
declared, they will be paid in cash, except where otherwise required by state law. At the time of the Insured’s death,
the Death Benefit will be increased by dividends payable, if any.

Correspondence

All correspondence to you is deemed to have been sent to you if mailed to you at your last address known to us.

Settlement Options

In lieu of a single sum payment on death or surrender, you may elect to apply the Death Benefit under any one of the
fixed-benefit Settlement Options provided in the Policy. (Even if the Death Benefit under the Policy is excludible
from income, payments under Settlement Options may not be excludible in full. This is because earnings on the
Death Benefit after the insured’s death are taxable and payments under the Settlement Options generally include
such earnings. You should consult a tax advisor as to the tax treatment of payments under the Settlement Options.)
The options are described below.

Payment of Interest Only. We will pay interest at a rate of 3.5% per year on the amount of the proceeds retained by
us. Upon the earlier of the payee’s death or the end of a chosen period, the proceeds retained will be paid to the
payee or his or her estate.

Payments for a Stated Time. We will make equal monthly payments, based on an interest rate of 3.5% per annum,
for the number of years you select.

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

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

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

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

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

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

AUTOMATED FUND TRANSFER FEATURES

Dollar Cost Averaging

You may elect Dollar Cost Averaging at issue by marking the appropriate box on the initial application, and
completing the appropriate instructions. You may also begin a Dollar Cost Averaging program after issue by filling
out similar information on a change request form and sending it to us at our Home Office.

If you elect this feature, 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, each month on the Monthly Policy Date. If you
elect Dollar Cost Averaging on your application for the Policy, it will start with the Monthly Policy Date after the
date that is 20 days after issue. If you begin a Dollar Cost Averaging program after the free look period is over, it
will start on the next Monthly Policy Date. Dollar Cost Averaging will continue until 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 the Home Office. You may not use the
dollar cost averaging feature to transfer Accumulated Value to the General Account.

Dollar Cost Averaging allows you to move funds into the various investment types on a more gradual and
systematic basis than the frequency on which you pay premiums. 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, however, assure a profit or protect
against a loss in declining markets. Moreover, for the dollar cost averaging technique to be effective, amounts
should be available for allocation from the Money Market Subaccount through periods of low price levels as well as
higher price levels.

If you initiate Dollar Cost Averaging on a Policy that is participating in the Illuminations program, your Policy’s
participation in the Illuminations program will terminate.

Portfolio Rebalancing

You may elect Portfolio Rebalancing at issue by marking the appropriate box on the application, or, after issue, by
completing a change request form and sending it to our Home Office.

In Policies utilizing Portfolio Rebalancing from the Date of Issue, an automatic transfer will take place which causes
the percentages of the current values in each subaccount to match the current premium allocation percentages,
starting with the Monthly Policy Date six months after the Date of Issue, and then on each Monthly Policy Date six
months thereafter. Policies electing Portfolio Rebalancing after issue will have the first automated transfer occur as
of the Monthly Policy Date on or next following the date we receive the election at our Home Office, and
subsequent rebalancing transfers will occur every six months from that date. You may discontinue Portfolio
Rebalancing at any time by submitting an appropriate change request form to us at our Home Office.

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If you change your Policy’s premium allocation percentages, Portfolio Rebalancing will automatically be
discontinued unless you specifically direct otherwise.

Portfolio Rebalancing will result in periodic transfers out of subaccounts that have had relatively favorable
investment performance in relation to the other subaccounts to which a Policy allocates premiums, and into
subaccounts which have had relatively unfavorable investment performance in relation to the other subaccounts to
which the Policy allocates premiums. Portfolio Rebalancing does not guarantee a profit or protect against a loss.

If you change Portfolio Rebalancing on a Policy that is participating in the Illuminations program, your Policy’s
participation in the Illuminations program will terminate.

OPTIONAL BENEFITS

You may include additional benefits, which are subject to the restrictions and limitations set forth in the applicable
Policy riders, in your Policy at your option. Election of any of these optional benefits involves an additional cost.
These costs are set forth in the “Fee Table” section of the prospectus. Some information with respect to many of the
available riders is included in the prospectus. We provide additional information about optional benefits below.

Guaranteed Death Benefit

The guaranteed death benefit rider is summarized in the prospectus. Additional information with respect to this
rider is provided below.

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

If you increase the Face Amount of a Policy subject to the guaranteed death benefit rider, the rider’s guarantee will
extend to the increased Face Amount. This will result in increased Minimum Guarantee Premiums.

If you have elected both the Waiver of Monthly Deductions rider and the guaranteed death benefit rider, and
Monthly Deductions are waived because of total disability, then we will also waive the Minimum Guarantee
Premiums required to keep the guaranteed death benefit rider in force during the period that Monthly Deductions are
being waived.

If you wish to keep this rider in force, you must limit Withdrawals and Policy loans to the excess of premiums paid
over the sum of the Minimum Monthly Premiums in effect since the Date of Issue. If you take a Policy loan or
Withdrawal for an amount greater than such excess, the guaranteed death benefit rider will enter a 61-day lapse-
pending notification period, and will be cancelled if you do not pay a sufficient premium.

If you purchase both the guaranteed death benefit rider and the additional protection benefit rider on your Policy,
and the most current version of the additional protection benefit rider has been approved by your state, then during
the first five Policy Years, the guaranteed death benefit rider will not protect the Death Benefit coverage provided by
the additional protection benefit rider. In this situation, if during the first five Policy Years on any Monthly Policy
Date the Accumulated Value under the Policy is not sufficient to pay the Monthly Deduction due on that date, the
Death Benefit coverage provided by the additional protection benefit rider may lapse, even if you have paid the
Minimum Guarantee Premium. After the first five Policy Years, as long as you have paid the Minimum Guarantee
Premium, the guaranteed death benefit rider will prevent lapse of both the Death Benefit coverage provided by the
base Policy and the Death Benefit coverage provided by the additional protection benefit rider.

No-Lapse Guarantee

The no-lapse guarantee rider is summarized in the prospectus. Additional information with respect to this rider is
provided below.

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Calculation of Cumulative General Account Premium. The Cumulative General Account Premium for the no-lapse
guarantee rider is calculated as follows:

a)	the Cumulative General Account Premium on the preceding Monthly Policy Date, accumulated with
	interest for purposes of this calculation at an effective annual rate of 6%; plus
b)	the Net Premium Payments allocated to the General Account after the preceding Monthly Policy Date, to
	and including the current Monthly Policy Date, divided by 0.9675, and accumulated with interest for
	purposes of this calculation at an effective annual rate of 6% from the preceding Monthly Policy Date
	(except that no such accumulation shall apply to Net Premium Payments allocated on the current Monthly
	Policy Date); plus
c)	the Accumulated Value of your Policy transferred into the non-loaned portion of the General Account after
	the preceding Monthly Policy Date, to and including the current Monthly Policy Date, divided by 0.9675
	and accumulated with interest for purposes of this calculation at an effective annual rate of 6% from the
	preceding Monthly Policy Date(except that no such accumulation shall apply to such transfers effected on
	the current Monthly Policy Date); minus
d)	the Accumulated Value of your Policy transferred or withdrawn from the non-loaned portion of the General
	Account after the preceding Monthly Policy Date, to and including the current Monthly Policy Date,
	divided by 0.9675 and accumulated with interest for purposes of this calculation at an effective annual rate
	of 6% from the preceding Monthly Policy Date (except that no such accumulation shall apply to such
	transfers or Withdrawals occurring on the current Monthly Policy Date).

The reason for dividing the amounts in (b), (c) and (d) by 0.9765, which is equal to one minus the Premium Tax
Charge (i.e., 1 - .0325 = .9675), is to put these amounts on a basis comparable to the Monthly Guarantee Premium,
which is before premium taxes.

Automatic Transfer into General Account - Lapse. If on any Monthly Policy Date while the rider is in force, your
Cumulative General Account Premium is less than the required cumulative monthly guarantee premium, we will
transfer value from the subaccounts on a pro rata basis to the General Account to satisfy the test. If the value in the
subaccounts is not enough to satisfy the test, we will transfer all of the value in the subaccounts to the General
Account and we will send you a notice that the conditions of the rider have not been met. You will have 61 days
from the date we mail the notice to pay a premium sufficient to keep the rider in force. The required premium will
be the amount needed to satisfy the conditions of the rider on the Monthly Policy Date two months following the
Monthly Policy Date that the test was failed. The rider will be cancelled if a sufficient premium is not paid during
the 61-day period. If cancelled, the rider cannot be reinstated.

Monthly Deductions. While the no-lapse guarantee rider is in force, all Monthly Deductions will be deducted from
the General Account. If, while the rider is in force, the Accumulated Value in the General Account is not enough to
deduct the Monthly Deduction, Monthly Deductions will be made until the Accumulated Value in the General
Account is exhausted. Thereafter, Monthly Deductions will be deferred, and collected at such time as the General
Account has positive Accumulated Value.

Effect of Increases or Decreases. If you increase the Face Amount of a Policy with the no-lapse guarantee rider, the
rider’s guarantee will extend to the increase. This will result in an increase in the Monthly Guarantee Premium. If
you decrease the Face Amount, the rider’s guarantee will apply to the reduced amount and the Monthly Guarantee
Premium will be correspondingly reduced.

Waivers of Monthly Deductions. If your Monthly Deductions are being waived under the operation of the waiver of
monthly deductions rider or the accelerated care rider, then the Monthly Guarantee Premium required on each
Monthly Policy Date while Monthly Deductions are being waived will be zero.

Effect of Withdrawals or Loans. If you wish to keep this rider in force, you must limit Withdrawals and loans to the
amounts in the subaccounts and amounts in the General Account not needed to satisfy the conditions of the rider. If
you take a Withdrawal or loan from the General Account which reduces the Cumulative General Account Premium

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below the cumulative monthly guarantee premium, the rider will enter the 61-day lapse pending notification period
and will be cancelled if you do not pay a sufficient premium.

11

Effect of Transfers out of General Account. Transfers out of the General Account may also put the status of the
rider in jeopardy. If you transfer an amount from the General Account which reduces the Cumulative General
Account Premium below the cumulative monthly guarantee premium, under the operation of the rider, we will
transfer an amount back to the General Account on the next Monthly Policy Date to cause the Cumulative General
Account Premium to equal the cumulative monthly guarantee premium. There can be no assurance that an adequate
amount will be available in the subaccounts for transfer to the General Account on the next Monthly Policy Date
because the performance of the subaccounts is not guaranteed; if it is not, the rider will enter the 61-day lapse
pending notification period and will be cancelled if you do not pay a sufficient premium. We will waive the
limitation of one transfer per Policy Year from the General Account, with respect to transfers from the General
Account of amounts not needed to satisfy the conditions of the rider.

Example. A 45 year old male in the preferred underwriting category purchases a VariTrak Policy with a
$250,000 Face Amount, with the no lapse guarantee rider. The Monthly Guarantee Premium, which is
stated on the rider, is $134.78. The Policyowner pays an Initial Premium equal to $269.56 (two times the
Monthly Guarantee Premium), and then plans to begin making automatic monthly premium payments of
$201.16 on the Monthly Policy Dates starting with the Monthly Policy Date which is two months after
the Date of Issue. If he makes Premium Payments at the times planned and at least equal to the planned
levels, allocates 67% of each such payment ($134.78) to the General Account, and makes no loans,
transfers or Withdrawals out of the General Account, he can be assured that the Policy will not lapse,
regardless of the investment performance of the Separate Account, the level of interest credited to the
General Account, and the amounts of the Monthly Deductions. During this time, all of the Monthly
Deductions for the Policy will be taken from the General Account and not from the Separate Account.
These Monthly Deductions will include a rider charge of $12.50 per month ($250,000 Face Amount times
$.05 per thousand per month).

Now assume that after making the planned Premium Payments for six months, the Policyowner skips a
payment. Since in this case the Owner’s Cumulative General Account Premium has just been matching
the cumulative monthly guarantee premium while the payments were being made, the skipped payment
will result in the Owner’s Cumulative General Account Premium being less than the cumulative monthly
guarantee premium. As a result, on the Monthly Policy Date corresponding to the skipped payment, we
will seek to automatically transfer Accumulated Value from the Separate Account to the General Account
in an amount sufficient to make up the shortfall in Cumulative General Account Premium that resulted
from the skipped payment. In this situation the shortfall would be $134.78. If the investment return on
the six payments of $66.38 into the Separate Account has been zero after netting out the Mortality and
Expense Risk Charge, the fund expenses and the Premium Taxes on that portion of the Premium
Payments, the Accumulated Value in the Separate Account will now be $398.28 (6 x $66.38). Under
these facts, we will be able to effect to automatic transfer into the General Account, leaving $263.50 in
Accumulated Value in the Separate Account.

If there had not been sufficient Accumulated Value in the Separate Account to fully make up the
shortfall, the no lapse guarantee rider will be cancelled if a sufficient premium as described above under
"Automatic Transfer into General Account - Lapse of Rider" is not paid within 61 days after we notify the
Owner that such a payment is necessary to prevent cancellation of the rider.

The same procedure, involving the automatic transfer of Accumulated Value from the Separate Account
to the General Account, and the lapse pending process for the rider in the event the Accumulated Value in
the Separate Account is not sufficient, would also be followed in the event the Policyowner makes a
transfer out of the General Account, or makes a Withdrawal or takes a loan which requires some
Accumulated Value to be taken out of the General Account.

In Florida and Maryland, the no-lapse guarantee rider does not include the continuing coverage provision. The
continuing coverage provision provides that at the Insured’s Attained Age 99, if the rider is still in force, the Face
Amount of the policy will remain as stated in the Policy’s Data Section, rather than being set equal to the
Accumulated Value. The provision also prohibits additional premiums from being accepted and ceases all Monthly
Deductions.

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Waiver of Monthly Deductions

If you elect the waiver of monthly deductions rider, we will waive Monthly Deductions against the Policy if the
Insured becomes totally disabled, before age 65 and for at least 120 consecutive days. In Pennsylvania, the 120 days
of disability need not be consecutive, but must occur within a period of 240 consecutive days. If total disability
occurs after age 60 and before age 65, then we will waive Monthly Deductions only until the Insured reaches
Attained Age 65, or for a period of two years, if longer. The monthly cost of this rider while it is in force is based
on sex-distinct rates (except for Policies issued in states which require “unisex” policies or in conjunction with
employee benefit plans, where the cost of this rider will not vary by sex) multiplied by the Monthly Deduction on
the Policy. We will add this cost to the Monthly Deduction on the Policy.

Accidental Death Benefit

The accidental death benefit rider provides for an increased Death Benefit in the event that the Insured dies in an
accident. If you elect this rider, we will add the monthly cost of this rider, which varies based on age and sex, to the
Monthly Deduction on the Policy.

Guaranteed Insurability Option

This rider permits you at certain ages or upon certain life events to increase the Face Amount of the Policy, within
certain limits, without being required to submit satisfactory proof of insurability at the time of the request for the
increase. Again, if you elect this rider, we will add the monthly cost of this rider, which is based on age at the time
of purchase of the rider and sex, to the Monthly Deduction on the Policy.

Rider for Disability Benefit – Payment of Mission Costs

If you are buying your Policy through a registered representative who is an agent of Beneficial Life Insurance
Company, you may at your option include in your Policy the rider for disability benefit – payment of mission costs.
Election of this benefit involves additional cost.

This rider, which is subject to the restrictions and limitations set forth in the rider, provides a monthly benefit equal
to the expenses of any dependent children (under age 30) participating in voluntary mission service, up to a
maximum of $375 per month per child, while the Insured is totally disabled. The maximum benefit duration is 24
months for each child. The maximum benefit will be adjusted for inflation at an annual rate of 3%.

Benefits will be paid when the Insured has been continuously disabled for a period of six months due to disabilities
occurring prior to age 65. After six months of continuous disability, benefit payments are retroactive to the
beginning of the period. Coverage ceases at age 65. For Insureds disabled prior to age 65, benefit eligibility
continues until disability ends.

The monthly cost of this rider is level, and varies by the age at issue and the sex of the Insured (except for Policies
issued in states which require “unisex” Policies, where the cost of this rider will not vary by sex). The cost of the
rider does not vary by the number of dependent children. Depending on the age and sex of the Insured, the monthly
cost of the rider will range from $1.65 to $4.25. The monthly cost of this rider will be added to the Monthly
Deduction on the Policy.

This rider is not available in all states.

Accelerated Care

We offer an accelerated care rider under which we will make periodic partial prepayments to you of all or a portion
of your Death Benefit, including any Additional Protection Benefit amounts, if the Insured becomes “chronically
ill”. The Insured is deemed “chronically ill” if he or she”:

- - is unable to perform, without substantial assistance, at least two activities of daily living for at least 90
consecutive days due to a loss of functional capacity; or

13

- - requires substantial supervision by another person to protect the Insured from threats to health and safety
due to his or her own severe cognitive impairment.

The accelerated care rider may not cover all of the long-term expenses the Insured incurs during the period of
coverage.

While your Policy is in force, we will begin to pay benefits under this rider provided:

• we receive proof satisfactory to us that the Insured is chronically ill,
• we receive a plan of care to address the Insured’s chronic illness, and
• 60 days have elapsed since the Insured began receiving “qualified long-term care services,” as defined in

the rider (we refer to this 60-day period as the “elimination period”).

The 60 days need not be consecutive, but must be completed within a period of 180 days. We will not pay for
expenses incurred during the elimination period. We will continue to pay benefits under this rider only if you
continue to submit documentation of continuing unreimbursed expenses within 90 days after the end of each month
during which the Insured receives such services. In addition, we will require, no more than once every 90 days
while benefits are being paid, a certification from the Insured’s care coordinator that the Insured remains chronically
ill.

The benefit date is the first day on which the Insured incurs expenses for qualifying long-term care services, as
defined in the rider.

If your Policy’s Death Benefit option is Option B on the final day of the elimination period, we automatically will
change the Death Benefit option to Option A on the benefit date. At that time, we also will increase the Face
Amount of your Policy by an amount equal to your Policy’s Accumulated Value.

The accelerated care benefit amount we will pay in any month will not exceed the lesser of (i) the actual expenses
incurred by the Insured for qualified long-term care services, as defined in the rider, minus any deductible or
coinsurance amounts and any reimbursement from Medicare (except as a secondary payee) and other government
programs, excluding Medicaid, and (ii) the monthly benefit limits. When you apply for the rider, you select from
one of two options we use to determine the monthly benefit limits. Once you select an option, you cannot change it.
The options are:

	Percentage Limit
Covered Service	Option 1	Option 2
Nursing Home Care	1.0%	2.0%
Home Health Care	1.0%	2.0%
Adult Day Care	0.5%	1.0%

The monthly benefit limit for a particular type of care equals the Death Benefit of the Policy at the benefit date
multiplied by the percentage limits based on the option selected. If an Insured should incur more than one type of
care in a given month, we will pay expenses incurred for all qualified long-term care services during that month up
to the greatest monthly benefit limit applicable to one type of care received. We will prorate the monthly benefit
limit for each type of care for partial months of eligibility.

If the Owner exercises any right under the Policy which changes the Death Benefit of the Policy, the monthly
benefit limits will be adjusted accordingly in proportion to the change in the Death Benefit.

When we make an accelerated care benefit payment, we will also calculate a monthly benefit ratio. We describe this
ratio in your Policy and use the monthly benefit ratio to determine how each accelerated care benefit payment we
make affects your Policy’s values.

Each time we make an accelerated care benefit payment, we will:

14

a)	reduce your remaining benefit amount (this amount is initially the Death Benefit at the benefit date) by the amount of each accelerated care benefit payment;
b)	reduce your Policy’s Face Amount (including any increase segments), Accumulated Value, and any Surrender Charges in effect on the your Policy immediately following any accelerated care benefit payment to their respective values immediately preceding that payment times the monthly benefit ratio associated with that payment;
c)	reduce your Policy’s Death Benefit to reflect reductions in your Policy’s Face Amount and Accumulated Value; and
d)	reduce your Minimum Monthly Premium to reflect the reduction in your Policy’s Face Amount.

Each accelerated care benefit payment will be applied to pay a pro-rata portion of any debt owed to us on the Policy.
When the cumulative accelerated care benefit payments reach the initial benefit amount, equal to the Death Benefit
at the benefit date, payments under the rider will end.

We will offer an optional inflation protection feature with this rider. This feature will increase the amount available
for acceleration without increasing the Policy’s Death Benefit. As a result, accelerated care riders sold with this
feature will accelerate the Death Benefit faster than those sold without it.

We will waive all Monthly Deductions for your Policy and all riders attached to your Policy while accelerated care
benefits are being paid under this rider. All other charges under your Policy, including the daily mortality and
expense risk charge, will continue to apply. While accelerated care benefits are being paid under this rider, we may
require that the Accumulated Value of your Policy be held entirely in the General Account. In addition, the Death
Benefit option may not be changed while accelerated care benefits are being paid under the rider. The Owner may
once again allocate new premiums or transfer Accumulated Value to subaccounts of the Separate Account following
180 consecutive days during which qualified long-term care services are not incurred by the Insured.

Charges. We will assess a monthly charge for the accelerated care rider, which will include an amount per $1,000
of Net Amount at Risk, and an amount per dollar of Monthly Deduction. We will add this charge to your Monthly
Deduction. The rider charge varies based on the age and gender of the Insured, and the benefit options selected.
Once we pay benefits under the accelerated care rider, we waive this charge until the Insured is no longer eligible to
receive benefits. If you elect the accelerated care rider, you may be deemed to have received a distribution for tax
purposes each time we make a deduction from your Policy’s Accumulated Value to pay the rider charges. You
should consult a tax adviser with respect to these charges. See “Tax Consequences Associated with Accelerated
Care and Chronic Care Protection Riders” in the prospectus under “Federal Income Tax Consequences.”

Tax Consequences. The accelerated care rider has been designed to meet federal tax requirements that should
generally allow accelerated care benefit payments to be excluded from gross income. You should consult a tax
adviser before adding this rider to your Policy because guidance with respect to these requirements is limited.

Availability. The accelerated care rider is available only at issue and is subject to full medical underwriting. This
rider will not be available in qualified plans. The accelerated care rider will not be available for Policies with Face
Amounts (including any Additional Protection benefit coverage) in excess of $1,000,000. The accelerated care rider
will terminate if the base Policy terminates, or if you choose to terminate the rider.

In general, we will not issue the accelerated care rider on a Policy with substandard ratings. However, the rider can
be added to a Policy with a substandard rating at our discretion if the Insured meets the standard underwriting
requirements for long-term care risk.

The accelerated care rider provides for certain exclusions from coverage. Please see your rider for more details.

15

Chronic Care Protection

We also offer an optional chronic care protection rider, which provides benefits to pay for expenses incurred by an
Insured for qualified long-term care services beyond the date on which payments under an accelerated care rider
would terminate because the entire Death Benefit of the Policy including any Additional Protection Benefit amounts
has been accelerated. The chronic care protection rider may not cover all of the long-term expenses the Insured
incurs during the period of coverage.

While your Policy is in force, we will begin to pay benefits under this rider provided:

a)	we receive proof satisfactory to us that the Insured is chronically ill,
b)	we receive a plan of care to address the Insured’s chronic illness, and
c)	we have accelerated the entire Death Benefit of the Policy under the accelerated care rider.

We will continue to pay benefits under this rider only if you continue to submit documentation of continuing
unreimbursed expenses within 90 days after the end of each month during which the Insured receives such services.
In addition, we will require, no more than once every 90 days while benefits are being paid, a certification from the
Insured’s care coordinator that the Insured remains chronically ill.

Because chronic care protection benefits represent an extension of benefits beginning after the benefit amount under
the accelerated care rider have been exhausted, payment of chronic care protection benefits will not effect your
Policy’s values.

The chronic care protection benefit amount that we will pay in any month may not exceed the lesser of the actual
expenses incurred by the Insured for qualified long-term care services, minus any deductible or coinsurance amounts
and any reimbursement from Medicare (except as a secondary payor) and other government programs, excluding
Medicaid, and (ii) the monthly benefit limit. When you apply for this rider, you select one of the three benefit
options we offer. We use these benefit options to determine monthly benefit limits and benefit periods. Once you
select a benefit option, you cannot change it. We reserve the right to limit the availability of the benefit options
based on the benefit option you selected for the accelerated care rider.

		Percentage Limit
Covered Service	Option 1	Option 2	Option 3
Nursing Home Care	1.0%	2.0%	2.0%
Home Health Care	1.0%	2.0%	2.0%
Adult Day Care	0.5%	1.0%	1.0%
Option	Benefit Period
Option 1	Until the death or recovery of the Insured.
Option 2	Until the death or recovery of the Insured.
Option 3	Until an amount equal to the inflation adjusted rider Face
Amount has been paid under the rider.

The monthly benefit limit for a particular type of care is equal to the chronic care protection rider Face Amount
multiplied by the percentage limit for the option selected. If an Insured should incur costs for more than one type of
care in a given month, we will pay benefits for all covered costs incurred during that month up to the greatest
monthly benefit limit applicable to one type of care received. We will prorate the maximum monthly benefit for
each type of care for partial months of eligibility.

This rider includes an optional nonforfeiture provision that provides nonforfeiture benefits for any Insured whose
coverage under this rider lapses after three years. Electing optional non-forfeiture benefits may have tax
consequences. You should consult a tax adviser before electing the optional non-forfeiture provision.

16

An optional inflation protection feature will be available with this rider. This feature will increase the maximum
monthly benefit at an annual effective rate of 5% for the number of whole Policy Years that have elapsed since the
effective date of the rider.

Charge. We will assess a monthly charge per $1,000 of Face Amount for the chronic care protection rider. We will
add this charge to your Monthly Deduction. The chronic care protection rider charge varies based on the age and
gender of the Insured, and the benefit options selected. If you elect the chronic care protection rider, you will be
deemed to have received a distribution for tax purposes each time we make a deduction from your Policy’s
Accumulated Value to pay the rider charges. You should consult a tax adviser with respect to these charges.

Tax Consequences. The chronic care protection rider has been designed to meet the federal tax requirements that
should generally allow the payment of benefits to be excluded from gross income. In certain states, we may also
offer a chronic care protection non-qualifying long-term care rider. The tax consequences associated with benefit
payments from this rider are, however, unclear, and a tax advisor should be consulted. You should also consult a tax
adviser before adding to your Policy because guidance with respect to such federal tax requirements is limited.

Availability. The chronic care protection rider is available only at issue and is subject to full medical underwriting.
You may only elect this rider if you have also elected the accelerated care rider. The chronic care protection rider
will not be available in qualified plans. This rider will terminate if the base Policy terminates, if the accelerated care
rider terminates (not including when you have received the full benefit under that rider), or if you choose to
terminate the rider.

In general, we will not issue the rider on a Policy with substandard ratings. However, the rider can be added to a
Policy with a substandard rating at our discretion if the Insured meets the standard underwriting requirements for
long-term care risk.

The chronic care protection rider provides for certain exclusions from coverage. Please see your rider for more
details.

Tax Consequences Associated with Accelerated Care and Chronic Care Protection Riders

We believe that benefits payable under the accelerated care rider and the chronic care protection rider should
generally be excludable from gross income under the Internal Revenue Code (“Code”). The exclusion of these
benefit payments from taxable income, however, is contingent on the rider meeting specific requirements under the
Code. While guidance is limited, we believe that the accelerated care rider should satisfy these requirements.

The tax treatment of benefits payable under the chronic care protection rider are less clear if you elect the optional
nonforfeiture provision. Moreover, the tax qualification consequences of continuing the Policy after a distribution is
made under the accelerated care rider and the chronic care protection rider are unclear. You should consult a tax
adviser about those consequences.

In certain states, however, we may also offer long term care riders that do not satisfy the requirements of the Code to
be treated as qualified long-term care (“nonqualifying long-term care riders.”) Because the federal tax consequences
associated with benefits paid under nonqualifying long-term care riders are unclear, you should consult a tax adviser
regarding the tax implications of adding nonqualifying long-term care riders to your Policy. We will advise you
whether we intend for your rider to be nonqualifying.

You will be deemed to have received a distribution for tax purposes each time a deduction is made from your Policy
Accumulated Value to pay charges for the chronic care protection rider, or any nonqualifying long-term care rider.
The distribution will generally be taxed in the same manner as any other distribution under the Policy. The tax
treatment associated with the Monthly Deduction attributable to the cost of the accelerated care rider is unclear.
You should consult a tax adviser regarding the treatment of these payments.

17

Accelerated Benefit

This rider provides an accelerated Death Benefit prior to the death of the Insured in certain circumstances where a
terminal illness or chronic illness creates a need for access to the Death Benefit. Accelerated Death Benefits paid
under this rider are discounted. The following factors may be used in the determination of the accelerated Death
Benefit: Cash Surrender Value of the Policy, future premiums that may be paid under the Policy, any administrative
fee assessed, mortality expectations, and the accelerated benefit interest rate in effect. This rider is not available in
all states and its terms may vary by state. There is no cost for this rider. It can be included in a Policy at issue, or it
can be added after issue, for Insureds ages 0-85. The maximum amount payable under this rider is $500,000. An
Insured who has a chronic illness, as defined in the rider, may not receive benefits under the rider until a period of
time not to exceed five years after the rider’s issue has passed. Although this is not guaranteed, we currently require
that this waiting period be only two years.

This rider has been designed to meet the federal tax requirements that will generally allow accelerated benefits to be
excluded from gross income. You should consult a tax advisor regarding the consequences of accelerating the
Death Benefit under this rider because guidance with respect to such federal tax requirements is limited.

Overloan Protection

The overloan protection rider is summarized in the prospectus. Additional information with respect to this rider is
provided below.

Calculation of Cost. There is a one-time exercise charge for this rider. The exercise charge will be equal to the
product of the exercise charge percentage shown on the overloan protection rider data page for the Attained Age of
the Insured at the time of exercise multiplied by the Accumulated Value of the Policy. The exercise charge will be
deducted from the General Account of the Policy.

Effect of Increases or Decreases. If you increase the Face Amount of a Policy with the overloan protection rider,
the rider’s protection will extend to the increase. If you decrease the Face Amount, the rider’s protection will apply
to the reduced amount.

The riders are not available in all states and their terms may vary by state.

POLICIES ISSUED IN CONJUNCTION WITH EMPLOYEE BENEFIT PLANS

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

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

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

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

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

18

SPECIAL RULES FOR EMPLOYEE BENEFIT PLANS

If a trustee under a pension or profit-sharing plan, or similar deferred compensation arrangement, owns a Policy, the
Federal and state income and estate tax consequences could differ. A tax adviser should be consulted with respect to
such consequences. Policies owned under these types of plans may also be subject to restrictions under the
Employee Retirement Income Security Act of 1974 (“ERISA”). You should consult a qualified adviser regarding
ERISA.

The amounts of life insurance that may be purchased on behalf of a participant in a pension or profit-sharing plan
are limited.

The current cost of insurance for the Net amount at Risk is treated as a “current fringe benefit” and must be included
annually in the plan participant’s gross income. We report this cost (generally referred to as the “P.S. 58” cost) to
the participant annually.

If the plan participant dies while covered by the plan and the Policy proceeds are paid to the participant’s
Beneficiary, then the excess of the Death Benefit over the Accumulated Value is not taxable. However, the
Accumulated Value will generally be taxable to the extent it exceeds the participant’s cost basis in the Policy.

LEGAL DEVELOPMENTS REGARDING UNISEX ACTUARIAL TABLES

In 1983, the United States Supreme Court held in Arizona Governing Committee v. Norris that optional annuity
benefits provided under an employee’s deferred compensation plan could not, under Title VII of the Civil Rights
Act of 1964, vary between men and women on the basis of sex. In that case, the Court applied its decision only to
benefits derived from contributions made on or after August 1, 1983. Subsequent decisions of lower federal courts
indicate that in other factual circumstances the Title VII prohibition of sex-distinct benefits may apply at an earlier
date. In addition, legislative, regulatory, or decisional authority of some states may prohibit use of sex-distinct
mortality tables under certain circumstances. The Policies offered by this prospectus, other than Policies issued in
states which require “unisex” policies (currently Montana) and employee benefit plan Policies (see “Policies Issued
in Conjunction with Employee Benefit Plans,” above) are based upon actuarial tables which distinguish between
men and women and, thus, the Policy provides different benefits to men and women of the same age. Accordingly,
employers and employee organizations should consider, in consultation with legal counsel, the impact of these
authorities on any employment-related insurance or benefits program before purchasing the Policy and in
determining whether an employee benefit plan Policy is appropriate.

POLICY REPORTS

Once each Policy Year, we will send you a statement describing the status of the Policy, including setting forth:

• the Face Amount;
• the current Death Benefit;
• any Policy loans and accrued interest;
• the current Accumulated Value;
• the non-loaned Accumulated Value in the General Account;
• the amount held as Collateral in the General Account;
• the value in each subaccount of the Separate Account;
• premiums paid since the last report;
• charges deducted since the last report;
• any Withdrawals since the last report; and
• the current Cash Surrender Value.

In addition, we will send you a statement showing the status of the Policy following the transfer of amounts from
one subaccount of a Separate Account to another, the taking out of a loan, a repayment of a loan, a Withdrawal and
the payment of any premiums (excluding those paid by bank draft or otherwise under the Automatic Payment Plan).

19

We will send you a semi-annual report containing the financial statements of each Fund in which your Policy has
Accumulated Value, as required by the 1940 Act.

RECORDS

We will maintain all records relating to the Policy at our Home Office at National Life Drive, Montpelier, Vermont
05604.

LEGAL MATTERS

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

EXPERTS

The Financial Statements have been included in this Statement of Additional Information, which is part of the
registration statement in reliance on the reports of PricewaterhouseCoopers LLP, independent registered public
accounting firm, of 185 Asylum Street, Hartford, CT 06103-3404, as set forth in its report included herein, and are
included herein in reliance upon such report and upon the authority of such firm as experts in accounting and
auditing.

FINANCIAL STATEMENTS

The financial statements of National Life and the Separate Account appear on the following pages. The financial
statements of National Life should be distinguished from the financial statements of the Separate Account and
should be considered only as bearing upon National Life’s general financial strength and claims paying ability, and
its ability to meet its obligations under the Policies. In addition to General Account allocations, General Account
assets are used to guarantee the payment of living and death benefits under the Policy. To the extent that National
Life is required to pay you amounts in addition to your Accumulated Value under these benefits, such amounts will
come from General Account assets. You should be aware that National Life’s principal investments are in fixed-
income securities, including corporate bonds, mortgage-backed securities, and commercial real estate mortgages.
National Life enters into equity derivative contracts (futures and options) to hedge exposures embedded in our
equity indexed annuity products. All of National Life’s General Account investments are exposed to various
investment risks. National Life’s financial statements include a further discussion of risks inherent within General
Account investments.

Further, you should only consider NLV Financial’s financial statements as bearing on the ability of NLV Financial
to meet its obligations under the keep well and pledge and security agreement.

20

FINANCIAL STATEMENTS–STATUTORY-BASIS

National Life Insurance Company

For the Years Ended December 31, 2008 and 2007 with Report of Independent Auditors

F-1

National Life Insurance Company

Financial Statements and Supplemental Schedules Statutory-Basis

Years ended December 31, 2008 and 2007

Contents
Report of Independent Auditors	F-3
Statutory-Basis Financial Statements
Balance Sheets — Statutory-Basis	F-4
Statements of Operations — Statutory-Basis	F-6
Statements of Changes in Capital and Surplus — Statutory-Basis	F-7
Statements of Cash Flow — Statutory-Basis	F-8
Notes to Statutory-Basis Financial Statements	F-9

F-2

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of
National Life Insurance Company:

We have audited the accompanying statutory statements of admitted assets, liabilities, and
capital and surplus of National Life Insurance Company (the “Company”) as of December 31,
2008 and 2007, and the related statutory statements of income, capital and surplus, and cash
flows for the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

As described in Note A to the financial statements, the Company prepared these financial
statements using accounting practices prescribed or permitted by the Vermont Department of
Banking, Insurance, Securities and Health Care Administration, which practices differ from
accounting principles generally accepted in the United States of America. The effects on the
financial statements of the variances between such practices and accounting principles generally
accepted in the United States of America are material and are disclosed in Note A.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the
financial statements referred to above do not present fairly, in conformity with accounting
principles generally accepted in the United States of America, the financial position of the
Company as of December 31, 2008 and 2007, or the results of its operations or its cash flows for
the years then ended.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the admitted assets, liabilities, capital stock and surplus of the Company as of December 31,
2008 and 2007, and the results of its operations and its cash flows for the years then ended, on
the basis of accounting described in Note A.

April 24, 2009

F-3

National Life Insurance Company
Balance Sheets — Statutory Basis
	December 31
	2008	2007
	(In Thousands)
Admitted assets
Cash and invested assets:
Bonds	$4,764,725	$4,813,638
Preferred stocks	45,092	46,354
Common stocks	413,062	360,170
Mortgage loans	810,734	853,081
Real estate	44,864	44,258
Contract loans	564,978	563,907
Cash and short-term investments	2,334	6,620
Other invested assets	257,641	216,863
Total cash and invested assets	6,903,430	6,904,891
Deferred and uncollected premiums	71,597	71,062
Accrued investment income	79,205	79,565
Federal income taxes recoverable	35,334	11,870
Net deferred tax asset	70,256	70,670
Receivables from affiliates	3,796	550
Note Receivable from Parent	25,000	–
Other admitted assets	168,255	162,034
Separate account assets	611,752	987,424
Total admitted assets	$7,968,625	$8,288,066
The accompanying notes are an integral part of these statements.

F-4

	December 31
	2008	2007
	(In Thousands)
Liabilities and capital and surplus
Liabilities:
Policy and contract liabilities:
Life and annuity reserves	$5,372,672	$5,285,995
Accident and health reserves	543,385	536,771
Liability for deposit-type contracts	193,625	190,303
Unpaid policy and contract claims	33,404	32,511
Policyholders’ dividends	131,194	128,409
Other policy and contract liabilities	4,416	3,662
Total policy and contract liabilities	6,278,696	6,177,651
Employee and agent benefits	97,026	104,803
Minimum pension benefit obligation	50,341	32,430
Interest maintenance reserve	35,259	30,176
Asset valuation reserve	34,578	77,347
Federal income taxes payable	–	–
Payable for securities	–	425
Payable to subsidiary	11,516	1,593
Other liabilities	59,778	53,043
Separate account liabilities	609,236	983,815
Total liabilities	7,176,430	7,461,283
Commitments and contingencies
Capital and surplus:
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	107,123	107,123
Unassigned surplus	682,572	717,160
Total capital and surplus	792,195	826,783
Total liabilities and capital and surplus	$7,968,625	$8,288,066
The accompanying notes are an integral part of these statements.

F-5

National Life Insurance Company
Statements of Operations — Statutory Basis
	Year ended December 31
	2008	2007	2006
		(In Thousands)
Premiums and other revenue:
Premiums and annuity considerations for life and accident
and health contracts	$539,157	$507,660	$559,229
Considerations for supplementary contracts with life
contingencies	1,204	1,037	3,370
Net investment income	402,144	426,858	443,748
Amortization of interest maintenance reserve	1,401	2,209	4,151
Other income	14,904	35,388	6,225
Total premiums and other revenue	958,810	973,152	1,016,723
Benefits paid or provided:
Death benefits	159,629	158,425	145,260
Annuity benefits	33,452	33,258	68,598
Surrender benefits and other fund withdrawals	331,027	344,045	291,326
Other benefits	57,868	63,421	39,246
Increase in policy reserves	89,717	30,246	57,227
Total benefits paid or provided	671,693	629,395	601,657
Insurance expenses:
Commissions	44,602	43,665	46,072
General and administrative expenses	113,294	122,187	124,192
Insurance taxes, licenses, and fees	14,039	11,444	12,350
Net transfers to separate accounts	(31,247)	(17,459)	32,430
Total insurance expenses	140,690	159,837	215,044
Gain from operations before dividends to policyholders,
income taxes, and net realized capital gains (losses)	146,427	183,290	200,022
Dividends to policyholders	128,399	126,066	121,254
Gain from operations before income taxes and net realized
capital gains (losses)	18,028	57,854	78,768
Federal income tax benefit	(10,409)	(4,622)	(2,051)
Gain from operations before net realized capital gains (losses)	28,437	62,476	80,819
Net realized capital gains (losses)	(33,348)	2,536	(1,109)
Net (loss) income	$ (4,911)	$ 65,012	$ 79,710
The accompanying notes are an integral part of these statements.

F-6

National Life Insurance Company
Statements of Changes in Capital and Surplus — Statutory Basis
				Total
	Common	Paid-In	Unassigned	Capital and
	Stock	Surplus	Surplus	Surplus
Balances at January 1, 2006	$2,500	$107,123	$513,842	$623,465
Net income	–	–	79,710	79,710
Net change in difference between cost
and admitted asset investment
amounts, net of deferred tax effects	–	–	33,824	33,824
Change in asset valuation reserve	–	–	(5,406)	(5,406)
Change in minimum pension benefit
obligation, net of deferred tax effects	–	–	4,974	4,974
Change in non-admitted assets	–	–	(20,774)	(20,774)
Change in deferred tax asset	–	–	1,815	1,815
Dividends to stockholder	–	–	(10,000)	(10,000)
Other adjustments to surplus, net	–	–	381	381
Balances at December 31, 2006	2,500	107,123	598,366	707,989
Net income	–	–	65,012	65,012
Net change in difference between cost
and admitted asset investment
amounts, net of deferred tax effects	–	–	46,951	46,951
Change in asset valuation reserve	–	–	(4,887)	(4,887)
Change in minimum pension benefit
obligation, net of deferred tax effects	–	–	13,213	13,213
Change in non-admitted assets			26,727	26,727
Change in deferred tax asset	–	–	(13,707)	(13,707)
Dividends to stockholder	–	–	(10,000)	(10,000)
Change in reserve on account of change
in valuation basis, net of reinsurance	–	–	(4,712)	(4,712)
Other adjustments to surplus, net	–	–	197	197
Balances at December 31, 2007	2,500	107,123	717,160	826,783
Net loss	–	–	(4,911)	(4,911)
Net change in difference between cost
and admitted asset investment
amounts, net of deferred tax effects	–	–	(33,289)	(33,289)
Change in asset valuation reserve	–	–	42,769	42,769
Change in minimum pension benefit
obligation, net of deferred tax effects	–	–	(11,642)	(11,642)
Change in non-admitted assets			(24,445)	(24,445)
Change in deferred tax asset	–	–	1,495	1,495
Dividends to stockholder	–	–	–	–
Change in reserve on account of change
in valuation basis, net of reinsurance	–	–	(3,432)	(3,432)
Other adjustments to surplus, net	–	–	(1,132)	(1,133)
Balances at December 31, 2008	$2,500	$107,123	$ 682,572	$ 792,195
The accompanying notes are an integral part of these statements.

F-7

National Life Insurance Company
Statements of Cash Flow – Statutory Basis
	Year ended December 31
	2008	2007	2006
Operating activities:		(In Thousands)
Premiums, policy proceeds, and other considerations
received, net of reinsurance paid	$ 540,777	$ 511,065	$ 562,070
Net investment income received	395,312	432,580	448,405
Benefits paid	(584,553)	(603,556)	(535,512)
Net transfers to Separate Accounts	46,563	19,531	(5,835)
Insurance expenses paid	(166,998)	(197,707)	(183,824)
Dividends paid to policyholders	(125,615)	(123,818)	(119,161)
Federal income taxes (paid) recovered	(7,495)	(13,956)	9,292
Other income received, net of other expenses paid	21,584	41,790	(18,004)
Net cash provided by operations	119,575	65,929	157,431
Investment activities:
Proceeds from sales, maturities, or repayments of
investments:
Bonds	783,866	993,108	1,472,441
Stocks	7,318	115,788	17,969
Mortgage loans	69,205	129,666	189,451
Real estate	69	1,407	811
Other invested assets	24,689	34,723	25,466
Miscellaneous proceeds	–	1,937	34,837
Total proceeds from sales, maturities, or repayments
of investments	885,147	1,276,629	1,740,975
Cost of investments acquired:
Bonds	(754,165)	(1,133,699)	(1,552,072)
Stocks	(90,177)	(51,073)	(19,967)
Mortgage loans	(26,859)	(121,517)	(138,017)
Real estate	(2,560)	(1,771)	(2,043)
Other invested assets	(77,567)	(76,049)	(41,369)
Miscellaneous applications	(14,183)	(28,981)	(952)
Total cost of investments acquired	(965,511)	(1,413,090)	(1,754,420)
Net change in contract loans	(1,070)	374	6,366
Net cash used in investing activities	(81,434)	(136,087)	(7,079)
Financing and miscellaneous activities:
Other cash provided (applied):
Borrowings
Deposits on deposit-type contract funds and other
liabilities without life contingencies	(4,393)	(9,539)	(13,855)
Dividends to shareholder	–	(10,000)	(10,000)
Other cash applied	(38,034)	(33,435)	(1,472)
Net cash used in financing and miscellaneous
activities	(42,427)	(52,974)	(25,327)
Net (decrease) increase in cash and short-term
investments	(4,286)	(123,132)	125,025
Cash and short-term investments:
Beginning of year	6,620	129,752	4,727
End of year	$ 2,334	$ 6,620	$ 129,752
The accompanying notes are an integral part of these statements.

F-8

National Life Insurance Company

Notes to Statutory-Basis Financial Statements

December 31, 2008

A. Significant Accounting Policies

Description of Business

National Life Insurance Company (the “Company”) is primarily engaged in the development and distribution of traditional and universal individual life insurance and annuity products. Through affiliates, it also provides distribution and investment advisory services to the Sentinel Group Funds, Inc., a family of mutual funds. The Company’s insurance and annuity products are primarily marketed through a general agency system. 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 of National Life and was completed with the approval of the Vermont Commissioner of Insurance (the “Commissioner”).

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 was established 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 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.

All of the Company’s outstanding shares are currently held by its parent, NLV Financial Corp (“NLVF”), which is the wholly-owned subsidiary of National Life Holding Company (“NLHC”). NLHC and its subsidiaries (including the Company) are collectively known as the National Life Group. The Company is licensed in all 50 states and the District of Columbia. Approximately 21% of total collected premiums and deposits are from residents of the states of New York and California.

F-9

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

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 Banking, Insurance, Securities and Health Care Administration (the “Department”), which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America (“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 no such practices were in effect at the Company as of December 31, 2008, the Commissioner has the right to permit specific practices that deviate from NAIC SAP.

There are significant differences between statutory accounting practices and GAAP. Under statutory accounting practices:

Investments: Investments in bonds are reported at amortized cost or market value based on their National Association of Insurance Commissioners (“NAIC”) rating; for 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, and 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 shareholder’s equity for those designated as available-for-sale.

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 GAAP, and investment income and operating expenses include rent for the Company’s occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than income as would be required under GAAP.

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

F-10

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Basis of Presentation (continued)

collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if foreclosure is probable, on the estimated 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 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” 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 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.

The “asset valuation reserve” 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 asset valuation reserve is not recognized under GAAP.

Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under 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 investment 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.

Subsidiary: The accounts and operations of the Company’s subsidiary are not consolidated with the operations of the Company as would be required under GAAP.

F-11

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Basis of Presentation (continued)

Nonadmitted Assets: Certain assets designated as “nonadmitted,” principally certain fixed asset balances, a portion of the Company’s deferred tax asset balance, and other assets not specifically identified as an admitted asset within the NAIC Accounting Practices and Procedures manual are excluded from the accompanying balance sheets and are charged directly to unassigned surplus.

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 credited directly to an appropriate policy reserve account, without recognizing premium income. Under 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.

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 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 GAAP. Commissions allowed 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 GAAP.

Employee Benefits: For purposes of calculating the Company’s pension and postretirement benefit obligation, only vested participants and current retirees are included in the valuation. Under GAAP, active participants not currently eligible would also be included in the liability estimate.

Deferred Income Taxes: Deferred tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year, plus 2) the lesser of the remaining gross deferred tax assets expected to be realized within one year of the balance

F-12

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Basis of Presentation (continued)

sheet date or 10% of capital and surplus excluding any net deferred tax assets, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of remaining gross deferred tax assets that can be offset against existing gross deferred tax liabilities. The remaining deferred tax assets are nonadmitted. Deferred taxes do not include amounts for state taxes. Under GAAP, states taxes are included in the computation of deferred taxes, 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.

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 GAAP, the corresponding caption of cash includes cash balances and investments with initial maturities of three months or less.

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 GAAP is as follows:

	Net Income (Loss)			Capital and Surplus
	Year ended December 31			December 31
	2008	2007	2006	2008	2007
			(In Thousands)
Statutory-basis amounts	$ (4,911)	$ 65,012	$ 79,710	$ 792,195	$ 826,783
Add (deduct) adjustments:
Investments	28,194	49,898	52,815	(242,072)	286,516
Policy acquisition costs	(16,356)	(2,089)	7,074	455,494	471,850
Nonadmitted assets	–	–	–	132,218	107,777
Policyholder reserves	29,924	17,439	15,085	(142,256)	(178,834)
Policyholder dividends	9,224	3,885	(9,646)	62,893	56,892
Sales practices litigation
provision	–	–	–	–	–
Asset valuation reserve	–	–	–	34,578	77,347
Interest maintenance
reserve	5,084	(9,067)	(21,778)	35,259	30,176
Income taxes	(8,962)	(21,984)	(20,263)	(116,193)	(88,206)
Other comprehensive
income, net	–	–	–	212,970	(64,450)
	–
Other, net	1,837	2,499	3,187	(78,327)	(29,062)
GAAP-basis amounts	$ 44,034	$105,593	$106,184	$ 1,146,759	$ 1,496,789

F-13

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Basis of Presentation (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 along with any adjustment for federal income taxes.

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.

The affiliated common stock is carried at the down-stream insurance subsidiary’s statutory capital and surplus less surplus notes issued to NLVF plus admissible statutory goodwill.

F-14

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Investments (continued)

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. When management determines foreclosure is probable, the impairment is considered other than temporary. At that time, the mortgage loan is written down and a realized loss is recognized.

Contract loans are reported at unpaid principal balances.

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, net of related obligations, if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the properties.

The Company’s futures and options contracts qualify for hedge accounting and are included in other invested assets and are carried at quoted market values with changes in fair value and gains and losses upon expiration included in net investment income, in accordance with SSAP 86.

The Company has minor ownership interests in several joint ventures. The Company generally carries these interests based on the underlying audited GAAP equity of the investee.

Realized capital gains and losses are determined using the specific identification basis. Changes in admitted asset carrying amounts of investments are credited or charged directly to unassigned surplus.

The Company periodically lends certain U.S. government or corporate bonds to approved counterparties to enhance the yield of its bond portfolio. The Company uses a lending agent and collateral investment manager to administer its securities lending program. For all loans, the agent collects from the borrower cash collateral of at least 102% of the market value of the securities loaned. The agent marks securities to market daily to ensure that collateral of at least 102% of the market value of the loaned securities is maintained at all times. Cash collected as collateral from borrowers is invested by the agent into a diversified portfolio of assets in accordance with the investment guidelines set up by both parties, reviewed by the Company regularly, and conform in all material respects to the Company’s overall investment management philosophy. The carrying value of securities loaned are unaffected by the transaction.

F-15

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Fair Value Definition and Hierarchy

The Statutory Accounting Principles Working Group (“SAPWG”) had not concluded on fair value disclosure requirements prior to the effective date of GAAP pronouncement SFAS 157. As such, effective January 1, 2008, The Company applied the provisions of SFAS 157 prospectively to financial assets and financial liabilities that are required to be measured at fair value under existing Statutory Accounting Principles (“SAP”). SFAS 157 defines fair value 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.

SFAS 157 requires consideration of three broad valuation techniques (i) the market approach, (ii) the income approach, and (iii) the cost approach. SFAS 157 requires that entities determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. SFAS 157 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, 2008 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 common stocks listed in active markets and listed derivatives. Separate accounts classified within this level principally include mutual funds classified.
• 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 represent options. 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 management’s 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. The Company held no assets in Level 3 for SAP at December 31, 2008.

F-16

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Valuation Techniques

Bonds-Nonrecurring – Bonds that are rated an NAIC 6 or that have been impaired are carried at fair value.

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. Common stocks are categorized into Level 1 of the fair value hierarchy.

Short term investments – consists of money market funds with observable market pricing and are categorized into Level 1.

Derivative assets and liabilities - held by the Company 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 observed from actively quoted markets and is widely accepted by the financial services industry. A substantial majority of the Company’s OTC derivative products use pricing models and are categorized as Level 2 of the fair value hierarchy.

Separate account assets - are categorized into Level 1 where the balances represent mutual funds with observable market pricing and into Level 2 where the balances represent common stocks and bonds carried at estimated fair value.

Presented here is the fair value of all assets and liabilities subject to fair value determination as well as the expanded fair value disclosures required by SFAS 157.

Fair Value Hierarchy Table

December 31, 2008
(in Thousands)

Assets		Level 1	Level 2	Level 3	Total
	Bonds-Nonrecurring	5,008	- -	- -	5,008
	Common stock	22,941	- -	- -	22,941
	Total debt and equity securities	27,949	- -	- --	27,949
	Short term investments	13,654		- -	13,654
	Derivative assets	- -	3,283	- -	3,283
	Total cash and investments	13,654	3,283		16,937
	Separate account assets	559,518	52,234	- -	611,752
	Total assets	601,121	55,517	- -	656,638
Liabilities		Level 1	Level 2	Level 3	Total
	Derivative liabilities	- -	1,600	- -	1,600
	Total liabilities	- -	1,600	- -	1,600

F-17

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Asset Valuation Reserve and Interest Maintenance Reserve

The Asset Valuation Reserve (“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. The Company uses the seriatim method for the amortization of IMR.

Note Receivable

The Company follows the guidance prescribed by the Vermont Department of Insurance on transactions that require approval from the domiciliary commissioner. In accordance with Vermont Statute § 3685 (“Vermont 3685”), a life insurer is not required to have the approval of the commissioner for a loan to an affiliate that is less than 3 percent of the insurer’s admitted assets. SSAP No. 25, Accounting for and Disclosures about Transactions with Affiliates and Other Related Parties, states that loans or advances (including debt, public or private) made by a reporting entity to its parent or principal owner shall be admitted if approval for the transaction has been obtained from the domiciliary commissioner and the loan or advance is determined to be collectible based on the parents or principal owner’s independent payment ability. There is no threshold prescribed by the NAIC. Since the note receivable is admitted under Vermont 3685, we did not seek explicit transaction approval from the Insurance Commissioner of the State of Vermont. The following table reconciles statutory surplus as filed with the note receivable accounted for under Vermont Statutes and statutory surplus that would be reported under NAIC guidance:

	2008	2007
Surplus, as reported	792,195	826,783
Nonadmitted Note Receivable
under SSAP No. 25	(25,000)	--
NAIC SAP Surplus	767,195	826,783

F-18

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

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.

Goodwill

Goodwill, subject to admissibility test, is amortized over 10 years using the straight-line method and is periodically evaluated for recoverability.

Property and Equipment

Property and equipment is reported at depreciated cost. Real property owned by the Company is primarily depreciated over 40 years straight-line method with a half year convention. Furniture and equipment is depreciated using the straight-line method over seven years and five years, respectively. EDP equipment and software is depreciated for a period not exceeding five years.

Corporate Owned Life Insurance

The Company holds life insurance contracts on certain members of management and other key individuals. The total cash surrender value of these Corporate Owned Life Insurance (“COLI”) contracts was $157.5 million and $154.5 million at December 31, 2008 and 2007, respectively, and is included in other assets. COLI income includes the net change in cash surrender value and any benefits received. COLI income was $3.2 million, $5.4 million, and $6.2 million in 2008, 2007, and 2006, 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.

F-19

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Benefit Reserves

Policy reserves for life, annuity and disability income contracts are developed using accepted actuarial methods. 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. Reserves are determined by computing mean reserves using standard mortality, then calculating a substandard extra reserve. Where the extra premium is a flat extra, 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. No substandard extra reserves are held after 20 years.

Reserves for individual annuities are determined principally using the Commissioners' Annuity Reserve Valuation Method, based on A-1949, 1983, and 2000 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

F-20

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Benefit Reserves (continued)

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 disabled life 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, 2008 and 2007, the Company had $3.1 billion and $3.3 billion, respectively, of insurance in force for which the gross premiums are less than the net premiums according to the standard valuation set by the State of Vermont. At December 31, 2008 and 2007, reserves on the above in force insurance totaled $73.1 million and $69.1 million, respectively, and are included in policy reserves.

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 bases consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts.

Guaranty Fund and Other Assessments

A liability for guaranty fund and other assessments is accrued after an insolvency has occurred.

F-21

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Dividends to Policyholders

The Company issued all of its traditional life insurance and certain annuity policies on a participating basis. The Company's universal life policies, most annuities, and disability income policies are issued on a non-participating basis. Term life insurance, while on a participating basis, currently receives 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 Company’s overall operating results. The dividend scale is approved annually by the Company’s Board of Directors.

Separate Accounts

Separate account assets represent segregated funds held for the benefit of certain variable annuity, variable life, pension policyholders, and the Company's 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 common stocks, bonds, mortgage loans, and real estate and are carried at fair value.

The Company had approximately $2.6 million and $1 million of reserves for minimum death benefit guarantees on variable annuities at December 31, 2008 and 2007, respectively. 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.

Federal Income Taxes

The Company files its federal income tax returns as a member of a consolidated federal income tax return of its upstream parent NLHC and other affiliated subsidiaries. Under a written tax sharing agreement approved by the Board of Directors, taxes are allocated among members of the group based upon separate return calculations with current credit for net losses.

F-22

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Federal Income Taxes (continued)

Deferred income tax assets and liabilities are recognized based upon 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 criterion based upon the expected reversal of temporary timing differences, the Company’s 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.

Adoption of New Accounting Standards

In December 2007, the NAIC issued SSAP No. 97, “Investments in Subsidiary, Controlled and Affiliated Entities (“SCAs”), A Replacement of SSAP No. 88.” SSAP No. 97 made clarifications and provided additional guidance to SSAP No. 88. The most significant clarification was related to the requirement that SCAs, including downstream noninsurance holding companies, receive an unqualified U.S. GAAP opinion or receive an unqualified opinion on financial statements prepared in accordance with a foreign GAAP that includes an audited footnote reconciliation of the foreign GAAP to U.S. GAAP to be admitted assets. A limited exception to this audit requirement was provided to downstream noninsurance holding companies, which would allow the downstream noninsurance holding company not to be audited when certain requirements are met. Provided that the entities owned by an unaudited downstream noninsurance holding company receive U.S. GAAP audits, they are permitted to be an admitted asset. Assets of an unaudited downstream holding company would be nonadmitted. This statement is effective for fiscal year 2007. The adoption of this statement did not result in an impact on the Company.

Future Adoption of New Accounting Standards

In September 2008, the NAIC issued SSAP No. 99, “Accounting for Certain Securities Subsequent to an Other-Than-Temporary Impairment” with an effective date of January 1, 2009. This statement clarifies the treatment for securities that have undergone an other-than-temporary impairment (“OTTI”). The guidance states that the fair value of the security on the measurement date of the OTTI impairment will become the new cost or carrying value basis of the security and the new basis shall not be adjusted for subsequent recoveries in fair value. Immediate amortization of premium for an OTTI impairment loss for a debt security with a recorded premium shall not be included in investment income but will be accounted for as a realized loss. Companies that carry an AVR will use the AVR for credit related OTTI and IMR for interest related OTTI.

F-23

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Future Adoption of New Accounting Standards (continued)

In November 2008, the NAIC issued SSAP No. 98, “Treatment of Cash Flows When Quantifying Changes in Valuation and Impairments, an Amendment of SSAP No. 43 – Loan-backed and Structured Securities” with an effective date of January 1, 2009. This statement provides clarification on the treatment of a security if it is determined to be other than temporarily impaired. The guidance clarifies that for an interest related decline in value, it shall only be considered an other-than-temporary impairment (“OTTI”) when a reporting entity has the intent to sell the investment, at the reporting date, before recovery. Reporting entities maintaining an AVR/IMR shall record credit related OTTI through AVR; interest related OTTI shall be recorded through IMR.

In December 2008, the NAIC substantially revised SSAP No. 91, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, with an effective date of January 1, 2009. This statement originally establishes statutory accounting principles for transfers and servicing of financial assets and includes substantive revisions outlined in Issue Paper No. 134, Servicing Assets/ Liabilities, An Amendment of SSAP No. 91 (“IP 134”). IP 134 requires that servicing assets and servicing liabilities initially be recognized and measured at fair value. It also requires that they be subsequently measured at fair value with fluctuations reported as unrealized gains and losses. Declines in fair value which are determined to be other than temporary shall be recorded as realized losses. IP 134 amends and expands disclosure requirements to include a description of the valuation techniques or other models used to estimate the fair value, changes in fair value resulting from changes in the valuation inputs or assumptions and other changes in fair value.

Use of Estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of admitted assets, liabilities, income, and expenses, and related disclosures in the notes to financial statements. Actual results could differ from estimates.

F-24

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

A. Significant Accounting Policies (continued)

Reclassifications

Certain 2007 amounts have been reclassified to conform to the 2008 presentation.

B. Business Combinations and Goodwill

On July 2, 1999, National Financial Services (“NFS”), a wholly-owned subsidiary of the Company, acquired the outstanding one-third interest in LSW National Holdings, Inc. (“LSWNH”), the parent of Dallas, Texas based Life Insurance Company of the Southwest (“LSW”). NFS had previously purchased a two-thirds interest in LSWNH in February 1996. LSW is licensed in 49 states and specializes in the sale of individual annuities and universal life insurance. The transactions were accounted for as statutory purchases. Initial statutory basis goodwill was $73.1 million. In late 2005, the Company dissolved NFS and directly held 100% of the outstanding stock of LSWNH.

In 2007, LSWNH was merged with and into LSW. The Company now holds 100% of the outstanding stock of LSW. (See Note H) Goodwill amortization relating to LSWNH was $0.6 million in 2007.

There was no admitted or nonadmitted goodwill at December 31, 2008 and 2007.

F-25

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments

The amortized cost and the fair or comparable value of investments in bonds and preferred stocks are summarized as follows:

		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
		(In Thousands)
At December 31, 2008
Bonds:
U.S. government obligations	$ 7,844	$ 1,161	$ –	$ 9,005
Government agencies, authorities
and subdivisions	20,989	988	–	21,977
Corporate:
Communications	348,582	9,736	38,937	319,381
Consumer & retail	390,318	7,393	33,151	364,560
Financial institutions	505,459	7,433	90,776	422,116
Industrial and chemicals	462,936	3,163	76,056	390,043
Other corporate	49,647	6,737	–	56,384
REITS	75,138	–	27,971	47,167
Transportation	91,930	2,890	6,447	88,373
Utilities	565,098	5,326	56,717	513,707
Total corporate	2,489,108	42,678	330,055	2,201,731
Private placements	466,151	5,651	38,346	433,456
Mortgage-backed securities	1,780,633	29,927	61,451	1,749,109
Total bonds	4,764,725	80,405	429,852	4,415,278
Preferred stocks	45,092	–	15,740	29,352
	$ 4,809,817	$ 80,405	$ 445,592	$ 4,444,630

F-26

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)
		Gross	Gross
	Amortized	Unrealized	Unrealized	Fair
	Cost	Gains	Losses	Value
		(In Thousands)
At December 31, 2007
Bonds:
U.S. government obligations	$ 8,895	$ 381	$ –	$ 9,276
Government agencies, authorities
and subdivisions	32,700	3,175	–	35,875
Corporate:
Communications	350,783	17,242	3,877	364,148
Consumer & retail	414,681	10,158	7,141	417,698
Financial institutions	541,590	16,142	19,665	538,067
Industrial and chemicals	270,513	8,325	4,994	273,844
Other corporate	56,279	8,990	68	65,201
REITS	70,155	646	2,354	68,447
Transportation	60,173	3,584	391	63,366
Utilities	670,558	25,334	7,444	688,448
Total corporate	2,434,732	90,421	45,934	2,479,219
Private placements	455,834	17,751	3,052	470,533
Mortgage-backed securities	1,881,477	23,316	15,349	1,889,444
Total bonds	4,813,638	135,044	64,335	4,884,347
Preferred stocks	46,354	1,563	1,949	45,968
	$ 4,859,992	$ 136,607	$ 66,284	$ 4,930,315

A summary of the amortized cost and fair value of the Company’s investments in bonds at December 31, 2008, by contractual maturity, is as follows:

	Amortized	Fair
	Cost	Value
	(In Thousands)
Years to maturity:
One or less	$ 106,484	$ 103,974
After one through five	690,141	657,245
After five through ten	1,235,374	1,072,701
After ten	952,093	832,249
Mortgage-backed securities	1,780,633	1,749,109
Total	$4,764,725	$ 4,415,278

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.

F-27

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

The gross unrealized gains and losses on, and the cost and fair value of, the Company’s investments in common stocks are summarized as follows:

		Gross Unrealized	Gross Unrealized
	Cost	Gains	Losses	Fair Value
		(In Thousands)
At December 31, 2008:
Unaffiliated common stocks	$ 28,141	$ 602	$ 5,802	$ 22,941
Affiliated common stock	317,764	72,357	–	390,121
Total common stocks	$ 345,905	$ 72,959	$ 5,802	$ 413,062
At December 31, 2007:
Unaffiliated common stocks	$ 23,168	$ 2,682	$ 307	$ 25,543
Affiliated common stock	248,083	86,544	–	334,627
Total common stocks	$ 271,251	$ 89,226	$ 307	$ 360,170

F-28

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

The following table shows the Company’s 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, 2008 and 2007:

	Less Than 12 Months		12 Months or More		Total
		Gross		Gross		Gross
		Unrealized		Unrealized		Unrealized
	Fair Value	Losses	Fair Value	Losses	Fair Value	Losses
At December 31, 2008			(In Thousands)
Bonds:
Corporate:
Communications	$ 154,997	$ 20,090	$ 39,626	$ 18,847	$ 194,623	$ 38,937
Consumer & retail	152,496	12,230	53,187	20,921	205,683	33,151
Financial institutions	162,199	31,777	178,304	58,999	340,503	90,776
Industrial and chemicals	227,810	41,407	97,609	34,649	325,419	76,056
REITS	14,244	7,235	32,923	20,736	47,167	27,971
Transportation	36,214	3,131	3,553	3,316	39,766	6,447
Utilities	252,263	30,363	131,167	26,354	383,430	56,717
Total corporate	1,000,223	146,233	536,369	183,822	1,536,592	330,055
Private placements	308,540	33,403	23,388	4,943	331,928	38,346
Mortgage-backed securities	345,925	39,876	5,367	21,575	351,292	61,451
Total bonds	1,654,688	219,512	565,124	210,340	2,219,812	429,852
Common stocks	128,645	1,979	41,058	1,073	169,703	3,052
Preferred stocks	25,359	14,753	3,993	987	29,352	15,740
	$1,808,692	$236,244	$ 610,175	$ 212,400	$2,418,867	$ 448,644

F-29

	National Life Insurance Company
Notes to Statutory-Basis Financial Statements (continued)
C. 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
At December 31, 2007			(In Thousands)
Bonds:
Corporate:
Communications	85,631	3,204	24,741	673	110,372	3,877
Consumer & retail	129,638	4,279	55,087	2,862	184,725	7,141
Financial institutions	165,569	9,994	117,006	9,671	282,575	19,665
Industrial and chemicals	107,266	3,637	23,651	1,357	130,917	4,994
Other corporate	3,430	68	–	–	3,430	68
REITS	39,817	1,363	13,978	991	53,795	2,354
Transportation	6,861	126	7,587	265	14,448	391
Utilities	116,185	3,433	100,284	4,011	216,469	7,444
Total corporate	654,397	26,104	342,334	19,830	996,731	45,934
Private placements	5,581	305	10	2	5,591	307
Mortgage-backed securities	360,012	6,254	321,895	9,095	681,907	15,349
Total bonds	1,019,990	32,663	664,239	28,927	1,684,229	61,590
Common stocks	128	21	12,186	5,781	12,314	5,802
Preferred stocks	7,956	1,949	–	–	7,956	1,949
	$1,028,074	$ 34,633	$ 676,425	$ 34,708	$1,704,499	$ 69,341

Of the $219.5 million total unrealized losses on debt securities in the less than 12 months category, $146.2 million was in the corporate bond portfolio.

The $146.2 million unrealized losses on the corporate bond portfolio in the less than 12 months category are concentrated in the financial institutions, communications, industrial and chemicals, and utilities sectors. The investment grade corporate index spread widened by approximately 322 basis points from approximately 182 basis points at the beginning of the year to 504 basis points at year end. This spread widening was primarily a function of the global economic slowdown, the corresponding increase in the corporate bond default rate and the perceived credit risk associated with these defaults.

Of the $210.3 million total unrealized losses in the more than 12 months category, $21.6 million of unrealized losses was in the mortgage backed securities portfolio. The decline in market value of these securities pertained primarily to increased credit spreads over treasury yields associated with the U.S. housing crisis which was partially offset by lower treasury yields as investors fled to treasuries over the last four months of 2008, driving yields down. The $21.6 million of unrealized losses on mortgage backed securities represents 6.14 % of the aggregate fair value of the $351.3 million in mortgage backed securities with unrealized losses at December 31, 2008.

F-30

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

The $183.8 million unrealized losses on the corporate bond portfolio in the more than 12 months category are concentrated in the financial institutions, utility, industrial and chemicals, consumer and retail sectors, and REITS. As noted in earlier comments about the less than 12 month category, the main reason for the unrealized losses in this group was the pervasive market spread widening caused by the global economic slowdown and the corresponding increase in the corporate bond default rate.

Based on the facts and circumstances surrounding the individual securities and the Company’s 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, 2008 are temporary.

In 2008, the Company recorded $22.2 million of impairments on bonds, $11.9 million of impairments on preferred stocks, and $0.3 million of impairments on common stock. In 2007, the Company recorded $1.0 million of impairments on bonds and no impairments on preferred or common stock.

Mortgage Loans and Real Estate

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

	2008	2007
Geographic Region
New England	1.6%	1.6%
Middle Atlantic	2.5	4.0
East North Central	16.6	15.9
West North Central	9.5	9.7
South Atlantic	27.0	27.0
East South Central	2.1	2.1
West South Central	12.7	12.7
Mountain	9.7	9.0
Pacific	18.3	18.0
	100.0%	100.0%

F-31

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

Mortgage Loans and Real Estate (continued)

	2008	2007
Property Type
Apartment	18.5%	18.8%
Retail	12.2	11.2
Office Building	39.0	38.1
Industrial	26.1	27.0
Hotel/Motel	0.6	1.0
Other Commercial	3.6	3.9
	100.0%	100.0%

The distribution of the book value of mortgages, classified by scheduled year of contractual maturity as of December 31, 2008 and 2007, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay obligations with or without prepayment penalties.

	2008	2007
1 year or less	4.8%	2.6%
Over 1 through 3 years	6.0	8.6
Over 3 through 5 years	21.0	12.2
Over 5 through 10 years	48.2	55.2
Over 10 through 15 years	9.7	10.5
Over 15 through 20 years	8.2	8.8
Over 20 years	2.1	2.1
Total	100.0%	100.0%

The estimated fair value of mortgages at December 31, 2008 and 2007 was $771.5 million and $895.0 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.

The maximum and minimum lending rates for mortgage loans during 2008 were 6.61% and 6.17%, and 6.70% and 6.00% during 2007. During 2008 and 2007, the Company did not reduce the interest rate on any outstanding mortgage loans.

F-32

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

Mortgage Loans and Real Estate (continued)

Mortgage loans and related valuation allowances at December 31 were as follows:

	2008	2007
	(In Thousands)
Unimpaired loans	$ 810,734	$ 853,081
Impaired loans without valuation allowances	–	–
Subtotal	810,734	853,081
Impaired loans with valuation allowances	–	–
Related valuation allowances	–	–
Subtotal	–	–
Total	$ 810,734	$ 853,081

Impaired loans are mortgage loans where it is not probable that all amounts due under the contractual terms of the loan will be received. Impaired loans without valuation allowances are mortgage loans where the estimated fair value of the collateral exceeds the recorded investment in the loan. For these impaired loans, interest income is recognized on an accrual basis, subject to recoverability from the estimated fair value of the loan collateral. For impaired loans with valuation allowances, interest income is recognized on a cash basis. For the years ended December 31, 2008 and 2007, the Company did not have any impaired loans with or without related valuation allowances.

The Company had no investments in loans restructured with below market rates of interest at the refinancing date at December 31, 2008 and 2007.

The Company accrues interest income on impaired loans to the extent it is deemed collectible (delinquent less than 90 days) and the loan continues to perform under its original or restructured contractual terms. Interest income on non-performing loans is generally recognized on a cash basis.

F-33

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

Net Investment Income

Major categories of the Company’s net investment income are summarized as follows:

	Year ended December 31
	2008	2007	2006
		(In Thousands)
Income
Bonds	$308,313	$307,296	$299,189
Preferred stocks	3,672	6,063	7,910
Common stocks, unaffiliated	239	1,580	1,371
Common stocks, affiliated	–	–	17,718
Mortgage loans	60,554	61,915	72,399
Real estate*	8,920	8,369	8,283
Contract loans	33,183	33,182	32,594
Short-term investments and cash	755	2,815	2,601
Other invested assets	4,489	15,974	9,775
Options/futures	(5,356)	(368)	–
Other	543	2,606	3,068
Total investment income	415,312	439,432	454,908
Expenses
Depreciation	1,955	1,923	1,887
Other	11,213	10,651	9,273
Total investment expenses	13,168	12,574	11,160
Net investment income	$402,144	$426,858	$443,748

* Includes amounts for the occupancy of company-owned property of $5,681,000, $5,182,000, and $5,120,000 in 2008, 2007, and 2006, respectively.

There was no nonadmitted accrued investment income at December 31, 2008, 2007 and 2006.

F-34

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

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:

	2008	2007	2006
		(In Thousands)
Bonds and other debt securities
Gross gains	$ 12,883	$ 3,368	$ 12,077
Gross losses	(31,281)	(13,756)	(33,521)
Preferred stocks, unaffiliated
Gross gains	–	1,959	4
Gross losses	(7,518)	(591)	(428)
Common stocks, unaffiliated
Gross gains	145	7,865	936
Gross losses	(1,169)	(126)	(18)
Common stocks, affiliated
Gross losses	–	–	–
Other
Gross gains	70	850	7,344
Gross losses	(5,552)	(543)	(2,007)
Net realized capital losses	(32,422)	(974)	(15,613)
Amount transferred to IMR	(10,404)	9,465	26,516
	(42,826)	8,491	10,903
Less federal income taxes on realized capital
gains (losses) before effect of transfer to IMR	9,478	(5,955)	(12,012)
Net realized capital losses	$ (33,348)	$ 2,536	$ (1,109)

The Company had a 60% partnership interest in Lake Carlton Arms (“LCA”), a 1,812-unit apartment complex in Florida. The Company sold its interest in LCA in late 2006, which resulted in a gain of $7.3 million and is included in other gross gains on the schedule of realized capital gains and losses previously presented.

Loaned Securities

Cash collateral collected from borrowers on our securities loaned totaled $68.2 million and $126.1 million at December 31, 2008 and 2007, respectively. This represents gross collateralization of 102% of market value of securities on loan for the years ended December 31, 2008 and 2007. The amount of collateral received was $68.2 million and $126.1 million and the fair value of the securities loaned was $66.9 million and $124.0 million for the years ended December 31, 2008 and 2007, respectively. The Company’s earnings with respect to its modified securities lending program were $0.4 million less expenses of $0.1 million in 2008 and $0.7 million less expenses of $0.2 million in 2007.

These investments are reviewed at least quarterly to determine if market declines are other than

F-35

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

C. Investments (continued)

Loaned Securities (continued)

temporary in accordance with Statutory Accounting Principles. If the decline is deemed to be other-than-temporary (“OTTI”) in nature, the Company recognizes a realized loss, adjusting the cost basis to the market value of the security at the time of the impairment. The Company recognized OTTI of approximately $5.1 million as of December 31, 2008. There was no OTTI recognized in 2007.

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. The Company has elected to use book value as of January 1, 1994 as the cost for securities purchased prior to January 1, 1994 in lieu of historical cash flows.

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 $0.4 million and $0.2 million of impairments on non-public joint ventures in 2008 and 2007, respectively. These joint ventures have underlying characteristics of common stock. Fair values utilized in determining impairments were determined by the Company based on the joint venture’s operating results.

Repurchase Agreements

The Company also periodically enters into repurchase agreements on U.S. Treasury securities to enhance the yield of its bond portfolio. These transactions are accounted for as financings 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, 2008 or 2007.

D. Nonadmitted Assets

The Company’s nonadmitted assets at December 31 are as follows:

F-36

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

D. Nonadmitted Assets (continued)
	2008	2007
	(In Thousands)
Net deferred tax asset	$ 87,986	$ 69,523
Furniture and equipment	3,053	2,235
Software applications	12,903	10,404
Prepaid pension asset	18,651	17,677
Prepaid expenses	3,946	4,112
Other	5,684	3,826
Total nonadmitted assets	$ 132,223	$ 107,777
E. Investment Products

The Company issues several different investment products, including flexible premium annuities, single premium deferred annuities and supplementary contracts not involving life contingencies. The book value of liabilities for these investment products was $728.5 million and $698.5 million at December 31, 2008 and 2007, respectively. The fair value of liabilities for these investment products was $704.8 million and $729.0 million at December 31, 2008 and 2007, respectively. The fair value of these liabilities was estimated as the average of the present value of future cash flows under different scenarios of future interest rates of A-rated corporate bonds and related changes in premium persistency and surrenders.

F. Reinsurance

For individual life products sold beginning in August 2004, the company increased the amount it retains to $2.0 million of risk on any 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 individual life premiums ceded were $47.3 million, $47.1 million, and $45.2 million for the years ended December 31, 2008, 2007, and 2006, respectively, and are included as a reduction of insurance income. Total individual life insurance ceded was $21.0 billion and $21.1 billion of the $43.2 billion and $43.5 billion in force at December 31, 2008 and 2007, respectively. The Company has assumed a small amount of yearly renewable term reinsurance from non-affiliated insurers. 

At December 31, 2008 and 2007, the Company did not have ownership or 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, 2008 and 2007.   As of December 31, 2008 and 2007, the Company recorded a reserve credit for reinsurance of $110.0 million and $97.1 million, respectively, related to reinsurance contracts with Swiss Re. 

F-37

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

F. Reinsurance (continued)

No reinsurance agreements were in force at December 31, 2008 and 2007 which would likely result in a payment to the reinsurer in excess of the total direct premiums collected. No new reinsurance agreements were enacted during the year which included life insurance policies inforce at the end of the previous year.

Disability income products are significantly reinsured under coinsurance and modified coinsurance agreements primarily with Unum Provident Corporation (“UNUM”) where the Company cedes 80% of the experience risk on the block of business. The Company pays UNUM an interest rate of 7% on the reserves held by the Company. Total disability income premiums ceded in 2008, 2007, and 2006 were $30.6 million, $32.1 million, and $33.5 million, respectively. The Company’s agreements with UNUM meet risk transfer criteria to qualify for reinsurance accounting treatment as prescribed by the Department.

In 2007, a number of assumptions used in the calculation of the Company’s disability income reserves were revised, resulting in disability income reserves being increased by $21.2 million. This increase in reserves resulted in $16.5 million in cash being transferred to the Company from UNUM. The net amount of approximately $4.7 million was charged directly to capital and surplus in 2007. Additional assumption changes in 2008 resulted in a $13.1 million increase in reserves with $9.6 million in cash being transferred to the Company from UNUM. The net amount of approximately $3.4 million was charged to capital and surplus.

The Company would be liable with respect to any ceded insurance should any reinsurer be unable to meet its assumed obligations.

G. Federal Income Taxes

NLHC files a consolidated tax return which includes all of its downstream subsidiaries including the Company. The method of allocation for federal income tax expense between the companies is pursuant to a written agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses. Intercompany tax balances are settled periodically.

The components of the net deferred tax asset at December 31 are as follows:

	2008	2007
	(In Thousands)
Total gross deferred tax assets	$ 231,898	$ 224,140
Total deferred tax liabilities	(73,656)	(83,947)
Net deferred tax asset	158,242	140,193
Deferred tax asset nonadmitted	(87,986)	(69,523)
Net admitted deferred tax asset	$ 70,256	$ 70,670

F-38

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

G. Federal Income Taxes (continued)

Current income taxes incurred consist of the following major components:

	2008	2007
Current income tax expense (benefit) on:
Operations	$ (10,409)	$ (4,622)
Capital gains/losses	(5,559)	3,349
Surplus	–	(38)
Total income tax benefit	$ (15,968)	$ (1,311)

The main components of the deferred tax assets and liabilities at December 31 are as follows:

	2008	2007
	(In Thousands)
Deferred tax assets:
Reserves	$ 79,459	$ 77,540
Policy DAC	57,762	58,431
Policyholder dividends	23,056	22,265
Deferred compensation	56,243	61,400
Depreciable assets	1,958	–
Other	13,420	4,504
Total deferred tax assets	231,898	224,140
Nonadmitted deferred tax assets	(87,986)	(69,523)
Admitted deferred tax assets	143,912	154,617
Deferred tax liabilities:
Deferred intercompany gain	38,279	38,279
Premiums receivable	25,056	22,865
Net unrealized gains	204	10,490
Other invested assets	5,823	2,424
Depreciable assets	4,294	4,294
Other	–	3,595
Total deferred tax liabilities	73,656	83,947
Net deferred tax asset	$ 70,256	$ 70,670

F-39

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

G. Federal Income Taxes (continued)

The net change in nonadmitted deferred tax assets was as follows:

	2008	2007
	(In Thousands)
Net increase (decrease) in nonadmitted
deferred tax assets	$18,463	$(24,386)

The change in net deferred income taxes is comprised of the following:

	2008	2007	Change
		(In Thousands)
Total deferred tax assets	$231,898	$224,140	$ 7,758
Total deferred tax liabilities	(73,656)	(83,947)	10,293
Net deferred tax asset	$158,242	$140,193	18,049
Less: tax effect of unrealized gains			(10,286)
Less: tax effect of increase in minimum pension
obligation			(6,268)
Adjusted change in gross deferred taxes			$ 1,495

The provision for federal income taxes incurred in 2008 is different from that which would be obtained by applying the statutory federal income tax rate of 35% to income before income taxes. The tax at the statutory rate and significant items causing this difference are as follows:

	(In Thousands)
Operations and gains (losses) provision
computed at statutory rate	$ (5,038)
Dividends received deduction and tax
exempt interest	(2,227)
Interest maintenance reserve	(491)
COLI	(1,351)
Low income housing credits	(2,980)
Surplus reserve adjustments	(1,201)
Change in nonadmitted assets	(2,094)
Adjustments for prior year tax return	(684)
Other	(1,397)
Total	$(17,463)
Current federal income tax provision	$(15,968)
Adjusted change in gross deferred taxes	(1,495)
Statutory federal income taxes	$(17,463)

In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement

F-40

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

G. Federal Income Taxes (continued)

No. 109” (“FIN 48”). The NAIC is still evaluating the applicability of FIN 48 to statutory financial reporting. Because statutory guidance has not been issued, the Company has not yet determined the statutory impact of adoption on its statutory financial statements. The Company continues to recognize tax benefits and related reserves in accordance with SSAP No. 5,

“Liabilities, Contingencies and Impairments of Assets”.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

	2008
Balance, beginning of year	$260
Additions based on tax positions related to the current year	40
Additions for tax positions of prior years	(40)
Balance, end of year	$ 260

The liability for unrecognized tax benefit balance as of December 31, 2008 includes $260,000 of unrecognized tax benefits that, if recognized, would impact the Company’s effective rate. It is not likely that the amount of unrecognized tax benefits will decrease within the next twelve months as a result of the settlement of tax audits.

The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2008 and December 31, 2007, the Company has recognized approximately $654,679 and $104,353 in interest expense and penalties, respectively. The Company has approximately $743,349 and $99,262 accrued for interest and penalties at December 31, 2008 and December 31, 2007 respectively.

In 2007, the IRS completed federal exams for tax years ending prior to 2004. No changes to unrecognized tax benefits occurred due to the closing of these exams.

Income taxes incurred that will be available for recoupment in the event of future net losses are as follows:

(In Thousands)

2008	$ –
2007	6,628
2006	–

F-41

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

H. Information Concerning Parent, Subsidiaries and Affiliates

There were no dividends paid in 2008. During 2007, the Company paid a cash dividend of $10 million to NLVF.

In 2008, the Company made a $25 million unsecured loan to NLVF. The loan is due to be repaid on December 31, 2009. Interest on the loan is paid quarterly at LIBOR + 37.5 basis points.

In 2008, the Company contributed $69.7 million to LSW as a capital contribution. The capital contribution consisted of $10 million in cash and $59.7 million in securities. During 2007, the Company contributed $30 million to LSWNH as a capital contribution. Subsequently, LSWNH made a $30 million capital contribution to LSW.

On December 31, 2007, LSWNH was merged with and into LSW. LSWNH had assets of $267.0 million of which $266.7 million was its carrying value of the common stock of LSW prior to the merger. The Company now has a direct 100% ownership interest in LSW.

All intercompany transactions are settled on a current basis. Amounts payable or receivable at December 31 generally represent year end cost allocations, reinsurance transactions, and income taxes and are included in the accompanying Statements of Admitted Assets, Liabilities and Surplus. Amounts payable to LSW was $11.5 million and $1.6 million for the years ended December 31, 2008 and 2007, respectively. For cost allocation agreements with LSW, the Company received $23.3 million and $14.8 million for the years ended December 31, 2008 and 2007.

No guarantees or undertakings on behalf of an affiliate resulting in a material contingent exposure of the Company’s surplus existed at December 31, 2008 and 2007.

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, 2008 to potentially move nonadmitted assets into subsidiaries or affiliates.

F-42

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

I. Benefit Plans

The Company sponsors a qualified defined benefit pension plan covering substantially all National Life Group employees (“HOEPP”). The plan is administered by the Company and is non-contributory, with benefits for Company employees hired prior to July 1, 2001 based on an employee’s retirement age, years of service, and compensation near retirement. Benefits for Company employees hired after June 30, 2001 and non-Company employees are based on the amount credited to the employee's account each year, which is a factor of the employee's age, service and compensation, increased at a specified rate of interest. This plan is separately funded. Plan assets are primarily bonds and common stocks held in a Company separate account and funds invested in a general account group annuity contract issued by the Company.

The Company also sponsors other non-qualified pension plans, including a non-contributory defined benefit plan for general agents that provides benefits based on years of service and sales levels, a non-contributory defined supplemental benefit plan for certain executives, and a non-contributory defined benefit plan for retired directors. These non-qualified defined benefit pension plans are not separately funded. Participation costs for non-Company employees are allocated to subsidiaries and affiliates as appropriate.

The Company sponsors four defined benefit postretirement plans that provide medical, dental, and life insurance benefits to employees and agents. Spouses of participants generally qualify for the medical and dental plans. Substantially all employees and agents who began service prior to July 1, 2001 may be eligible for medical and dental retiree benefits if they reach retirement age and meet certain minimum service requirements while working for the Company. Substantially all employees beginning service prior to January 1, 2005 may be eligible for life insurance retiree benefits if they reach retirement age and meet certain minimum service requirements while working for the Company. Agency staff employees may be eligible for life insurance retiree benefits if they reach retirement age and meet certain minimum service requirements while working for an Agency of the Company.

Most of the defined benefit postretirement plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features such as deductibles and copayments. These postretirement plans are not separately funded, and the Company therefore pays for the plan benefits from operating cash flows. The costs of providing these benefits are recognized as they are earned by employees. These defined benefit plans are included in the other benefits category in the tables that follow.

F-43

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

I. Benefit Plans (continued)

The following tables show the plans' combined funded status at December 31:

	Pension Benefits				Other Benefits
	2008	2007	2006	2008	2007	2006
			(In Thousands)
(1) Change in benefit obligation
Benefit obligation at beginning of
year	$250,225	$248,534	$249,800	$31,440	$34,130	$33,040
Service cost	4,403	4,959	5,789	873	999	1,486
Interest cost	14,792	14,251	13,651	1,862	1,949	1,839
Actuarial (gain) loss	11,165	(4,489)	(5,846)	2,203	(1,910)	(69)
Benefits paid	(16,081)	(13,030)	(14,860)	(2,555)	(2,471)	(2,166)
Curtailments	–	–	–	–	(1,257)	–
Benefit obligation at end of year	$264,504	$250,225	$248,534	$33,823	$31,440	$34,130
	Pension Benefits				Other Benefits
	2008	2007	2006	2008	2007	2006
			(In Thousands)
(2) Change in plan assets
Fair value of plan assets at
beginning of year	$148,450	$131,705	$108,682	$–	$–	$–
Actual return on plan assets	(15,461)	21,614	7,625	–	–	–
Employer contribution	4,000	3,116	22,300	–	–	–
Benefits paid	(7,339)	(7,985)	(6,902)	–	–	–
Fair value of plan assets at end of
year	$129,650	$148,450	$131,705	$–	$–	$–

F-44

National Life Insurance Company
Notes to Statutory-Basis Financial Statements (continued)
I. Benefit Plans (continued)
	Pension Benefits				Other Benefits
	2008	2007	2006	2008	2007	2006
			(In Thousands)
(3) Funded status
Benefit obligation in excess of
plan assets	$ 134,854	$ 101,775	$ 116,829	$ 33,823	$ 31,440 $	34,130
Unamortized prior service benefit	(323)	(390)	(449)	(1,131)	(1,257)	–
Unrecognized net loss	82,585	47,034	67,561	3,362	1,171	3,891
Remaining net obligation or net
asset at initial date of application	–	–	–	2,953	3,615	4,430
Additional funding for minimum
pension liability	50,341	32,430	52,757	–	–	–
Prepaid assets or (accrued
liabilities)	(51,599)	(53,074)	(50,802)	(28,639)	(27,911)	(25,809)
	Pension Benefits				Other Benefits
	2008	2007	2006	2008	2007	2006
			(In Thousands)
(4) Benefit obligation for non-vested
employees	$16,203	$14,668	$14,310	$5,411	$5,135	$6,651
The components of net periodic benefit cost are as follows:
	Pension Benefits				Other Benefits
	2008	2007	2006	2008	2007	2006
			(In Thousands)
Components of net periodic benefit cost
Service cost	$ 4,403	$ 4,959	$ 5,789	$ 873	$ 999	$1,486
Interest cost	14,791	14,251	13,651	1,862	1,949	1,839
Expected (return) on plan assets	(11,263)	(9,926)	(9,221)	–	–	–
Amortization of unrecognized
transition obligation or transition
asset	–	–	–	662	815	738
Amortization of unrecognized gains
and losses	2,337	4,351	5,086	13	810	1,087
Amount of prior service cost
recognized	(67)	(59)	(59)	(126)	–	(841)
Total net periodic benefit cost	$10,201	$13,576	$15,246	$ 3,284	$4,573	$4,309

The measurement date for all the plans was October 1 preceding the date of the balance sheet.

The total accumulated benefit obligation was $251.2 million, $236.0 million, and $234.2million at December 31, 2008, 2007, and 2006, respectively.

F-45

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

I. Benefit Plans (continued)

In 2008 an increase of $17.9 million, in 2007 a decrease of $20.4 million, and in 2006 a increase of $7.6 million in the minimum pension liability were recorded as an adjustment to surplus. The minimum funding obligation liability at December 31, 2008, 2007 and 2006 was $50.3 million, $32.4 million, and $52.8 million, respectively. There were no admitted intangible pension assets at December 31, 2008, 2007, or 2006. The HOEPP prepaid pension asset of $18.7 million, $17.7 million, and $20.6 million at December 31, 2008, 2007, and 2006, respectively, is accounted for as a nonadmitted asset.

		Pension Benefits			Other Benefits
	2008	2007	2006	2008	2007	2006
The actuarial assumptions used in
determining the benefit obligation
at the measurement date:
a. Discount rate	6.00%	6.00%	5.75%	6.00%	6.00%	5.75%
b. Rate of compensation increase	Varies -	Varies -	Varies -	N/A	N/A	N/A
	based on	based on	based on
	age	age	age
Weighted-average assumptions
used to determine net periodic
pension cost:
a. Discount rate	6.00%	5.75%	5.50%	6.00%	5.75%	5.50%
b. Rate of compensation increase	Varies -	Varies -	Varies -
	based on	based on	based on
	age	age	age
c. Expected long-term rate of
return on plan assets	7.75%	7.75%	8.00%	N/A	N/A	N/A

Effective January 1, 2007, the Company closed its postretirement benefit plans for agents and agency staff employees to new retirees. This change generated prior service benefits of $1.3 million and will be amortized over the remaining life expectancy of plan participants.

The projected health care cost trend rate (“HCCTR”) was 7% for 2008, 8% for 2007 and 10% for 2006. This projected rate declines linearly to 5% in 2012 and remains level thereafter.

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”) by about $2.9 million and increase the 2008 service and interest cost components of net periodic postretirement benefit cost by about $0.2 million. Decreasing the assumed HCCTR by one percentage point in each year would reduce the APBO by about $2.4 million and decrease the service and interest cost components of net periodic pension cost by about $0.2 million. The Company uses the straight-line method of amortization for prior service cost and unrecognized gains and losses.

F-46

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

I. Benefit Plans (continued)
Plan assets are invested as follows:
Plan Asset Category	October 1, 2008	October 1, 2007
Bonds	42%	38%
Common stocks	53	61
Group annuity contract
and other	5	1
Total	100%	100%

Investments are selected pursuant to investment objectives, policy, and guidelines as approved by the Chief Investment Officer of the Company, the Asset Allocation Committee and ultimately the Company’s Board of Directors. The primary objective is to maximize long-term total return within the investment policy and guidelines. The Company’s investment policy for the plan assets is to maintain a target allocation of approximately 50%-75% equities and 25%-50% bonds and other fixed income instruments when measured at fair value. Investments in the obligations of any one issuer, other than the United States of America government or its agencies, shall not exceed 5% of the total investment portfolio. Further, no more than 50% of the total investment portfolio shall be invested in any major industry group (for example, public utilities, industrial, mortgage-backed or asset-backed securities, etc.), and no more than 30% shall be invested in any sub-industry (for example, oil, gas, or steel).

The Company’s expected long-term rate of return of 7.50% is based upon an expected return on stock investments of 10%-11%, and a weighted expected return of 5%-6% on fixed income investments. These projections were based on the Company’s historical and projected experience and on long term projections by investment research organizations.

Projected benefit payments for defined benefit obligations and for projected Medicare Part D reimbursements for each of the five years following December 31, 2008, and in aggregate for the five years thereafter is as follows (in thousands):

			Projected Medicare
	Projected Pension	Projected Other	Part D
Year	Benefit Payments	Benefit Payments	Reimbursements
		(In Thousands)
2009	$17,026	$ 2,796	$ 267
2010	17,007	2,867	284
2011	17,604	2,957	300
2012	18,146	3,010	318
2013	18,559	3,067	330
2014-2018	102,402	15,839	1,903

I.      Benefit Plans (continued)

F-47

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

The Company’s 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 Company’s expected contribution for 2009 into its separately funded defined benefit pension plan is approximately $6.8 million based on November 2008 information.

The Company provides 401-K plans for its employees. For employees hired prior to July 1, 2001, up to 3% of an employee's salary may be invested by the employee in a plan and matched by funds contributed by the Company subject to applicable maximum contribution guidelines. Employees hired prior to July 1, 2001, and below specified levels of compensation also receive a foundation contribution of 1.5% of compensation. Employees beginning service after June 30, 2001 will receive a 50% match on up to 6% of an employee’s salary, subject to applicable maximum contribution guidelines. Additional employee voluntary contributions may be made to the plans subject to contribution guidelines. Accumulated funds may be invested by the employee in a group annuity contract with the Company or in mutual funds (several of which are sponsored by an affiliate of the Company). Vesting and withdrawal privilege schedules are attached to the Company's matching contributions. Plan assets invested in the mutual funds are outside the Company and as such are excluded from the Company's assets and liabilities. The Company’s contribution to 401-K plans for its employees was $0.8 million, $0.8 million, and $1.1 million for the years ended December 31, 2008, 2007, and 2006, respectively.

The Company also provides a 401-K plan for it’s regular full-time agents whereby accumulated funds may be invested by the agent in a group annuity contract with the Company or in mutual funds (several of which are sponsored by an affiliate of the Company). Total annual contributions cannot exceed certain limits which vary based on total agent compensation. No Company contributions are made to the plan. Plan assets invested in the mutual funds are outside the Company and as such are excluded from the Company's assets and liabilities. The Company’s contribution to its 401-K plan for agents was $0.03 million for December 31, 2007. The Company did not make a contribution in 2008.

The Company also has a defined contribution pension plan covering substantially all full-time agents. Contributions of 6.1% of each agent’s compensation up to the Social Security taxable wage base and 7.5% of the agent’s compensation in excess of the wage base, subject to the maximum legal limitations for qualified plans, are made each year. Accumulated funds may be invested by the agent in a group annuity contract with the Company or in mutual funds (several of which are sponsored by an affiliate of the Company). Plan assets invested in the mutual funds are outside the Company and as such are excluded from the Company’s assets and liabilities.

F-48

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

J. Capital and Surplus, Shareholder Dividend Restrictions and Quasi-Reorganizations

At December 31, 2008 and 2007, the Company had 2.5 million shares authorized and outstanding. All shares are Class A shares. No preferred stock has been issued.

On January 1, 1999, the Company converted from a mutual to a stock insurance company as part of a reorganization into a mutual holding company corporate structure. Under the provisions of the reorganization, the Company issued 2.5 million common stock $1 par shares to its parent and recorded $5.0 million of additional paid-in-capital as transfers from unappropriated surplus.

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. 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. NLHC currently owns all the outstanding shares of NLVF, a stock holding company created for this purpose, which in turn currently owns all the outstanding shares of National Life. NLHC currently has no other significant assets, liabilities or operations other than that related to its ownership of NLVF’s 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, subsidiary’s dividended by the Company in 2005, issuance of $220 million in debt financing in 2003, issuance of an additional $75 million in debt financing in 2005, and its ownership of National Life’s outstanding stock. Under the terms of the reorganization, NLHC must always hold a majority of the voting shares of NLVF.

Policyowner surplus is restricted by required statutory surplus of $5 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 2007, the Company paid a cash dividend of $10 million to NLVF. No dividend was paid in 2008. 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 Company profits that may be paid as ordinary dividends to the shareholder. No stock is held for special purposes.

F-49

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

J. Capital and Surplus, Shareholder Dividend Restrictions and Quasi-Reorganizations (continued)

The Company did not receive any capital contributions from its parent, NLVF, during 2008, 2007, and 2006.

The Company has three lines of credit available. A $25 million line of credit with State Street Bank, based on an adjustable rate equal to LIBOR plus 75 basis points. A $20 million line of credit with TD Banknorth, based on an adjustable rate equal to LIBOR plus 37.5 basis points. A $25 million line of credit with Key Bank, based on an adjustable rate equal to LIBOR plus 30 basis points. The outstanding balance on all lines of credit was $0 as of December 31, 2008 and 2007.

In 2008, the Company became a member of the Federal Home Loan Bank of Boston (“FHLB”). This membership, which required an investment of $6.1 million in the common stock of FHLB provides the Company with access to a secured asset-based borrowing capacity of $1.7 billion at December 31, 2008. The outstanding balance on this borrowing facility was $0 at December 31, 2008.

K. Business Risks, Commitments and Contingencies

Business Risks

The Company operates in a business environment subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, interest rate risk and credit risk. Interest rate risk is the potential for interest rates to change, which can cause fluctuations in the value of investments and amounts due to policyholders. To the extent that fluctuations in interest rates cause the duration of assets and liabilities to differ, the Company controls its exposure to this risk by, among other things, asset/liability management techniques that account for the cash flow characteristics of the assets and liabilities.

Asset based fees calculated as a percentage of the separate account assets are a source of revenue to the Company. Gains and losses in the equity markets may result in corresponding increases and decreases in the Company’s separate account assets and related revenue.

F-50

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

K. Business Risks, Commitments and Contingencies (continued)

Risks Related To Credit Markets

Credit risk is the risk that issuers of investments owned by the Company may default or that other parties may not be able to pay amounts due to the Company. The Company attempts to manage its investments to limit credit risk by diversifying its portfolio among various security types and industry sectors. Management does not believe that significant concentrations of credit risk existed as of and for the years ended December 31, 2008 and 2007.

In 2007, the slowing of the U.S. housing market, rising residential mortgage rates, and relaxed underwriting standards by residential mortgage loan originators have led to higher delinquency and loss rates, reduced credit availability, and liquidity in the residential loan market. The high delinquency and loss rates have been experienced on what is commonly referred to as sub-prime mortgages which are mortgages made to high risk borrowers. The Company has only limited exposure to sub-prime mortgages. All of this exposure is comprised of securities purchased as part of its securities lending program. The Company has hired a lending agent to manage its’ securities lending program and as of December 31, 2008 and 2007, the Company had $68,242,808 and $124,943,258, respectively, invested in short term securities as part of this program. Of the total, approximately $15,073,627 was invested in asset backed securities backed by sub-prime mortgages in 2008 and $21,350,519 in 2007. As of December 31, 2008 these securities had an unrealized loss of $2,627,107 and an unrealized loss of $733,042 as of December 31, 2007.

Commitments and Contingencies

The Company anticipates additional capital investments of $91.9 million into existing limited partnerships and private placement investments due to funding commitments.

At December 31, 2008, the Company has no outstanding mortgage loan funding commitments.

In the ordinary course of business, the nature of the Company’s business subjects it to claims, law suits, regulatory examinations, and other proceedings. The results of these matters cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period and a material judgment could have a material adverse impact on the Company’s financial condition and results of operations. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these matters will not have a material adverse impact on the business, financial condition, or operating results of the Company.

F-51

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

K. Business Risks, Commitments and Contingencies (continued)

Commitments and Contingencies (continued)

During 1997, several class action lawsuits were filed against the Company in various states related to the sale of life insurance policies during the 1980’s and 1990’s. The Company specifically denied any wrongdoing. The Company agreed to a settlement of these class action lawsuits in June 1998. This agreement was subsequently approved by the court in October 1998. The settlement provided class members with various policy enhancement options and new product purchase discounts. Class members could instead pursue alternative dispute resolution according to predetermined guidelines. All of the alternative dispute resolution cases had been settled by December 31, 2000. Qualifying members also opted out of the class action to preserve their litigation rights against the Company. Management believes that while the ultimate cost of this litigation (including those who opted out of the class action) is still uncertain, it is unlikely, after considering existing provisions, to have a material adverse effect on the Company’s financial position. Existing provisions for this contingency were reduced in each year beginning in 2001, and are included as other adjustments to surplus.

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, 2008, the Company had accrued assessment charges of $1.5 million with expected payment over the next five years. The Company has also recorded a related asset of $0.2 million for premium tax credits, which are expected to be realized through 2017.

The Company currently leases rights to the use of certain data processing hardware and software from Perot Systems Corporation, Plano, Texas. The Company paid $4.9 million and $5.2 million in 2008 and 2007, respectively, under this lease agreement. The following is a schedule of future minimum lease payments as of December 31, 2008 (in millions):

	Operating
Year	Leases
2009	$ 4.9
2010	4.9
2011	0.8
Total minimum lease payments	$ 10.6

On February 18, 2011, the Company has the option to renew the contract at a reduced rate through February 18, 2013.

F-52

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

K. Business Risks, Commitments and Contingencies (continued)

Commitments and Contingencies (continued)

The Company has a multi year contract for information systems application and infrastructure services from Keane, Inc., Boston, Massachusetts. The contract became effective on February 1, 2004 and expires January 31, 2014. The Company’s remaining obligation under the contract as of December 31, 2008 (in millions):

	Contract
Year	Obligation
2009	$13.4
2010	13.9
2011	14.5
2012	15.1
2013	15.7
Thereafter	1.4
Total contract obligation	$74.0
L. 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. 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, 2008 and 2007, Closed Block liabilities exceeded Closed Block assets and no additional dividend obligation was required.

F-53

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

M. Annuity Reserves, Supplementary Contracts, and Other Deposit Fund Liabilities

At December 31, 2008, the Company’s 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:

	Amount	Percent
	(In Thousands)
Subject to discretionary withdrawal (with adjustment):
With market value adjustment	$ 51,161	3.3%
At book value less current surrender charge of 5% or more	250,992	16.3%
Total with adjustment or at market value	302,153	19.6%
Subject to discretionary withdrawal (without adjustment) at
book value with minimal or no charge or adjustment	958,857	62.2%
Not subject to discretionary withdrawal	281,194	18.2%
Total annuity reserves and deposit fund liabilities — before
reinsurance	1,542,204	100.0%
Less reinsurance ceded	–
Net annuity reserves and deposit fund liabilities	$1,542,204
N. Premium and Annuity Considerations Deferred and Uncollected

Deferred and uncollected life insurance premiums and annuity considerations at December 31, 2008, were as follows:

	Gross	Net of Loading
	(In thousands)
Ordinary new business	$ 3,525	$ 1,168
Ordinary renewal	70,179	70,254
Total	$ 73,704	$ 71,422
O. Separate Accounts

Separate and variable accounts held by the Company represent funds held in connection with certain variable annuity, variable universal life, Company sponsored benefit plans, and funds invested on behalf of group pensions. All separate account assets are carried at fair value. The Company participates in certain separate accounts. All of the Company's separate accounts are nonguaranteed.

F-54

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

O. Separate Accounts (continued)
	2008	2007
	(In thousands)
Separate account premiums and considerations	$ 58,625	$ 79,601
Reserves for accounts with assets at fair value	579,637	939,157

The withdrawal characteristics of separate accounts at December 31 were as follows:

	2008	2007
	(In thousands)
Subject to discretionary withdrawal with adjustment –
At book value (which equals fair value) less surrender charge of 5%
or more	$199,833	$198,913
Subject to discretionary withdrawal without adjustment –
At book value (which equals fair value)	265,612	584,631
Not subject to discretionary withdrawal	114,192	155,613
Total reserves	$579,637	$939,157

A reconciliation of net transfers to/from separate accounts during 2008 and 2007 is as follows:

	2008	2007
	(In thousands)
Net transfers to/from separate accounts	$ (31,247)	$ (17,331)
Reconciling items	–	–
Total	$ (31,247)	$ (17,331)
P. Derivative Financial Instruments

The Company may purchase and sell various derivative instruments, including equity options, forwards and futures based on the Standard & Poor’s (“S&P 500”) over-the-counter market. The options are used to hedge obligations to credit interest indexed life and annuity products tied to the S&P 500 and the Russell 2000 indexes. These derivative instruments generally cost 5% or less of the indexed liabilities at the time they are purchased and are authorized under state law, and are purchased from counterparties which conform to the Companies’ 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 maturity. Exposure to market risk is reduced by the nature of the crediting strategy, which does not credit interest when the indexes are below a certain level. If the S&P 500 decreases, options purchased expire worthless, and any future contracts will be settled at a loss.

F-55

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

P. Derivative Financial Instruments (continued)

These instruments are marked to market daily and may produce exposure in excess of internal counterparty limits established by the Company’s 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 or cash equivalents as collateral for any excess exposure and records the collateral received as a liability.

Investments in these types of instruments generally involve the following types of risk: in the case of over-the-counter options, there are no guarantees that markets will exist for these investments if the Company desired to close out a position; exchanges may impose trading limits which may inhibit the Company’s ability to close out positions in exchange-listed instruments; and, if the Company has an open position with a dealer that becomes insolvent, the Company may experience a loss. 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 maturity. Initial acquisition of instruments and subsequent balancing are performed solely for the purpose of hedging liabilities presented by indexed products.

The Company purchases options from only highly rated counterparties. However, in the event a counterparty failed to perform, the loss would be equal to the fair value of the net options held from that counterparty. The Company is required, in certain instances, to post collateral in order to purchase option and futures contracts. The amount of collateral that may be required for future 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.

The face or contract amount of futures, options purchased and options written notional amounts at December 31 were as follows (in thousands):

	2008	2007
Notional amounts:
Futures	$ –	$5,155
Options purchased	76,300	43,900
Options written	57,000	30,800

F-56

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

P. Derivative Financial Instruments (continued)

The carrying value of options and futures at December 31 were as follows (in thousands):

	2008	2007
Carrying values:
Options purchased (included in other invested assets)	$3,283	$2,624
Options written (included in other liabilities)	(1,600)	(781)
Futures purchased (included in other invested assets)	–	394
Net carrying value	$1,683	$2,237
Q. Fair Value of Financial Instruments

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

	2008				2007
	Carrying	Estimated Fair		Carrying	Estimated Fair
	Value		Value	Value		Value
			(In thousands)
Cash and short-term investments	$ 2,334	$ 2,334		$ 6,620	$ 6,620
Bonds	4,764,725		4,415,278	4,813,638		4,884,347
Preferred stocks	45,092		29,352	46,354		45,968
Common stocks – Unaffiliated	22,941		22,941	25,543		25,543
Mortgage loans	810,734		771,451	853,081		895,037
Contract loans	564,978		647,776	563,907		568,298
Separate account assets	611,752		611,752	987,424		987,424
Reserve assets – cash	46,003		46,003	41,711		41,711
Other invested assets – bank syndicate loans	4,868		4,868	4,909		4,909
Investment product liabilities	728,461		704,840	698,488		729,044

For cash and short-term investments carrying value approximates estimated fair value.

Fair value for bonds, preferred stocks, and unaffiliated common stocks are based on published prices by the 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.

Investments in 100% owned insurance subsidiaries are carried at statutory surplus, less adjustments for surplus notes issued to NLVF. These subsidiaries are privately held and therefore fair values are not obtainable.

F-57

National Life Insurance Company

Notes to Statutory-Basis Financial Statements (continued)

Q. Fair Value of Financial Instruments (continued)

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

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

Separate account mutual funds are carried at market with observable market pricing, while common stocks and bonds are carried at estimated fair value. Seed money is carried at fair value.

The estimated fair value of bank loans is based on quoted market values.

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.

R. Reconciliation to Statutory Annual Statements

There are no adjustments to net income and surplus as filed.

F-58

     NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company)

FINANCIAL STATEMENTS

     * * * * * DECEMBER 31, 2008

F-59

Report of Independent Registered Public Accounting Firm

To the Board of Directors of National Life Insurance Company and Policyholders of National Variable Life Insurance Account:

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 Life Insurance Account (a Separate Account of National Life Insurance Company, the "Sponsor Company") at December 31, 2008, 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, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Sponsor Company’s 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, 2008 by correspondence with the mutual funds, provide a reasonable basis for our opinion.

Hartford, Connecticut
April 24, 2009

F-60

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 2008
Total Assets and Net Assets:			VariTrak		Estate Provider		Benefit Provider
			Product		Product		Product
Investments in shares of mutual fund portfolios at market value			Accumulation	Unit	Accumulation	Unit	Accumulation	Unit
(policyholder accumulation units and unit value):			Units	Value	Units	Value	Units	Value
AIM Variable Insurance Funds
Dynamics Fund		$ 787,976	137,695.05	5.46	2,388.34	5.87	22,409.45	0.97
Global Health Care Fund		$ 2,036,172	232,191.79	8.12	16,035.38	8.73	5,908.26	1.68
Technology Fund		$ 978,696	341,216.05	2.77	6,160.31	2.98	18,800.90	0.82
Alger American Fund
Growth Portfolio		$ 11,095,683	758,862.64	13.07	50,433.40	6.45	22,674.62	37.66
Capital Appreciation Portfolio	(1)	$ 1,485,115	148,845.53	7.55	11,205.61	8.12	87,949.63	3.06
SmallCap Growth Portfolio	(2)	$ 5,970,435	603,125.33	9.19	4,544.09	8.33	11,525.60	33.69
Alliance Bernstein
Value		$ 406	39.34	10.31	-	-	-	-
Small/Mid Cap Value		$ 613,866	55,481.62	10.80	1,371.01	10.81	-	-
International Value		$ 2,200,794	197,281.70	10.50	12,401.74	10.50	-	-
International Growth		$ 245,119	20,208.77	10.68	2,733.64	10.69	-	-
American Century Variable Portfolios
Income & Growth Portfolio		$ 2,744,259	246,095.06	9.16	33,721.19	9.96	25,486.97	5.99
Inflation Protection Portfolio		$ 1,538,524	112,728.70	11.45	13,962.63	11.94	66,767.41	1.21
International Portfolio		$ 3,778,708	347,191.27	10.08	26,566.24	10.51	-	-
Ultra Portfolio		$ 76,783	7,067.52	7.28	3,330.39	7.60	-	-
Value Portfolio		$ 6,667,047	383,204.83	14.05	33,228.61	13.85	85,422.06	9.61
Vista Portfolio		$ 632,201	63,404.96	8.85	7,696.42	9.23	-	-
Dreyfus Variable Investment Fund
Appreciation Portfolio		$ 539,831	54,010.24	9.16	4,714.79	9.55	-	-
Developing Leaders Portfolio		$ 46,132	7,181.12	6.42	-	-	-	-
Quality Bond Portfolio		$ 207,023	18,632.44	10.68	712.21	11.14	-	-
Socially Responsible Growth Fund		$ 251,959	40,381.64	5.48	1,145.15	5.90	11,901.39	1.99
DWS Variable Series II
Dreman High Return Equity Portfolio		$ 169,248	23,092.06	7.28	159.67	7.59	-	-
Dreman Small Cap Value Portfolio		$ 2,313,666	200,264.29	10.75	14,298.04	11.21	-	-
DWS VIT Funds
Equity 500 Index Fund		$ 1,003,611	-	-	-	-	96,024.61	10.43
Small Cap Index Fund		$ 279,084	-	-	-	-	22,357.17	12.46

(1)	Formerly the Alger American Leveraged AllCap Portfolio
(2)	Formerly the Alger American Small Capitalization Portfolio.

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

F-61

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 2008
Total Assets and Net Assets:			VariTrak		Estate Provider		Benefit Provider
			Product		Product		Product
Investments in shares of mutual fund portfolios at market value			Accumulation	Unit	Accumulation	Unit	Accumulation	Unit
(policyholder accumulation units and unit value):			Units	Value	Units	Value	Units	Value
Franklin Templeton Variable Insurance Products Trust
Foreign Securities Fund		$ 1,494,852	125,004.62	10.28	19,518.17	10.72	- -	- -
Mutual Shares Securities Fund		$ 723,622	71,036.82	9.04	8,625.20	9.43	- -	- -
Global Real Estate Fund		$ 812,175	89,691.83	8.20	8,967.97	8.55	- -	- -
Small Cap Fund		$ 139,117	17,051.06	7.72	924.70	8.05	- -	- -
Small Cap Value Securities Fund		$ 403,101	34,222.64	9.67	7,168.60	10.08	- -	- -
US Government		$ 2,009,249	178,872.42	10.21	17,931.88	10.22	- -	- -
JP Morgan Series Trust II
International Equity Portfolio		$ 3,079,647	219,815.05	9.16	21,948.21	9.38	81,724.15	10.51
Small Company Portfolio		$ 985,420	69,314.92	11.13	18,171.85	10.19	2,036.67	13.98
Morgan Stanley Universal Institutional Funds
Core Plus Fixed Income Portfolio		$ 2,259,462	- -	- -	- -	- -	1,580,128.96	1.43
Emerging Markets Equity Portfolio		$ 366,962	- -	- -	- -	- -	256,582.16	1.43
High Yield Portfolio		$ 46,200	- -	- -	- -	- -	48,204.52	0.96
US Real Estate Portfolio		$ 156,697	- -	- -	- -	- -	80,336.01	1.95
Neuberger Berman Advisors Management Trust
Small Cap Growth Portfolio	(3)	$ 429,822	52,772.54	6.98	8,454.10	7.28	- -	- -
Lehman Brothers Short Duration Bond Portfolio	(4)	$ 2,690,799	260,475.76	9.25	29,110.54	9.65	- -	- -
Mid Cap Growth Portfolio		$ 269,290	26,419.68	10.09	258.66	10.52	- -	- -
Partners Portfolio		$ 1,653,849	134,546.07	8.25	39,096.93	8.24	14,160.31	15.65
Oppenheimer
Balanced / VA		$ 402	39.98	10.06	- -	- -	- -	- -
Sentinel Variable Products Trust
Balanced Fund		$ 3,342,689	166,590.23	15.70	51,558.93	12.32	4,825.01	19.05
Bond Fund		$ 5,390,618	255,531.80	17.60	48,399.93	17.03	4,029.17	17.04
Common Stock Fund		$ 22,985,480	1,269,372.53	16.82	68,105.72	11.65	75,182.97	11.12
Mid Cap Growth Fund		$ 5,986,626	362,991.96	13.72	58,433.44	9.62	45,592.42	9.73
Money Market Fund		$ 8,955,335	451,098.41	14.09	169,899.47	14.16	148,392.23	1.32
Small Company Fund		$ 13,650,255	392,797.88	28.93	61,476.86	20.92	64,607.60	15.44
T Rowe Price Equity Series
Blue Chip Growth Portfolio		$ 1,008,443	108,346.61	7.78	20,409.95	8.11	- -	- -
Equity Income Portfolio		$ 3,989,982	413,666.02	8.77	39,751.41	9.14	- -	- -
Health Sciences Portfolio		$ 662,043	55,184.70	10.26	8,969.32	10.70	- -	- -
Van Eck Worldwide Insurance Trust
IT Worldwide Emerging Markets		$ 1,314,503	116,790.74	10.51	8,271.22	10.52	- -	- -

(3)	Formerly the Neuberger Berman Fasciano Portfolio.
(4)	Formerly the Neuberger Berman Limited Maturity Portfolio.

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

F-62

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 2008
Total Assets and Net Assets:		VariTrak		Estate Provider		Benefit Provider
		Product		Product		Product
Investments in shares of mutual fund portfolios at market value		Accumulation	Unit	Accumulation	Unit	Accumulation	Unit
(policyholder accumulation units and unit value):		Units	Value	Units	Value	Units	Value
Variable Insurance Product Funds
Contrafund Portfolio	$ 9,415,322	485,012.08	17.46	69,144.77	13.73	- -	- -
Equity Income Portfolio	$ 8,012,660	262,825.41	29.92	16,921.28	8.86	- -	- -
Growth Portfolio	$ 9,769,916	317,467.55	28.34	87,331.66	8.83	- -	- -
High Income Portfolio	$ 3,689,610	146,028.24	23.35	32,965.26	8.49	- -	- -
Index 500 Portfolio	$ 30,847,091	1,076,128.88	23.42	596,872.67	9.46	- -	- -
Investment Grade Bond Portfolio	$ 6,039,464	348,129.27	13.42	63,426.91	14.43	258,657.37	1.74
Mid Cap Portfolio	$ 3,552,149	297,823.31	11.08	21,760.50	11.56	- -	- -
Overseas Portfolio	$ 8,774,398	353,161.27	20.81	64,803.63	9.51	436,899.15	1.85
Wells Fargo Variable Trust Funds
Discovery	$ 4,742,257	402,488.90	9.90	33,388.09	11.12	26,102.96	14.83
Opportunity	$ 2,861,143	144,712.21	12.09	30,555.97	12.21	27,598.71	26.70
The accompanying notes are an integral part of these financial statements.

F-63

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		AIM Variable	AIM Variable	AIM Variable
		Insurance Funds	Insurance Funds	Insurance Funds	Alger American Fund		Alger American Fund
							Capital
		Dynamics	Global Health Care	Technology		Growth	Appreciation (1)
Investment income:
Dividend income	$ -		$ -	$ -	$ 27,175		$ -
Expenses:
Mortality and expense risk
and administrative charges		10,408	22,156	12,329		103,293	17,498
Net investment income (loss)		(10,408)	(22,156)	(12,329)		(76,118)	(17,498)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		-	537,389	-		-	-
Net realized gain (loss) from shares sold		60,912	81,895	16,746		787,902	213,757
Net unrealized appreciation (depreciation)
on investments		(836,338)	(1,453,524)	(788,475)		(7,700,702)	(1,501,904)
Net realized and unrealized
gain (loss) on investments		(775,426)	(834,240)	(771,729)		(6,912,800)	(1,288,147)
Increase (decrease) in net assets
resulting from operations	$ (785,834)		$ (856,396)	$ (784,058)	$ (6,988,918)		$ (1,305,645)

(1) Formerly the Alger American Leveraged AllCap Portfolio.

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

F-64

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
	Alger American Fund		Alliance Bernstein	Alliance Bernstein		Alliance Bernstein	Alliance Bernstein
		SmallCap		Small/Mid Cap		International	International
		Growth (2)	Value	Value		Value	Growth
Investment income:
Dividend income	$ -		$ -	$ -	$ -		$ -
Expenses:
Mortality and expense risk
and administrative charges		77,515	-	372		1,360		149
Net investment income (loss)		(77,515)	-	(372)		(1,360)		(149)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		127,099	-	-		-		-
Net realized gain (loss) from shares sold		1,282,293	-	137		1,123		135
Net unrealized appreciation (depreciation)
on investments		(6,845,789)	17	36,039		95,818		14,689
Net realized and unrealized
gain (loss) on investments		(5,436,397)	17	36,176		96,941		14,824
Increase (decrease) in net assets
resulting from operations	$ (5,513,912)		$ 17	$ 35,804	$ 95,581		$ 14,675

(2) Formerly the Alger American Small Capitalization Portfolio.

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

F-65

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		American Century	American Century	American Century	American Century		American Century
	Variable Portfolios		Variable Portfolios	Variable Portfolios	Variable Portfolios		Variable Portfolios
		Income &	Inflation
		Growth	Protection	International		Ultra	Value
Investment income:
Dividend income	$ 76,189		$ 151,573	$ 34,015	$ -		$ 250,177
Expenses:
Mortality and expense risk
and administrative charges		32,049	25,154	38,643		761	83,458
Net investment income (loss)		44,140	126,419	(4,628)		(761)	166,719
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		456,436	- -	399,554		15,454	1,328,188
Net realized gain (loss) from shares sold		(61,944)	(38,517)	90,751		(4,085)	(2,352,698)
Net unrealized appreciation (depreciation)
on investments		(2,008,194)	(189,152)	(2,880,006)		(63,589)	(2,412,705)
Net realized and unrealized
gain (loss) on investments		(1,613,702)	(227,669)	(2,389,701)		(52,220)	(3,437,215)
Increase (decrease) in net assets
resulting from operations	$ (1,569,562)		$ (101,250)	$ (2,394,329)	$ (52,981)		$ (3,270,496)

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

F-66

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		American Century	Dreyfus Variable	Dreyfus Variable		Dreyfus Variable	Dreyfus Variable
	Variable Portfolios		Investment Fund	Investment Fund		Investment Fund	Investment Fund
				Developing		Quality	Socially
		Vista	Appreciation	Leaders		Bond	Responsible Growth
Investment income:
Dividend income	$ -		$ 15,848	$ 470	$ 9,369		$ 2,678
Expenses:
Mortality and expense risk
and administrative charges		23,113	7,065	499		1,733	2,871
Net investment income (loss)		(23,113)	8,783	(29)		7,636	(193)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		125,357	59,035	2,816		- -	- -
Net realized gain (loss) from shares sold		(783,864)	(136,063)	(8,785)		(4,333)	3,967
Net unrealized appreciation (depreciation)
on investments		(1,101,542)	(220,743)	(19,629)		(14,238)	(145,363)
Net realized and unrealized
gain (loss) on investments		(1,760,049)	(297,771)	(25,598)		(18,571)	(141,396)
Increase (decrease) in net assets
resulting from operations	$ (1,783,162)		$ (288,988)	$ (25,627)	$ (10,935)		$ (141,589)

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

F-67

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		DWS	DWS				Franklin Templeton
		Variable	Variable	DWS		DWS	Variable Insurance
		Series II	Series II	VIT Funds		VIT Funds	Products Trust
		Dreman	Dreman			Small Cap	Foreign
	High Return Equity		Small Cap Value	Equity 500 Index		Index	Securities
Investment income:
Dividend income	$ 7,589		$ 43,481	$ 31,465	$ 6,366		$ 110,611
Expenses:
Mortality and expense risk
and administrative charges		2,469	29,691	3,372		1,001	39,987
Net investment income (loss)		5,120	13,790	28,093		5,365	70,624
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		54,879	1,396,174	- -		40,481	452,702
Net realized gain (loss) from shares sold		(36,651)	(2,179,729)	24,280		(13,769)	(1,587,320)
Net unrealized appreciation (depreciation)
on investments		(186,274)	(634,466)	(643,976)		(176,823)	(1,488,121)
Net realized and unrealized
gain (loss) on investments		(168,046)	(1,418,021)	(619,696)		(150,111)	(2,622,739)
Increase (decrease) in net assets
resulting from operations	$ (162,926)		$ (1,404,231)	$ (591,603)	$ (144,746)		$ (2,552,115)

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

F-68

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
	Franklin Templeton		Franklin Templeton	Franklin Templeton	Franklin Templeton		Franklin Templeton
	Variable Insurance		Variable Insurance	Variable Insurance	Variable Insurance		Variable Insurance
	Products Trust		Products Trust	Products Trust	Products Trust		Products Trust
	Mutual Shares		Global Real		Small Cap
	Securities		Estate	Small Cap	Value Securities		US Government
Investment income:
Dividend income	$ 30,392		$ 12,132	$ -	$ 6,290		$ -
Expenses:
Mortality and expense risk
and administrative charges		8,608	10,589	1,791		4,801	1,265
Net investment income (loss)		21,784	1,543	(1,791)		1,489	(1,265)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		43,228	331,348	24,732		43,564	- -
Net realized gain (loss) from shares sold		(33,438)	(454,633)	(16,367)		(37,321)	363
Net unrealized appreciation (depreciation)
on investments		(478,919)	(493,424)	(111,779)		(209,282)	31,490
Net realized and unrealized
gain (loss) on investments		(469,129)	(616,709)	(103,414)		(203,039)	31,853
Increase (decrease) in net assets
resulting from operations	$ (447,345)		$ (615,166)	$ (105,205)	$ (201,550)		$ 30,588

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

F-69

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
				Morgan Stanley		Morgan Stanley	Morgan Stanley
		JP Morgan	JP Morgan	Universal Institutional	Universal Institutional		Universal Institutional
		Series Trust II	Series Trust II	Funds		Funds	Funds
		International	Small	Core Plus		Emerging Markets
		Equity	Company	Fixed Income		Equity	High Yield
Investment income:
Dividend income	$ 77,159		$ 2,524	$ 102,402	$ -		$ 5,980
Expenses:
Mortality and expense risk
and administrative charges		30,836	11,362	5,391		1,749	182
Net investment income (loss)		46,323	(8,838)	97,011		(1,749)	5,798
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		708,978	142,016	- -		183,205	- -
Net realized gain (loss) from shares sold		15,033	(72,104)	(6,861)		(12,226)	(5,060)
Net unrealized appreciation (depreciation)
on investments		(2,991,022)	(548,083)	(332,957)		(666,954)	(15,223)
Net realized and unrealized
gain (loss) on investments		(2,267,011)	(478,171)	(339,818)		(495,975)	(20,283)
Increase (decrease) in net assets
resulting from operations	$ (2,220,688)		$ (487,009)	$ (242,807)	$ (497,724)		$ (14,485)

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

F-70

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		Morgan Stanley	Neuberger Berman	Neuberger Berman	Neuberger Berman	Neuberger Berman
	Universal Institutional		Advisors	Advisors	Advisors	Advisors
		Funds	Management Trust	Management Trust	Management Trust	Management Trust
			Small Cap	Short Duration	Mid Cap
		US Real Estate	Growth (3)	Bond (4)	Growth	Partners
Investment income:
Dividend income	$ 8,039		$ -	$ 191,092	$ -	$ 14,705
Expenses:
Mortality and expense risk
and administrative charges		672	21,688	34,192	3,492	20,981
Net investment income (loss)		7,367	(21,688)	156,900	(3,492)	(6,276)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		88,172	91,824	- -	- -	463,994
Net realized gain (loss) from shares sold		(3,083)	(1,217,805)	(235,425)	11,794	(180,530)
Net unrealized appreciation (depreciation)
on investments		(189,116)	(112,684)	(530,940)	(219,100)	(2,081,876)
Net realized and unrealized
gain (loss) on investments		(104,027)	(1,238,665)	(766,365)	(207,306)	(1,798,412)
Increase (decrease) in net assets
resulting from operations	$ (96,660)		$ (1,260,353)	$ (609,465)	$ (210,798)	$ (1,804,688)

(3)	Fomerly the Neuberger Berman Fasciano Portfolio.
(4)	Fomerly the Neuberger Berman Limited Maturity Portfolio.

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

F-71

	NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
		STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
			Sentinel		Sentinel	Sentinel
			Variable		Variable	Variable
		Oppenheimer	Products Trust		Products Trust	Products Trust
						Common
		Balanced / VA	Balanced		Bond	Stock
Investment income:
Dividend income	$ -		$ 117,128	$ 214,585		$ 353,158
Expenses:
Mortality and expense risk
and administrative charges		-	35,730		53,030	283,791
Net investment income (loss)		-	81,398		161,555	69,367
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		-	13,862		-	-
Net realized gain (loss) from shares sold		-	(39,151)		42	1,787,019
Net unrealized appreciation (depreciation)
on investments		14	(1,192,157)		(28,985)	(14,254,650)
Net realized and unrealized
gain (loss) on investments		14	(1,217,446)		(28,943)	(12,467,631)
Increase (decrease) in net assets
resulting from operations	$ 14		$ (1,136,048)	$ 132,612		$ (12,398,264)

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

F-72

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		Sentinel	Sentinel	Sentinel		T Rowe Price	T Rowe Price
		Variable	Variable	Variable		Equity	Equity
		Products Trust	Products Trust	Products Trust		Series	Series
		Mid Cap	Money	Small		Blue Chip	Equity
		Growth	Market	Company		Growth	Income
Investment income:
Dividend income	$ -		$ 148,052	$ 44,739	$ 1,488		$ 45,041
Expenses:
Mortality and expense risk
and administrative charges		80,231	87,708	150,060		37,701	10,054
Net investment income (loss)		(80,231)	60,344	(105,321)		(36,213)	34,987
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		- -	-	188,725		- -	27,024
Net realized gain (loss) from shares sold		536,250	-	(1,298,560)		(1,436,132)	(66,937)
Net unrealized appreciation (depreciation)
on investments		(5,816,369)	159	(5,524,856)		(985,454)	(324,959)
Net realized and unrealized
gain (loss) on investments		(5,280,119)	159	(6,634,691)		(2,421,586)	(364,872)
Increase (decrease) in net assets
resulting from operations	$ (5,360,350)		$ 60,503	$ (6,740,012)	$ (2,457,799)		$ (329,885)

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

F-73

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		T Rowe Price	Van Eck	Variable		Variable	Variable
		Equity	Worldwide	Insurance		Insurance	Insurance
		Series	Ins Tr	Product Funds		Product Funds	Product Funds
		Health	Emerging			Equity
		Sciences	Markets	Contrafund		Income	Growth
Investment income:
Dividend income	$ -		$ -	$ 136,047	$ 296,388		$ 124,778
Expenses:
Mortality and expense risk
and administrative charges		6,087	820	118,486		118,616	135,968
Net investment income (loss)		(6,087)	(820)	17,561		177,772	(11,190)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		8,158	-	389,215		14,009	-
Net realized gain (loss) from shares sold		(7,313)	1,512	(484,545)		(2,200,299)	977,835
Net unrealized appreciation (depreciation)
on investments		(239,045)	75,585	(7,067,167)		(5,082,421)	(9,986,059)
Net realized and unrealized
gain (loss) on investments		(238,200)	77,097	(7,162,497)		(7,268,711)	(9,008,224)
Increase (decrease) in net assets
resulting from operations	$ (244,287)		$ 76,277	$ (7,144,936)	$ (7,090,939)		$ (9,019,414)

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

F-74

		NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
			STATEMENTS OF OPERATIONS
		FOR THE YEAR ENDED DECEMBER 31, 2008
		Variable	Variable	Variable		Variable	Variable
		Insurance	Insurance	Insurance		Insurance	Insurance
		Product Funds	Product Funds	Product Funds		Product Funds	Product Funds
		High		Investment
		Income	Index 500	Grade Bond		Mid Cap	Overseas
Investment income:
Dividend income	$ 406,042		$ 930,300	$ 319,690	$ 20,351		$ 341,281
Expenses:
Mortality and expense risk
and administrative charges		46,433	364,638	63,387		25,466	120,128
Net investment income (loss)		359,609	565,662	256,303		(5,115)	221,153
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		- -	464,810	6,208		452,232	1,800,126
Net realized gain (loss) from shares sold		(466,521)	878,513	(144,878)		(295,558)	(66,725)
Net unrealized appreciation (depreciation)
on investments		(1,259,648)	(20,739,143)	(461,759)		(1,380,790)	(10,191,588)
Net realized and unrealized
gain (loss) on investments		(1,726,169)	(19,395,820)	(600,429)		(1,224,116)	(8,458,187)
Increase (decrease) in net assets
resulting from operations	$ (1,366,560)		$ (18,830,158)	$ (344,126)	$ (1,229,231)		$ (8,237,034)

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

F-75

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2008

		Wells Fargo	Wells Fargo
		Variable	Variable
		Trust Funds	Trust Funds
		Discovery	Opportunity
Investment income:
Dividend income	$ -		$ 82,037
Expenses:
Mortality and expense risk
and administrative charges		61,773	30,649
Net investment income (loss)		(61,773)	51,388
Realized and unrealized
gain (loss) on investments:
Capital gains distributions		-	968,313
Net realized gain (loss) from shares sold		622,566	(354,219)
Net unrealized appreciation (depreciation)
on investments		(4,511,382)	(2,651,667)
Net realized and unrealized
gain (loss) on investments		(3,888,816)	(2,037,573)
Increase (decrease) in net assets
resulting from operations	$ (3,950,589)		$ (1,986,185)

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

F-76

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	AIM Variable	AIM Variable	AIM Variable
	Insurance Funds	Insurance Funds	Insurance Funds	Alger American Fund	Alger American Fund
					Capital
	Dynamics	Global Health Care	Technology	Growth	Appreciation (1)
Net investment income (loss)	$ (10,408)	$ (22,156)	$ (12,329)	$ (76,118)	$ (17,498)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	537,389	-	-	-
Net realized gain (loss) from shares sold	60,912	81,895	16,746	787,902	213,757
Net unrealized appreciation (depreciation)
on investments	(836,338)	(1,453,524)	(788,475)	(7,700,702)	(1,501,904)
Net realized and unrealized
gain (loss) on investments	(775,426)	(834,240)	(771,729)	(6,912,800)	(1,288,147)
Increase (decrease) in net assets
resulting from operations	(785,834)	(856,396)	(784,058)	(6,988,918)	(1,305,645)
Accumulation unit transactions:
Participant deposits	155,151	389,003	249,762	1,567,957	283,192
Transfers between investment
sub-accounts and general account, net	(24,692)	(123,448)	29,643	2,892,846	1,840
Net surrenders and lapses	(84,976)	(93,580)	(118,339)	(1,158,423)	(212,397)
Contract benefits	-	(103)	-	(41,359)	-
Loan interest received	2,488	6,967	2,275	55,767	3,536
Transfers for policy loans	(16,768)	(37,902)	(19,075)	(260,257)	(29,755)
Contract charges	(95,683)	(207,207)	(130,489)	(978,867)	(151,932)
Other	346	1,584	1,118	31,728	635
Total net accumulation unit transactions	(64,134)	(64,686)	14,895	2,109,392	(104,881)
Increase (decrease) in net assets	(849,968)	(921,082)	(769,163)	(4,879,526)	(1,410,526)
Net assets, beginning of period	1,637,944	$ 2,957,254	$ 1,747,859	$ 15,975,209	$ 2,895,641
Net assets, end of period	$ 787,976	$ 2,036,172	$ 978,696	$ 11,095,683	$ 1,485,115
	(1)	Formerly the Alger American Leveraged AllCap Portfolio.

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

F-77

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Alger American Fund	Alliance Bernstein	Alliance Bernstein	Alliance Bernstein	Alliance Bernstein
	SmallCap		Small/Mid Cap	International	International
	Growth (2)	Value	Value	Value	Growth
Net investment income (loss)	$ (77,515)	$ -	$ (372)	$ (1,360)	$ (149)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	127,099	-	-	-	-
Net realized gain (loss) from shares sold	1,282,293	-	137	1,123	135
Net unrealized appreciation (depreciation)
on investments	(6,845,789)	17	36,039	95,818	14,689
Net realized and unrealized
gain (loss) on investments	(5,436,397)	17	36,176	96,941	14,824
Increase (decrease) in net assets
resulting from operations	(5,513,912)	17	35,804	95,581	14,675
Accumulation unit transactions:
Participant deposits	911,209	388	7,262	29,541	2,800
Transfers between investment
sub-accounts and general account, net	(77,712)	-	559,201	1,989,454	220,181
Net surrenders and lapses	(858,284)	-	(3,991)	(9,943)	(638)
Contract benefits	(35,432)	-	-	-	-
Loan interest received	39,458	-	112	543	-
Transfers for policy loans	(101,991)	-	(4,539)	(6,814)	24
Contract charges	(638,570)	-	(3,219)	(15,932)	(1,806)
Other	35,341	1	23,236	118,364	9,883
Total net accumulation unit transactions	(725,981)	389	578,062	2,105,213	230,444
Increase (decrease) in net assets	(6,239,893)	406	613,866	2,200,794	245,119
Net assets, beginning of period	12,210,328	$ -	$ -	$ -	$ -
Net assets, end of period	$ 5,970,435	$ 406	$ 613,866	$ 2,200,794	$ 245,119
	(2)	Formerly the Alger American Small Capitalization Portfolio.

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

F-78

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	American Century	American Century	American Century	American Century	American Century
	Variable Portfolios	Variable Portfolios	Variable Portfolios	Variable Portfolios	Variable Portfolios
	Income &	Inflation
	Growth	Protection	International	Ultra	Value
Net investment income (loss)	$ 44,140	$ 126,419	$ (4,628)	$ (761)	$ 166,719
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	456,436	-	399,554	15,454	1,328,188
Net realized gain (loss) from shares sold	(61,944)	(38,517)	90,751	(4,085)	(2,352,698)
Net unrealized appreciation (depreciation)
on investments	(2,008,194)	(189,152)	(2,880,006)	(63,589)	(2,412,705)
Net realized and unrealized
gain (loss) on investments	(1,613,702)	(227,669)	(2,389,701)	(52,220)	(3,437,215)
Increase (decrease) in net assets
resulting from operations	(1,569,562)	(101,250)	(2,394,329)	(52,981)	(3,270,496)
Accumulation unit transactions:
Participant deposits	493,810	416,271	819,598	18,986	1,440,255
Transfers between investment
sub-accounts and general account, net	(241,519)	(1,094,789)	910,132	4,890	(1,792,766)
Net surrenders and lapses	(265,305)	(178,673)	(153,934)	(601)	(559,528)
Contract benefits	(1,647)	(2,218)	(7,392)	-	(10,643)
Loan interest received	9,033	8,017	10,929	-	18,691
Transfers for policy loans	(112,340)	(59,309)	(61,863)	-	(153,405)
Contract charges	(335,327)	(220,711)	(362,427)	(12,581)	(787,354)
Other	1,308	2,777	2,757	94	4,272
Total net accumulation unit transactions	(451,987)	(1,128,635)	1,157,800	10,788	(1,840,478)
Increase (decrease) in net assets	(2,021,549)	(1,229,885)	(1,236,529)	(42,193)	(5,110,974)
Net assets, beginning of period	$ 4,765,808	$ 2,768,409	$ 5,015,237	$ 118,976	$ 11,778,021
Net assets, end of period	$ 2,744,259	$ 1,538,524	$ 3,778,708	$ 76,783	$ 6,667,047

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

F-79

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	American Century	Dreyfus Variable	Dreyfus Variable	Dreyfus Variable		Dreyfus Variable
	Variable Portfolios	Investment Fund	Investment Fund	Investment Fund		Investment Fund
			Developing	Quality		Socially
	Vista	Appreciation	Leaders	Bond		Responsible Growth
Net investment income (loss)	$ (23,113)	$ 8,783	$ (29)	$ 7,636		$ (193)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	125,357	59,035	2,816		- -	- -
Net realized gain (loss) from shares sold	(783,864)	(136,063)	(8,785)		(4,333)	3,967
Net unrealized appreciation (depreciation)
on investments	(1,101,542)	(220,743)	(19,629)		(14,238)	(145,363)
Net realized and unrealized
gain (loss) on investments	(1,760,049)	(297,771)	(25,598)		(18,571)	(141,396)
Increase (decrease) in net assets
resulting from operations	(1,783,162)	(288,988)	(25,627)		(10,935)	(141,589)
Accumulation unit transactions:
Participant deposits	469,205	176,644	20,878		35,068	55,722
Transfers between investment
sub-accounts and general account, net	(996,449)	(70,322)	(1,155)		19,004	(2,329)
Net surrenders and lapses	(102,500)	(35,980)	(398)		(9,653)	(21,860)
Contract benefits	(203)	(217)	- -		- -	- -
Loan interest received	5,091	1,550	1		344	560
Transfers for policy loans	(60,821)	(24,878)	(42)		10,184	(8,113)
Contract charges	(194,297)	(66,030)	(6,140)		(21,442)	(39,052)
Other	2,082	1,446	(3)		38	151
Total net accumulation unit transactions	(877,892)	(17,787)	13,141		33,543	(14,921)
Increase (decrease) in net assets	(2,661,054)	(306,775)	(12,486)		22,608	(156,510)
Net assets, beginning of period	$ 3,293,255	$ 846,606	$ 58,618	$ 184,415		$ 408,469
Net assets, end of period	$ 632,201	$ 539,831	$ 46,132	$ 207,023		$ 251,959

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

F-80

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	DWS	DWS			Franklin Templeton
	Variable	Variable	DWS	DWS	Variable Insurance
	Series II	Series II	VIT Funds	VIT Funds	Products Trust
	Dreman	Dreman		Small Cap	Foreign
	High Return Equity	Small Cap Value	Equity 500 Index	Index	Securities
Net investment income (loss)	$ 5,120	$ 13,790	$ 28,093	$ 5,365	$ 70,624
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	54,879	1,396,174	- -	40,481	452,702
Net realized gain (loss) from shares sold	(36,651)	(2,179,729)	24,280	(13,769)	(1,587,320)
Net unrealized appreciation (depreciation)
on investments	(186,274)	(634,466)	(643,976)	(176,823)	(1,488,121)
Net realized and unrealized
gain (loss) on investments	(168,046)	(1,418,021)	(619,696)	(150,111)	(2,622,739)
Increase (decrease) in net assets
resulting from operations	(162,926)	(1,404,231)	(591,603)	(144,746)	(2,552,115)
Accumulation unit transactions:
Participant deposits	37,712	574,947	71,430	15,587	747,275
Transfers between investment
sub-accounts and general account, net	(75,125)	(165,440)	63,132	(17,809)	(1,725,557)
Net surrenders and lapses	(37,430)	(168,392)	(66,335)	(16,646)	(165,244)
Contract benefits	- -	(2,382)	- -	- -	(6,587)
Loan interest received	432	5,717	- -	- -	8,423
Transfers for policy loans	(5,701)	(61,615)	- -	(1,007)	(55,482)
Contract charges	(20,927)	(266,021)	(43,803)	(4,850)	(342,037)
Other	115	2,071	(62)	(165)	3,246
Total net accumulation unit transactions	(100,924)	(81,115)	24,362	(24,890)	(1,535,963)
Increase (decrease) in net assets	(263,850)	(1,485,346)	(567,241)	(169,636)	(4,088,078)
Net assets, beginning of period	$ 433,098	$ 3,799,012	$ 1,570,852	$ 448,720	$ 5,582,930
Net assets, end of period	$ 169,248	$ 2,313,666	$ 1,003,611	$ 279,084	$ 1,494,852

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

F-81

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Franklin Templeton	Franklin Templeton	Franklin Templeton	Franklin Templeton	Franklin Templeton
	Variable Insurance	Variable Insurance	Variable Insurance	Variable Insurance	Variable Insurance
	Products Trust	Products Trust	Products Trust	Products Trust	Products Trust
	Mutual Shares	Global Real		Small Cap
	Securities	Estate	Small Cap	Value Securities	US Government
Net investment income (loss)	$ 21,784	$ 1,543	$ (1,791)	$ 1,489	$ (1,265)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	43,228	331,348	24,732	43,564	- -
Net realized gain (loss) from shares sold	(33,438)	(454,633)	(16,367)	(37,321)	363
Net unrealized appreciation (depreciation)
on investments	(478,919)	(493,424)	(111,779)	(209,282)	31,490
Net realized and unrealized
gain (loss) on investments	(469,129)	(616,709)	(103,414)	(203,039)	31,853
Increase (decrease) in net assets
resulting from operations	(447,345)	(615,166)	(105,205)	(201,550)	30,588
Accumulation unit transactions:
Participant deposits	132,831	194,784	42,553	86,471	29,635
Transfers between investment
sub-accounts and general account, net	(89,704)	(30,864)	7,938	(10,480)	1,970,091
Net surrenders and lapses	(76,031)	(143,071)	(7,579)	(22,523)	(6,561)
Contract benefits	- -	- -	- -	(764)	- -
Loan interest received	671	4,098	153	521	425
Transfers for policy loans	(5,940)	(18,673)	(7,414)	(16,741)	(398)
Contract charges	(81,072)	(104,616)	(24,731)	(41,056)	(16,252)
Other	848	2,292	52	367	1,721
Total net accumulation unit transactions	(118,397)	(96,050)	10,972	(4,205)	1,978,661
Increase (decrease) in net assets	(565,742)	(711,216)	(94,233)	(205,755)	2,009,249
Net assets, beginning of period	$ 1,289,364	$ 1,523,391	$ 233,350	$ 608,856	$ -
Net assets, end of period	$ 723,622	$ 812,175	$ 139,117	$ 403,101	$ 2,009,249

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

F-82

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
			Morgan Stanley	Morgan Stanley	Morgan Stanley
	JP Morgan	JP Morgan	Universal Institutional	Universal Institutional	Universal Institutional
	Series Trust II	Series Trust II	Funds	Funds	Funds
	International	Small	Core Plus	Emerging Markets
	Equity	Company	Fixed Income	Equity	High Yield
Net investment income (loss)	$ 46,323	$ (8,838)	$ 97,011	$ (1,749)	$ 5,798
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	708,978	142,016	-	183,205		-
Net realized gain (loss) from shares sold	15,033	(72,104)	(6,861)	(12,226)		(5,060)
Net unrealized appreciation (depreciation)
on investments	(2,991,022)	(548,083)	(332,957)	(666,954)		(15,223)
Net realized and unrealized
gain (loss) on investments	(2,267,011)	(478,171)	(339,818)	(495,975)		(20,283)
Increase (decrease) in net assets
resulting from operations	(2,220,688)	(487,009)	(242,807)	(497,724)		(14,485)
Accumulation unit transactions:
Participant deposits	504,374	174,448	55,473	23,257		4,006
Transfers between investment
sub-accounts and general account, net	(35,230)	(80,872)	10,718	29,680		(10,832)
Net surrenders and lapses	(215,164)	(97,143)	(13,719)	(72,579)		(13,259)
Contract benefits	-	(973)	-	-		-
Loan interest received	5,245	1,623	-	-		-
Transfers for policy loans	(58,187)	(10,777)	(8,185)	(4,555)		-
Contract charges	(284,076)	(114,140)	(22,388)	(12,493)		(927)
Other	1,204	(26)	56	(204)		11
Total net accumulation unit transactions	(81,834)	(127,860)	21,955	(36,894)		(21,001)
Increase (decrease) in net assets	(2,302,522)	(614,869)	(220,852)	(534,618)		(35,486)
Net assets, beginning of period	5,382,169	$ 1,600,289	$ 2,480,314	$ 901,580	$ 81,686
Net assets, end of period	$ 3,079,647	$ 985,420	$ 2,259,462	$ 366,962	$ 46,200

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

F-83

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Morgan Stanley	Neuberger Berman	Neuberger Berman	Neuberger Berman	Neuberger Berman
	Universal Institutional	Advisors	Advisors	Advisors	Advisors
	Funds	Management Trust	Management Trust	Management Trust	Management Trust
		Small Cap	Lehman Bros Short	Mid Cap
	US Real Estate	Growth (3)	Duration Bond (4)	Growth	Partners
Net investment income (loss)	$ 7,367	$ (21,688)	$ 156,900	$ (3,492)	$ (6,276)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	88,172	91,824	- -	- -	463,994
Net realized gain (loss) from shares sold	(3,083)	(1,217,805)	(235,425)	11,794	(180,530)
Net unrealized appreciation (depreciation)
on investments	(189,116)	(112,684)	(530,940)	(219,100)	(2,081,876)
Net realized and unrealized
gain (loss) on investments	(104,027)	(1,238,665)	(766,365)	(207,306)	(1,798,412)
Increase (decrease) in net assets
resulting from operations	(96,660)	(1,260,353)	(609,465)	(210,798)	(1,804,688)
Accumulation unit transactions:
Participant deposits	6,127	460,852	596,652	51,291	267,831
Transfers between investment
sub-accounts and general account, net	(6,401)	(1,248,820)	(592,345)	70,766	(127,990)
Net surrenders and lapses	(18,914)	(68,276)	(162,935)	(63,129)	(207,820)
Contract benefits	- -	(6,459)	(7,550)	- -	(6,142)
Loan interest received	- -	6,027	8,677	524	4,696
Transfers for policy loans	(2,262)	(39,756)	(44,649)	(2,505)	(49,628)
Contract charges	(5,274)	(195,512)	(315,538)	(29,344)	(174,296)
Other	(19)	1,189	4,057	407	886
Total net accumulation unit transactions	(26,743)	(1,090,755)	(513,631)	28,010	(292,463)
Increase (decrease) in net assets	(123,403)	(2,351,108)	(1,123,096)	(182,788)	(2,097,151)
Net assets, beginning of period	280,100	$ 2,780,930	$ 3,813,895	$ 452,078	$ 3,751,000
Net assets, end of period	$ 156,697	$ 429,822	$ 2,690,799	$ 269,290	$ 1,653,849

(3)	Formerly the Neuberger Berman Fasciano Portfolio.
(4)	Formerly the Neuberger Berman Limited Maturity Portfolio.

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

F-84

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
		Sentinel		Sentinel	Sentinel
		Variable		Variable	Variable
	Oppenheimer	Products Trust		Products Trust	Products Trust
					Common
	Balanced / VA	Balanced		Bond	Stock
Net investment income (loss)	$ -	$ 81,398	$ 161,555		$ 69,367
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	13,862		- -	- -
Net realized gain (loss) from shares sold	-	(39,151)		42	1,787,019
Net unrealized appreciation (depreciation)
on investments	14	(1,192,157)		(28,985)	(14,254,650)
Net realized and unrealized
gain (loss) on investments	14	(1,217,446)		(28,943)	(12,467,631)
Increase (decrease) in net assets
resulting from operations	14	(1,136,048)		132,612	(12,398,264)
Accumulation unit transactions:
Participant deposits	388	641,848		789,905	4,013,620
Transfers between investment
sub-accounts and general account, net	-	(143,012)		(760,869)	(1,158,233)
Net surrenders and lapses	-	(280,330)		(461,187)	(2,931,672)
Contract benefits	-	(7,488)		(26,027)	(61,679)
Loan interest received	-	17,488		16,402	112,595
Transfers for policy loans	-	(50,497)		(118,793)	(770,291)
Contract charges	-	(499,810)		(508,648)	(2,707,385)
Other	-	10,409		9,088	81,347
Total net accumulation unit transactions	388	(311,392)		(1,060,129)	(3,421,698)
Increase (decrease) in net assets	402	(1,447,440)		(927,517)	(15,819,962)
Net assets, beginning of period	-	4,790,129	$ 6,318,135		$ 38,805,442
Net assets, end of period	$ 402	$ 3,342,689	$ 5,390,618		$ 22,985,480

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

F-85

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Sentinel	Sentinel	Sentinel	T Rowe Price	T Rowe Price
	Variable	Variable	Variable	Equity	Equity
	Products Trust	Products Trust	Products Trust	Series	Series
	Mid Cap	Money	Small	Blue Chip	Equity
	Growth	Market	Company	Growth	Income
Net investment income (loss)	$ (80,231)	$ 60,344	$ (105,321)	$ (36,213)	$ 34,987
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	- -	- -	188,725	- -	27,024
Net realized gain (loss) from shares sold	536,250	- -	(1,298,560)	(1,436,132)	(66,937)
Net unrealized appreciation (depreciation)
on investments	(5,816,369)	159	(5,524,856)	(985,454)	(324,959)
Net realized and unrealized
gain (loss) on investments	(5,280,119)	159	(6,634,691)	(2,421,586)	(364,872)
Increase (decrease) in net assets
resulting from operations	(5,360,350)	60,503	(6,740,012)	(2,457,799)	(329,885)
Accumulation unit transactions:
Participant deposits	1,146,860	3,244,901	2,222,024	765,677	179,385
Transfers between investment
sub-accounts and general account, net	(370,747)	1,075,761	(482,298)	(1,805,123)	3,306,455
Net surrenders and lapses	(734,429)	(4,613,031)	(1,199,668)	(149,032)	(36,193)
Contract benefits	(7,077)	- -	(31,748)	(13,133)	- -
Loan interest received	26,517	25,041	42,206	10,526	1,489
Transfers for policy loans	(323,691)	2,870,288	(288,272)	(43,665)	(27,131)
Contract charges	(720,242)	(1,274,933)	(1,272,772)	(350,148)	(81,123)
Other	12,878	6,891	27,824	210	533
Total net accumulation unit transactions	(969,931)	1,334,918	(982,704)	(1,584,688)	3,343,415
Increase (decrease) in net assets	(6,330,281)	1,395,421	(7,722,716)	(4,042,487)	3,013,530
Net assets, beginning of period	12,316,907	7,559,914	$ 21,372,971	$ 5,050,930	$ 976,452
Net assets, end of period	$ 5,986,626	$ 8,955,335	$ 13,650,255	$ 1,008,443	$ 3,989,982

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

F-86

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	T Rowe Price		Variable	Variable	Variable
	Equity	Van Eck Worldwide	Insurance	Insurance	Insurance
	Series	Insurance Trust	Product Funds	Product Funds	Product Funds
	Health	Emerging		Equity
	Sciences	Markets	Contrafund	Income	Growth
Net investment income (loss)	$ (6,087)	$ (820)	$ 17,561	$ 177,772	$ (11,190)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	8,158	- -	389,215	14,009	- -
Net realized gain (loss) from shares sold	(7,313)	1,512	(484,545)	(2,200,299)	977,835
Net unrealized appreciation (depreciation)
on investments	(239,045)	75,585	(7,067,167)	(5,082,421)	(9,986,059)
Net realized and unrealized
gain (loss) on investments	(238,200)	77,097	(7,162,497)	(7,268,711)	(9,008,224)
Increase (decrease) in net assets
resulting from operations	(244,287)	76,277	(7,144,936)	(7,090,939)	(9,019,414)
Accumulation unit transactions:
Participant deposits	131,064	17,570	1,614,823	1,659,392	1,860,485
Transfers between investment
sub-accounts and general account, net	83,774	1,192,463	(99,452)	(923,781)	(129,151)
Net surrenders and lapses	(20,728)	(5,835)	(866,034)	(1,223,400)	(1,385,553)
Contract benefits	- -	- -	(9,305)	(15,042)	(25,520)
Loan interest received	1,586	302	34,995	40,698	72,447
Transfers for policy loans	(3,746)	(3,802)	(142,799)	(221,319)	(273,800)
Contract charges	(50,288)	(9,608)	(1,045,331)	(1,167,108)	(1,224,301)
Other	988	47,136	20,343	50,441	48,511
Total net accumulation unit transactions	142,650	1,238,226	(492,760)	(1,800,119)	(1,056,882)
Increase (decrease) in net assets	(101,637)	1,314,503	(7,637,696)	(8,891,058)	(10,076,296)
Net assets, beginning of period	763,680	- -	17,053,018	$ 16,903,718	$ 19,846,212
Net assets, end of period	$ 662,043	$ 1,314,503	$ 9,415,322	$ 8,012,660	$ 9,769,916

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

F-87

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Variable	Variable	Variable	Variable	Variable
	Insurance	Insurance	Insurance	Insurance	Insurance
	Product Funds	Product Funds	Product Funds	Product Funds	Product Funds
	High		Investment
	Income	Index 500	Grade Bond	Mid Cap	Overseas
Net investment income (loss)	$ 359,609	$ 565,662	$ 256,303	$ (5,115)	$ 221,153
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	- -	464,810	6,208	452,232	1,800,126
Net realized gain (loss) from shares sold	(466,521)	878,513	(144,878)	(295,558)	(66,725)
Net unrealized appreciation (depreciation)
on investments	(1,259,648)	(20,739,143)	(461,759)	(1,380,790)	(10,191,588)
Net realized and unrealized
gain (loss) on investments	(1,726,169)	(19,395,820)	(600,429)	(1,224,116)	(8,458,187)
Increase (decrease) in net assets
resulting from operations	(1,366,560)	(18,830,158)	(344,126)	(1,229,231)	(8,237,034)
Accumulation unit transactions:
Participant deposits	620,775	5,787,421	1,065,422	492,232	1,608,265
Transfers between investment
sub-accounts and general account, net	(624,166)	(444,648)	(1,378,808)	1,400,474	(1,222,798)
Net surrenders and lapses	(644,098)	(4,053,788)	(539,085)	(186,110)	(1,111,354)
Contract benefits	(16,652)	(18,833)	(1,490)	- -	(29,815)
Loan interest received	17,036	111,763	22,447	6,659	48,408
Transfers for policy loans	(48,774)	(633,793)	(64,163)	(67,894)	(210,738)
Contract charges	(452,188)	(3,579,526)	(629,348)	(235,449)	(980,677)
Other	14,565	28,422	6,179	2,668	42,850
Total net accumulation unit transactions	(1,133,502)	(2,802,982)	(1,518,846)	1,412,580	(1,855,859)
Increase (decrease) in net assets	(2,500,062)	(21,633,140)	(1,862,972)	183,349	(10,092,893)
Net assets, beginning of period	6,189,672	$ 52,480,231	7,902,436	$ 3,368,800	$ 18,867,291
Net assets, end of period	$ 3,689,610	$ 30,847,091	$ 6,039,464	$ 3,552,149	$ 8,774,398

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

F-88

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2008
	Wells Fargo		Wells Fargo
	Variable		Variable
	Trust Funds		Trust Funds
	Discovery		Opportunity
Net investment income (loss)	$ (61,773)	$ 51,388
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	- -		968,313
Net realized gain (loss) from shares sold	622,566		(354,219)
Net unrealized appreciation (depreciation)
on investments	(4,511,382)		(2,651,667)
Net realized and unrealized
gain (loss) on investments	(3,888,816)		(2,037,573)
Increase (decrease) in net assets
resulting from operations	(3,950,589)		(1,986,185)
Accumulation unit transactions:
Participant deposits	901,218		427,914
Transfers between investment
sub-accounts and general account, net	(285,807)		(291,788)
Net surrenders and lapses	(690,298)		(303,721)
Contract benefits	(2,480)		(2,184)
Loan interest received	30,997		6,800
Transfers for policy loans	(183,654)		(58,454)
Contract charges	(587,505)		(271,570)
Other	4,299		1,683
Total net accumulation unit transactions	(813,230)		(491,320)
Increase (decrease) in net assets	(4,763,819)		(2,477,505)
Net assets, beginning of period	$ 9,506,076	$ 5,338,648
Net assets, end of period	$ 4,742,257	$ 2,861,143

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

F-89

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	AIM Variable	AIM Variable	AIM Variable
	Insurance Funds	Insurance Funds	Insurance Funds	Alger American Fund	Alger American Fund
					Leveraged
	Dynamics	Global Health Care	Technology	Growth	All Cap
Net investment income (loss)	$ (14,271)	$ (24,723)	$ (15,306)	$ (76,443)	$ (19,082)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	-	-	-	-
Net realized gain (loss) from shares sold	193,203	142,713	109,486	1,271,769	234,982
Net unrealized appreciation (depreciation)
on investments	9,302	175,745	15,743	1,434,446	452,131
Net realized and unrealized
gain (loss) on investments	202,505	318,458	125,229	2,706,215	687,113
Increase (decrease) in net assets
resulting from operations	188,234	293,735	109,923	2,629,772	668,031
Accumulation unit transactions:
Participant deposits	177,467	442,544	295,048	1,691,442	301,718
Transfers between investment
sub-accounts and general account, net	(131,083)	(125,765)	(93,478)	(580,920)	399,308
Net surrenders and lapses	(111,310)	(116,811)	(103,598)	(1,050,981)	(90,906)
Contract benefits	(5,252)	(31,223)	-	(2,692)	(19,495)
Loan interest received	2,073	5,649	1,963	39,807	1,985
Transfers for policy loans	(19,734)	(57,903)	(14,973)	(253,059)	(32,886)
Contract charges	(104,566)	(203,053)	(135,259)	(1,003,099)	(137,078)
Other	45	(329)	63	470	(799)
Total net accumulation unit transactions	(192,360)	(86,891)	(50,234)	(1,159,032)	421,847
Increase (decrease) in net assets	(4,126)	206,844	59,689	1,470,740	1,089,878
Net assets, beginning of period	1,642,070	$ 2,750,410	$ 1,688,170	$ 14,504,469	$ 1,805,763
Net assets, end of period	$ 1,637,944	$ 2,957,254	$ 1,747,859	$ 15,975,209	$ 2,895,641

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

F-90

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
		American Century	American Century	American Century	American Century
	Alger American Fund	Variable Portfolios	Variable Portfolios	Variable Portfolios	Variable Portfolios
		Income &	Inflation
	Small Cap	Growth	Protection	International	Ultra
Net investment income (loss)	$ (102,302)	$ 45,881	$ 91,477	$ (11,598)	$ (732)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	-	-	-	-
Net realized gain (loss) from shares sold	1,476,353	336,629	(10,395)	403,053	802
Net unrealized appreciation (depreciation)
on investments	405,296	(426,640)	125,929	282,725	17,964
Net realized and unrealized
gain (loss) on investments	1,881,649	(90,011)	115,534	685,778	18,766
Increase (decrease) in net assets
resulting from operations	1,779,347	(44,130)	207,011	674,180	18,034
Accumulation unit transactions:
Participant deposits	1,046,153	576,062	463,182	814,117	15,115
Transfers between investment
sub-accounts and general account, net	(286,298)	19,888	403,686	336,620	10,110
Net surrenders and lapses	(737,011)	(250,200)	(80,939)	(174,085)	(266)
Contract benefits	(8,229)	(7,466)	(16,367)	-	-
Loan interest received	30,791	7,024	2,635	7,187	-
Transfers for policy loans	(155,969)	(43,246)	(23,446)	(64,159)	-
Contract charges	(685,264)	(355,091)	(164,543)	(308,394)	(7,701)
Other	(200)	(842)	976	(398)	(3)
Total net accumulation unit transactions	(796,027)	(53,871)	585,184	610,888	17,255
Increase (decrease) in net assets	983,320	(98,001)	792,195	1,285,068	35,289
Net assets, beginning of period	11,227,008	$ 4,863,809	$ 1,976,214	$ 3,730,169	$ 83,687
Net assets, end of period	$ 12,210,328	$ 4,765,808	$ 2,768,409	$ 5,015,237	$ 118,976

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

F-91

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	American Century	American Century	Dreyfus Variable	Dreyfus Variable		Dreyfus Variable
	Variable Portfolios	Variable Portfolios	Investment Fund	Investment Fund		Investment Fund
				Developing		Quality
	Value	Vista	Appreciation	Leaders		Bond
Net investment income (loss)	$ 91,218	$ (30,213)	$ 29,472	$ (123)		$ 6,703
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	999,073	-	-		6,071		-
Net realized gain (loss) from shares sold	190,573	607,211	415,770		(2,054)		(100)
Net unrealized appreciation (depreciation)
on investments	(2,007,599)	520,014	(331,659)		(11,139)		(2,360)
Net realized and unrealized
gain (loss) on investments	(817,953)	1,127,225	84,111		(7,122)		(2,460)
Increase (decrease) in net assets
resulting from operations	(726,735)	1,097,012	113,583		(7,245)		4,243
Accumulation unit transactions:
Participant deposits	1,679,560	583,533	436,540		19,490		34,764
Transfers between investment
sub-accounts and general account, net	60,177	(1,185,228)	(2,465,299)		8,560		26,332
Net surrenders and lapses	(547,449)	(113,518)	(87,374)		(2,248)		(695)
Contract benefits	(9,183)	(9,615)	(11,017)		-		-
Loan interest received	16,664	4,562	2,894		-		3
Transfers for policy loans	(151,566)	(30,024)	(26,349)		(279)		(11,267)
Contract charges	(806,804)	(224,376)	(154,308)		(5,976)		(16,168)
Other	(2,944)	(1,278)	(2,298)		3		17
Total net accumulation unit transactions	238,455	(975,944)	(2,307,211)		19,550		32,986
Increase (decrease) in net assets	(488,280)	121,068	(2,193,628)		12,305		37,229
Net assets, beginning of period	12,266,301	$ 3,172,187	$ 3,040,234	$ 46,313		$ 147,186
Net assets, end of period	$ 11,778,021	$ 3,293,255	$ 846,606	$ 58,618		$ 184,415

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

F-92

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
		DWS	DWS
	Dreyfus Variable	Variable	Variable	DWS	DWS
	Investment Fund	Series II (1)	Series II (1)	VIP Funds (1)	VIP Funds (1)
	Socially	Dreman	Dreman		Small Cap
	Responsible Growth	High Return Equity	Small Cap Value	Equity 500 Index	Index
Net investment income (loss)	$ (1,271)	$ 492	$ (12,794)	$ 20,057	$ 732
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	3,532	255,587	11,954	-
Net realized gain (loss) from shares sold	21,361	9,786	77,732	181,157	46,135
Net unrealized appreciation (depreciation)
on investments	5,951	(28,571)	(365,816)	(128,197)	(59,099)
Net realized and unrealized
gain (loss) on investments	27,312	(15,253)	(32,497)	64,914	(12,964)
Increase (decrease) in net assets
resulting from operations	26,041	(14,761)	(45,291)	84,971	(12,232)
Accumulation unit transactions:
Participant deposits	61,389	47,142	447,596	120,061	25,081
Transfers between investment
sub-accounts and general account, net	(7,517)	29,362	2,162,729	(197,976)	276,707
Net surrenders and lapses	(18,979)	(1,495)	(126,912)	(221,507)	(118,770)
Contract benefits	(374)	-	(10,589)	-	-
Loan interest received	275	702	2,660	-	-
Transfers for policy loans	(7,972)	(2,717)	(38,932)	-	-
Contract charges	(36,043)	(25,080)	(178,867)	(42,968)	(4,011)
Other	9	110	(97)	66	29
Total net accumulation unit transactions	(9,212)	48,024	2,257,588	(342,324)	179,036
Increase (decrease) in net assets	16,829	33,263	2,212,297	(257,353)	166,804
Net assets, beginning of period	391,640	$ 399,835	$ 1,586,715	$ 1,828,205	$ 281,916
Net assets, end of period	$ 408,469	$ 433,098	$ 3,799,012	$ 1,570,852	$ 448,720

(1)      Effective February 6, 2006, the Scudder Variable Series II Funds and the Scudder VIP Funds were renamed the DWS Variable Series II Funds and the DWS VIP Funds.

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

F-93

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Franklin Templeton	Franklin Templeton	Franklin Templeton	Franklin Templeton	Franklin Templeton
	Variable Insurance	Variable Insurance	Variable Insurance	Variable Insurance	Variable Insurance
	Products Trust	Products Trust	Products Trust	Products Trust	Products Trust
	Foreign	Mutual Shares	Global Real		Small Cap
	Securities	Securities	Estate (2)	Small Cap	Value Securities
Net investment income (loss)	$ 49,961	$ 6,691	$ 22,477	$ (1,794)	$ (1,725)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	212,628	43,542	115,496	13,891	41,497
Net realized gain (loss) from shares sold	263,348	53,396	12,136	8,928	64,054
Net unrealized appreciation (depreciation)
on investments	131,939	(80,227)	(549,623)	(5,915)	(117,740)
Net realized and unrealized
gain (loss) on investments	607,915	16,711	(421,991)	16,904	(12,189)
Increase (decrease) in net assets
resulting from operations	657,876	23,402	(399,514)	15,110	(13,914)
Accumulation unit transactions:
Participant deposits	798,320	156,402	256,276	44,811	115,980
Transfers between investment
sub-accounts and general account, net	525,634	149,513	265,138	39,356	(22,979)
Net surrenders and lapses	(169,926)	(23,476)	(133,163)	(3,059)	(105,108)
Contract benefits	- -	- -	(5,674)	- -	- -
Loan interest received	7,117	319	1,928	76	1,044
Transfers for policy loans	(40,784)	(8,190)	(42,400)	(1,038)	(6,798)
Contract charges	(311,081)	(80,595)	(117,491)	(20,626)	(45,253)
Other	(302)	202	(748)	153	(645)
Total net accumulation unit transactions	808,978	194,175	223,866	59,673	(63,759)
Increase (decrease) in net assets	1,466,854	217,577	(175,648)	74,783	(77,673)
Net assets, beginning of period	4,116,076	$ 1,071,787	$ 1,699,039	$ 158,567	$ 686,529
Net assets, end of period	$ 5,582,930	$ 1,289,364	$ 1,523,391	$ 233,350	$ 608,856
	(2)	Formerly known as Franklin Real Estate Fund.

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

F-94

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
			Morgan Stanley	Morgan Stanley	Morgan Stanley
	JP Morgan	JP Morgan	Universal Institutional	Universal Institutional	Universal Institutional
	Series Trust II	Series Trust II	Funds	Funds	Funds
	International	Small	Core Plus	Emerging Markets
	Equity	Company	Fixed Income	Equity	High Yield
Net investment income (loss)	$ 5,799	$ (15,111)	$ 1,135	$ (150)	$ 6,351
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	- -	83,157	- -	29,442		- -
Net realized gain (loss) from shares sold	391,918	68,602	(1,105)	97,106		(250)
Net unrealized appreciation (depreciation)
on investments	(76,490)	(250,543)	88,023	18,874		(3,310)
Net realized and unrealized
gain (loss) on investments	315,428	(98,784)	86,918	145,422		(3,560)
Increase (decrease) in net assets
resulting from operations	321,227	(113,895)	88,053	145,272		2,791
Accumulation unit transactions:
Participant deposits	572,516	189,786	80,888	16,194		9,092
Transfers between investment
sub-accounts and general account, net	1,449,630	(53,100)	2,226,597	643,943		(2,988)
Net surrenders and lapses	(203,160)	(56,253)	- -	(806)		- -
Contract benefits	(1,334)	- -	- -	- -		- -
Loan interest received	5,652	1,430	- -	- -		- -
Transfers for policy loans	469	(25,328)	- -	(66,367)		- -
Contract charges	(283,430)	(134,918)	(8,610)	(8,341)		(1,423)
Other	(212)	68	114	407		1
Total net accumulation unit transactions	1,540,131	(78,315)	2,298,989	585,030		4,682
Increase (decrease) in net assets	1,861,358	(192,210)	2,387,042	730,302		7,473
Net assets, beginning of period	3,520,811	$ 1,792,499	$ 93,272	$ 171,278	$ 74,213
Net assets, end of period	$ 5,382,169	$ 1,600,289	$ 2,480,314	$ 901,580	$ 81,686

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

F-95

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Morgan Stanley	Neuberger Berman	Neuberger Berman	Neuberger Berman		Neuberger Berman
	Universal Institutional	Advisors	Advisors	Advisors		Advisors
	Funds	Management Trust	Management Trust	Management Trust		Management Trust
			Limited	Mid Cap
	US Real Estate	Fasciano	Maturity	Growth		Partners
Net investment income (loss)	$ 3,659	$ (24,037)	$ 71,490	$ (3,296)		$ (5,387)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	38,763	20,339	- -		- -	368,706
Net realized gain (loss) from shares sold	113,110	83,058	8,274		26,155	212,880
Net unrealized appreciation (depreciation)
on investments	(224,908)	(102,338)	47,918		43,640	(266,688)
Net realized and unrealized
gain (loss) on investments	(73,035)	1,059	56,192		69,795	314,898
Increase (decrease) in net assets
resulting from operations	(69,376)	(22,978)	127,682		66,499	309,511
Accumulation unit transactions:
Participant deposits	21,797	508,206	626,107		53,627	384,317
Transfers between investment
sub-accounts and general account, net	(68,980)	207,176	589,597		100,893	(339,520)
Net surrenders and lapses	- -	(127,797)	(162,894)		(1,212)	(88,842)
Contract benefits	- -	- -	(12,337)		(5,560)	(31,231)
Loan interest received	- -	4,987	5,308		414	3,986
Transfers for policy loans	(59,115)	(29,165)	(44,785)		1,066	(33,047)
Contract charges	(13,486)	(183,974)	(251,792)		(24,217)	(198,875)
Other	(1,062)	(132)	(133)		(513)	761
Total net accumulation unit transactions	(120,846)	379,301	749,071		124,498	(302,451)
Increase (decrease) in net assets	(190,222)	356,323	876,753		190,997	7,060
Net assets, beginning of period	470,322	$ 2,424,607	$ 2,937,142	$ 261,081		$ 3,743,940
Net assets, end of period	$ 280,100	$ 2,780,930	$ 3,813,895	$ 452,078		$ 3,751,000

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

F-96

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Sentinel	Sentinel	Sentinel	Sentinel	Sentinel
	Variable	Variable	Variable	Variable	Variable
	Products Trust	Products Trust	Products Trust	Products Trust	Products Trust
			Common	Growth	Mid Cap
	Balanced	Bond	Stock	Index (3)	Growth
Net investment income (loss)	$ 68,712	$ 197,476	$ 99,173	$ -	$ (100,600)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	271,245	-	726,578	-	-
Net realized gain (loss) from shares sold	151,314	(60,315)	2,863,763	-	840,266
Net unrealized appreciation (depreciation)
on investments	(149,952)	223,447	(487,191)	-	1,486,822
Net realized and unrealized
gain (loss) on investments	272,607	163,132	3,103,150	-	2,327,088
Increase (decrease) in net assets
resulting from operations	341,319	360,608	3,202,323	-	2,226,488
Accumulation unit transactions:
Participant deposits	623,609	838,041	4,422,836	-	1,342,122
Transfers between investment
sub-accounts and general account, net	(20,640)	168,574	1,829,257	-	(540,811)
Net surrenders and lapses	(220,324)	(405,875)	(1,605,954)	-	(566,945)
Contract benefits	(5,261)	(2,651)	(193,587)	-	(58,943)
Loan interest received	13,001	12,465	83,094	-	17,615
Transfers for policy loans	(33,337)	(106,143)	(623,112)	-	(297,540)
Contract charges	(466,271)	(440,995)	(2,622,836)	-	(761,694)
Other	(136)	(345)	(11,834)	-	(1,061)
Total net accumulation unit transactions	(109,359)	63,071	1,277,864	-	(867,257)
Increase (decrease) in net assets	231,960	423,679	4,480,187	-	1,359,231
Net assets, beginning of period	4,558,169	$ 5,894,456	$ 34,325,255	$ -	$ 10,957,676
Net assets, end of period	$ 4,790,129	$ 6,318,135	$ 38,805,442	$ -	$ 12,316,907

(3)      During 2006, the assets of the Sentinel Variable Products Trust Growth Index Fund were merged into the Sentinel Variable Products Trust Mid Cap Growth Fund.

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

F-97

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Sentinel	Sentinel	T Rowe Price	T Rowe Price	T Rowe Price
	Variable	Variable	Equity	Equity	Equity
	Products Trust	Products Trust	Series	Series	Series
	Money	Small	Blue Chip	Equity	Health
	Market	Company	Growth	Income	Sciences
Net investment income (loss)	$ 442,047	$ (53,302)	$ (41,572)	$ 5,927	$ (8,697)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	-	2,054,769	-	57,541	56,607
Net realized gain (loss) from shares sold	-	497,454	406,885	19,877	128,918
Net unrealized appreciation (depreciation)
on investments	(400)	(923,926)	171,267	(77,798)	(51,085)
Net realized and unrealized
gain (loss) on investments	(400)	1,628,297	578,152	(380)	134,440
Increase (decrease) in net assets
resulting from operations	441,647	1,574,995	536,580	5,547	125,743
Accumulation unit transactions:
Participant deposits	2,926,614	2,647,913	923,494	154,119	187,078
Transfers between investment
sub-accounts and general account, net	(7,159,861)	(637,257)	(593,991)	253,784	(511,572)
Net surrenders and lapses	(2,026,753)	(1,046,081)	(228,667)	(14,744)	(22,141)
Contract benefits	(738,610)	(5,492)	(4,846)	(30,108)	-
Loan interest received	25,553	32,363	8,506	415	983
Transfers for policy loans	696,924	(385,813)	(55,806)	(5,939)	(8,760)
Contract charges	(1,415,826)	(1,298,207)	(367,433)	(47,771)	(60,420)
Other	256	(864)	(716)	19	(1,148)
Total net accumulation unit transactions	(7,691,703)	(693,438)	(319,459)	309,775	(415,980)
Increase (decrease) in net assets	(7,250,056)	881,557	217,121	315,322	(290,237)
Net assets, beginning of period	14,809,970	$ 20,491,414	$ 4,833,809	$ 661,130	$ 1,053,926
Net assets, end of period	$ 7,559,914	$ 21,372,971	$ 5,050,930	$ 976,452	$ 763,689

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

F-98

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Variable	Variable	Variable	Variable	Variable
	Insurance	Insurance	Insurance	Insurance	Insurance
	Product Funds	Product Funds	Product Funds	Product Funds	Product Funds
		Equity		High
	Contrafund	Income	Growth	Income	Index 500
Net investment income (loss)	$ 10,683	$ 169,672	$ (10,809)	$ 461,533	$ 1,462,606
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	4,111,911	1,408,520	16,282	- -	- -
Net realized gain (loss) from shares sold	1,194,894	904,046	1,871,452	18,046	3,243,524
Net unrealized appreciation (depreciation)
on investments	(2,854,758)	(2,423,452)	2,480,858	(365,665)	(2,305,563)
Net realized and unrealized
gain (loss) on investments	2,452,047	(110,886)	4,368,592	(347,619)	937,961
Increase (decrease) in net assets
resulting from operations	2,462,730	58,786	4,357,783	113,914	2,400,567
Accumulation unit transactions:
Participant deposits	1,829,246	1,647,157	2,126,868	729,535	6,501,010
Transfers between investment
sub-accounts and general account, net	(85,901)	1,915,639	(1,328,698)	14,512	(1,243,317)
Net surrenders and lapses	(802,790)	(971,790)	(1,319,537)	(271,626)	(3,340,077)
Contract benefits	(80,560)	(14,201)	(34,764)	(25,075)	(154,195)
Loan interest received	29,571	32,161	59,857	13,606	86,160
Transfers for policy loans	(187,371)	(102,399)	(242,144)	(15,717)	(1,036,722)
Contract charges	(1,061,514)	(1,191,431)	(1,263,030)	(450,644)	(3,741,716)
Other	(566)	(798)	439	106	(950)
Total net accumulation unit transactions	(359,885)	1,314,338	(2,001,009)	(5,303)	(2,929,807)
Increase (decrease) in net assets	2,102,845	1,373,124	2,356,774	108,611	(529,240)
Net assets, beginning of period	14,950,173	$ 15,530,594	$ 17,489,438	$ 6,081,061	$ 53,009,471
Net assets, end of period	$ 17,053,018	$ 16,903,718	$ 19,846,212	$ 6,189,672	$ 52,480,231

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

F-99

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 2007
	Variable	Variable	Variable	Wells Fargo	Wells Fargo
	Insurance	Insurance	Insurance	Variable	Variable
	Product Funds	Product Funds	Product Funds	Trust Funds	Trust Funds
	Investment
	Grade Bond	Mid Cap	Overseas	Discovery	Opportunity
Net investment income (loss)	$ 243,852	$ 993	$ 434,490	$ (75,645)	$ (10,494)
Realized and unrealized
gain (loss) on investments:
Capital gains distributions	- -	271,329	1,051,608	- -	662,473
Net realized gain (loss) from shares sold	(87,075)	79,229	1,736,012	624,893	84,692
Net unrealized appreciation (depreciation)
on investments	106,432	58,868	(698,066)	1,161,375	(488,953)
Net realized and unrealized
gain (loss) on investments	19,357	409,426	2,089,554	1,786,268	258,212
Increase (decrease) in net assets
resulting from operations	263,209	410,419	2,524,044	1,710,623	247,718
Accumulation unit transactions:
Participant deposits	1,224,817	546,744	1,624,338	1,019,913	500,005
Transfers between investment
sub-accounts and general account, net	429,984	113,586	2,048,794	(313,668)	572,604
Net surrenders and lapses	(512,160)	(251,212)	(1,315,501)	(357,896)	(146,436)
Contract benefits	(29,327)	- -	(29,996)	(47,941)	- -
Loan interest received	17,783	4,579	36,551	28,614	4,789
Transfers for policy loans	(107,133)	(36,582)	(260,671)	(171,691)	(69,725)
Contract charges	(580,059)	(219,379)	(964,395)	(602,772)	(288,199)
Other	(1,111)	(584)	(3,374)	1,550	543
Total net accumulation unit transactions	442,794	157,152	1,135,746	(443,891)	573,581
Increase (decrease) in net assets	706,003	567,571	3,659,790	1,266,732	821,299
Net assets, beginning of period	7,196,433	$ 2,801,229	$ 15,207,501	$ 8,239,344	$ 4,517,349
Net assets, end of period	$ 7,902,436	$ 3,368,800	$ 18,867,291	$ 9,506,076	$ 5,338,648

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

F-100

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company) NOTES TO THE FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS

National Variable Life Insurance Account (the Variable Account) began operations on March 11, 1996 and is registered as a unit investment trust under the Investment Company Act of 1940, as amended. The operations of the Variable Account are part of National Life Insurance Company (“National Life”). The Variable Account was established by National Life as a separate investment account to invest the net premiums received from the sale of certain variable life insurance products. Equity Services, Inc., an indirect wholly-owned subsidiary of National Life, is the principal underwriter for the variable life insurance policies issued by National Life. Sentinel Asset Management, Inc., an indirectly-owned subsidiary of National Life, provides investment advisory services for mutual fund portfolios within the Sentinel Variable Products Trust (“SVPT”), and for the SVPT Money Market Fund.

National Life maintains three products within the Variable Account. The VariTrak Product was established on March 11, 1996 and is used exclusively for National Life’s flexible premium variable life insurance products known collectively as VariTrak. On May 1, 1998, National Life established the Estate Provider Product to be used exclusively for National Life’s flexible premium variable life insurance products known collectively as Estate Provider. On February 12, 1999, National Life established the Benefit Provider Product to be used exclusively for National Life’s flexible premium variable universal life policy known collectively as Benefit Provider.

The Variable Account invests the accumulated policyholder account values in shares of mutual fund portfolios within AIM Variable Insurance Funds, Alger American Fund, Alliance Bernstein Variable Products, American Century Variable Portfolios (“ACVP”), Dreyfus Variable Investment Fund, DWS Variable Series II (formerly Scudder Variable Series II), DWS VIT Funds (formerly Scudder VIT Funds), Franklin Templeton Variable Insurance Products Trust, JP Morgan Series Trust II, Morgan Stanley Universal Institutional Funds, Neuberger Berman Advisors Management Trust, Oppenheimer, SVPT, T Rowe Price Equity Series, Van Eck Worldwide Insurance Trust, Fidelity Variable Insurance Products Fund (“VIPF”), and Wells Fargo Variable Trust. Net premiums received by the Variable Account are deposited in investment portfolios as designated by the policyholder, except for initial net premiums on new policies, which are first invested in the SVPT Money Market Fund. Policyholders may also direct the allocations of their account value between the various investment portfolios within the Variable Account and a declared interest account (within the General Account of National Life) through participant transfers.

There are sixty-one sub-accounts within the Variable Account as of December 31, 2008. Each sub-account, which invests exclusively in the shares of the corresponding portfolio, comprises the accumulated policyholder account values of the underlying variable life insurance policies and variable universal life policies investing in the sub-account.

In 2008, several new fund choices were added to further enhance the investment options available to policyholders. These new fund choices included mutual fund portfolios within Alliance Bernstein Variable Products, Oppenheimer, and Van Eck Worldwide Insurance Trust. Several portfolios were also renamed during 2008 including: Alger American Leveraged AllCap was renamed Alger American Capital Appreciation, Alger American Small Capitalization was renamed Alger American SmallCap Growth, Neuberger Berman Limited Maturity Portfolio was renamed Neuberger Berman Lehman Brothers Short Duration Bond Portfolio, and Neuberger Berman Fasciano Portfolio was renamed Neuberger Berman Small Cap Growth Portfolio.

During 2007, Franklin Templeton Real Estate Fund was renamed the Franklin Templeton Global Real Estate Fund.

F-101

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company) NOTES TO THE FINANCIAL STATEMENTS (continued)

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 (“GAAP”). The preparation of financial statements in accordance with 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 financial statements.

Investments

The mutual fund portfolios consist of the AIM Dynamics Fund, AIM Global Health Care Fund (formerly AIM Health Sciences Fund), AIM Technology Fund, Alger American Growth Portfolio, Alger American Capital Appreciation (formerly Alger American Leveraged AllCap) Portfolio, Alger American SmallCap Growth (formerly Alger American Small Capitalization) Portfolio, Alliance Bernstein VPS Value Fund, Alliance Bernstein VPS Small/Mid Cap Value Fund, Alliance Bernstein International Value Fund, Alliance Bernstein International Growth Fund, ACVP Income & Growth Portfolio, ACVP Inflation Protection Portfolio, ACVP International Portfolio, ACVP Ultra Portfolio, ACVP Value Portfolio, ACVP Vista Portfolio, Dreyfus Appreciation Portfolio, Dreyfus Developing Leaders Portfolio, Dreyfus Quality Bond Portfolio, Dreyfus Socially Responsible Growth Fund, DWS Dreman High Return Equity Portfolio (formerly Scudder Dreman High Return Equity Portfolio), DWS Dreman Small Cap Value Portfolio (formerly Scudder Dreman Small Cap Value Portfolio), DWS Equity 500 Index Fund (formerly Scudder Equity 500 Index Fund), DWS Small Cap Index Fund (formerly Scudder Small Cap Index Fund), Franklin Templeton Foreign Securities Fund, Franklin Templeton Mutual Shares Securities Fund, Franklin Templeton Global Real Estate Fund, Franklin Templeton Small Cap Securities Fund, Franklin Templeton Small Cap Value Securities Fund, Franklin Templeton US Government Fund, JP Morgan International Equity Portfolio, JP Morgan Small Company Portfolio, Morgan Stanley Core Plus Fixed Income Portfolio, Morgan Stanley Emerging Markets Equity Portfolio, Morgan Stanley High Yield Portfolio, Morgan Stanley US Real Estate Portfolio, Neuberger Berman Small Cap Growth Portfolio (formerly Neuberger Berman Fasciano Portfolio), Neuberger Berman Lehman Brothers Short Duration Bond Portfolio (formerly Neuberger Berman Limited Maturity Portfolio), Neuberger Berman Mid-Cap Growth Portfolio, Neuberger Berman Partners Portfolio, Oppenheimer Balanced/VA Fund, SVPT Balanced Fund, SVPT Bond Fund, SVPT Common Stock Fund, SVPT Mid Cap Growth Fund, SVPT Money Market Fund, SVPT Small Company Fund, T Rowe Price Blue Chip Growth Portfolio, T Rowe Price Equity Income Portfolio, T Rowe Price Health Sciences Portfolio, Van Eck Worldwide Insurance Trust Emerging Markets Fund, VIPF Contrafund Portfolio, VIPF Equity Income Portfolio, VIPF Growth Portfolio, VIPF High Income Portfolio, VIPF Index 500 Portfolio, VIPF Investment Grade Bond Portfolio, VIPF Mid Cap Portfolio, VIPF Overseas Portfolio, Wells Fargo Discovery Fund, and Wells Fargo Opportunity Fund. 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

The investments in the portfolios are valued at the closing net asset value per share as determined by the portfolio at the end of each period. The change in the difference between cost and market value is reflected as unrealized gain (loss) 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). Dividend income and capital gain distributions are recorded on the ex-dividend date. The cost of investments sold is determined using the first in, first out method (FIFO).

F-102

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company) NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Participant Transactions

Policyholders may allocate amounts in their individual accounts to variable investment options and to the guaranteed interest account of the Company's General Account. Participant deposits are reduced by applicable deductions, charges and state premium taxes. Transfers between funds and the 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 participants and beneficiaries made under the terms of the contracts and amounts that participants 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.

Loans

Policyholders may obtain loans after the first policy year as outlined in the variable life insurance policy and variable universal life insurance policy. 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.

Federal Income Taxes

The operations of the Variable Account are part of, and taxed with, the total operations of National Life. Under existing federal income tax law, investment income and capital gains attributable to the Variable Account are not taxed.

NOTE 3 - CHARGES AND EXPENSES

The SVPT mutual fund portfolios are managed by an affiliate of National Life. During the year ended December 31, 2008, management fees were paid directly by the sub-accounts to the affiliate investment manager. The advisory agreement provides for fees ranging from .25% to .55% based on individual portfolios and average daily net assets. The effective advisory fee rates paid by the sub-accounts in 2008 was .39%.

The following tables describe the fees and expenses assessed when buying, owning and surrendering a Policy within each product of the Variable Account. Such charges reimburse the Company for the insurance and other benefits provided, its assumption of mortality and expense risks, and account administration. The mortality risk assumed is that the insureds under the policies may die sooner than anticipated. The expense risk assumed is that expenses incurred in issuing and administering the policies may exceed expected levels.

F-103

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 3 - CHARGES AND EXPENSES (continued)
Charges and Deductions – VariTrak Product
	When Charge is
Description of Charge	Deducted	Amount Deducted	How Deducted
		3.25% of each premium
Premium Tax Charge	Upon receipt of premium	payment (2.0% for	Deducted from Premium
	payment	qualified employee benefit	Payment
		plans)
	Upon surrender or lapse of
	the Policy during the first		Deducted from
		$0 - $2 per $1000 of initial
Surrender Charge	15 Policy Years, or 15		Accumulated Value upon
		or increased Face Amount
	Policy Years following an		Surrender or Lapse
	increase in Face Amount
	Upon surrender or lapse of
	the Policy during the first	$1.10 to $37.75 per $1000	Deducted from
Deferred Sales Charge	15 Policy Years or	of initial or increased Face	Accumulated Value upon
	following an increase in	Amount	Surrender or Lapse
	Face Amount
Withdrawal Fees	Upon making a withdrawal	Lesser of 2% of amount	Deducted from Withdrawal
		withdrawn or $25	Amount
		$25 per transfer in excess	Deducted from Transfer
Transfer Fees	Upon making a transfer	of 5 transfers in any one	Amount
		Policy Year
	At the end of each Policy
Loan Interest Spread	Year, or upon death,	1.3% - 2% annually of	Unit Liquidation from
	surrender, or lapse, if	amount held as Collateral	Account Value
	earlier
		$25 maximum in New
Projection Report	At the time Report is		Unit Liquidation from
		York, no maximum
Charge	requested		Account Value
		elsewhere
	On the Date of Issue of the	Varies based on age of
Cost of Insurance	Policy and on each	Insured and Duration of	Unit liquidation from
	Monthly Policy Date	Policy	Account Value
		Annual rate of 0.90% of
Mortality and Expense		the average daily net	Deducted from sub-
	Deducted Daily		accounts as a Reduction
Risk Fees		assets of each subaccount
		of the Separate Account	in Unit Value
	On the Date of Issue of the	$7.50 per month, plus
Administrative Fees	Policy and on each	$0.07 per $1000 of Face	Unit liquidation from
	Monthly Policy Date	Amount	Account Value
	On the Date of Issue of the	Amount varies depending
Riders	Policy and on each	on the specifics of the	Unit liquidation from
	Monthly Policy Date	Policy	Account Value

F-104

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 3 - CHARGES AND EXPENSES (continued)
Charges and Deductions – Estate Provider Product
	When Charge is
Description of Charge	Deducted	Amount Deducted	How Deducted
Premium Expense Charge	Upon receipt of	7.40% - 10.40%	Deducted from Premium
	Premium Payment	depending on Policy Year	Payment
	Upon surrender or lapse	Based on Joint Age at
		issue or time of increase;
	before the end of Policy		Deducted from
		Level up to 5 years,
Surrender Charge	Year 10, or the ten years		Accumulated Value upon
		declines thereafter each
	after an increase in the		Surrender or Lapse
	Basic Coverage	month by 1/60 of initial
		surrender charge
	On the Date of Issue of	Varies based on Net
Cost of Insurance Charge	the Policy and on each	amount at Risk, age of the	Unit Liquidation from
	Monthly Policy Date	insureds and other factors	Account Value
	On the Date of Issue of	0.75% - 0.90% in Policy
Variable Account Charge	the Policy and on each	Years 1 - 10; 0.25% -	Unit Liquidation from
	Monthly Policy Date	0.35% after Policy Year 10	Account Value
	On the Date of Issue of	$7.50 - $15.00 per month
Administrative Charge	the Policy and on each	plus $0.08 to $0.09 per	Unit Liquidation from
	Monthly Policy Date	$1000 of basic coverage	Account Value
Withdrawal Charge	Upon making a	The lesser of 2% of the	Deducted from the
	Withdrawal	Withdrawal amount or $25	Withdrawal amount
		$25 per transfer in excess	Deducted from the
Transfer Charge	Upon making a Transfer	of 12 transfers in any one	Transfer amount
		Policy Year
	At the end of each Policy
Loan Interest Spread	Year, or upon death,	1.3% - 2% annually of	Unit Liquidation from
	surrender or lapse, if	amount held as Collateral	Account Value
	earlier
		$25 maximum in New
	At the time Report is		Pro-Rata Unit Liquidation
Projection Report Charge		York, no maximum
	requested		from Account Value
		elsewhere
	On the Date of Issue of	Amount varies depending
Riders	the Policy and on each	on the specifics of the	Unit Liquidation from
	Monthly Policy Date	Policy	Account Value

F-105

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 3 - CHARGES AND EXPENSES (continued)
Charges and Deductions – Benefit Provider Product
	When Charge is
Description of Charge	Deducted	Amount Deducted	How Deducted
		5% - 15% of Premiums paid
		during the Policy Year up to
		the Target Premium, plus
	Upon receipt of		Deducted from Premium
Distribution Charge		2.5% of Premiums paid in
	Premium Payment		Payment
		excess of the Target
		Premium, depending on the
		Policy Year
		Amount varies by State, and
Premium Tax Charge	Upon receipt of	may range from 2% to as	Deducted from Premium
	Premium Payment	high as 12% in certain	Payment
		jurisdictions in Kentucky
	On the Date of Issue of	Varies based on age of
Cost of Insurance	the Policy and on each	Insured and Duration of the	Unit liquidation from
	Monthly Policy Date	Policy	Account Value
	On the Date of Issue of	Currently $5.50 per month;
Policy Administration			Unit liquidation from
	the Policy and on each	Guaranteed not to exceed
Charge			Account Value
	Monthly Policy Date	$8.00 per month
	On the Date of Issue of	$1.67 per month in Policy
Underwriting Charge	the Policy and on each	Year 1, and $3.75 per month	Unit liquidation from
	Monthly Policy Date	in Policy Years 2 – 5	Account Value
		Annual rate of 0% - 0.22% of
		the average daily net assets
Mortality and Expense		of each sub-account of the	Deducted from sub-
	Deducted Daily		accounts as a reduction
Risk Charge		Separate Account;
		Guaranteed not to exceed	in Unit Value
		Annual rate of 0.60%
Separate Account			Deducted from sub-
Administration Charge	Deducted Daily	Annual Rate of 0.10%	accounts as a reduction
			in Unit Value
		$25 per Transfer in excess of	Deducted from Transfer
Transfer Charge	Upon making a Transfer	12 transfers in any one Policy	amount
Year
	On the Date of Issue of	Amount varies depending on	Unit liquidation from
Riders	the Policy and on each
	Monthly Policy Date	the specifics of the Policy	Account Value

F-106

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(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, 2008 are set forth below:

Portfolio		Shares	Cost
AIM Variable Insurance Funds
Dynamics Fund		78,876	$ 1,200,956
Global Health Care Fund		163,286	2,980,265
Technology Fund		116,790	1,502,214
Alger American Fund
Growth Portfolio		419,021	14,833,663
Capital Appreciation Portfolio	(1)	48,869	2,128,742
SmallCap Growth Portfolio	(2)	339,615	8,617,445
Alliance Bernstein
Value		53	388
Small/Mid Cap Value		61,882	577,827
International Value		199,167	2,104,976
International Growth		19,578	230,429
American Century Variable Portfolios
Income & Growth Portfolio		569,348	4,232,734
Inflation Protection		155,258	1,628,192
International Portfolio		636,146	5,667,774
Ultra Portfolio		12,670	123,777
Value Portfolio		1,424,583	9,885,759
Vista Portfolio		58,700	939,031
Dreyfus Variable Investment Fund
Appreciation Portfolio		18,692	736,382
Developing Leaders		2,427	77,602
Quality Bond Portfolio		20,477	223,310
Socially Responsible Growth Fund		12,687	338,805
DWS Variable Series II
Dreman High Return Equity Portfolio		27,210	340,424
Dreman Small Cap Value Portfolio		292,130	3,128,838
DWS VIT Funds
Equity 500 Index Fund		105,090	1,388,745
Small Cap Index Fund		32,339	469,190
Franklin Templeton Variable Insurance Products Trust
Foreign Securities Fund		138,927	2,174,291
Mutual Shares Securities Fund		61,428	1,160,807
Global Real Estate Fund		76,548	1,679,572
Small Capitalization Fund		11,840	242,597
Small Cap Value Securities Fund		38,209	652,748
US Government		152,331	1,977,759
JP Morgan Series Trust II
International Equity Portfolio		388,354	5,350,268
Small Company Portfolio		100,144	1,582,258
(1) Formerly the Alger American Leveraged AllCap Portfolio.
(2) Formerly the Alger American Small Capitalization Portfolio.

F-107

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(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, 2008 are set forth below:

Portfolio		Shares	Cost
Morgan Stanley Universal Institutional Funds
Core Plus Fixed Income Portfolio		227,998	$ 2,504,562
Emerging Markets Equity Portfolio		47,906	65,507
High Yield Portfolio		5,099	393,097
US Real Estate Portfolio		19,086	923,272
Neuberger Berman Advisors Management Trust
Small Cap Portfolio	(3)	51,476	557,674
Lehman Brothers Short Duration Bond Portfolio	(4)	251,242	3,177,694
Mid Cap Growth Portfolio		16,685	424,796
Partners Portfolio		232,609	3,695,822
Oppenheimer
Balanced / VA		48	388
Sentinel Variable Products Trust
Balanced Fund		366,121	4,374,789
Bond Fund		543,409	5,458,669
Common Stock Fund		2,434,903	30,965,775
Mid Cap Growth Fund		893,526	8,748,344
Money Market Fund		8,955,335	8,955,335
Small Company Fund		1,467,769	20,082,709
T Rowe Price Equity Series
Blue Chip Growth Portfolio		150,514	1,349,957
Equity Income Portfolio		278,825	4,343,270
Health Sciences Portfolio		68,963	853,366
Van Eck Worldwide Ins Trust
Worldwide Emerging		223,555	1,238,918
Variable Insurance Product Funds
Contrafund Portfolio		611,782	17,219,983
Equity Income Portfolio		607,941	13,895,767
Growth Portfolio		415,211	14,636,154
High Income Portfolio		931,720	5,421,936
Index 500 Portfolio		310,990	44,135,406
Investment Grade Bond Portfolio		510,090	6,354,823
Mid Cap Portfolio		192,737	15,198,455
Overseas Portfolio		720,986	4,718,517
Wells Fargo Variable Trust Funds
Discovery		423,794	6,448,549
Opportunity		281,609	5,665,141

(3) Formerly the Neuberger Berman Fasciano Portfolio.

(4) Formerly the Neuberger Berman Limited Maturity Portfolio.

The cost also represents the aggregate cost for federal income tax purposes.

F-108

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(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, 2008 aggregated the following:

			Sales
Portfolio		Purchases	Proceeds
AIM Variable Insurance Funds
Dynamics Fund		$ 275,199	$ 349,698
Global Health Care Fund		1,061,205	610,367
Technology Fund		398,221	395,443
Alger American Fund
Growth Portfolio		7,076,551	5,043,191
Capital Appreciation Portfolio	(1)	675,105	797,301
SmallCap Growth Portfolio	(2)	2,980,897	3,656,565
Alliance Bernstein
Value		388	0
Small/Mid Cap Value		592,537	14,846
International Value		2,159,649	55,796
International Growth		234,902	4,608
American Century Variable Portfolios
Income & Growth Portfolio		1,302,292	1,253,361
Inflation Protection		1,497,112	2,499,214
International Portfolio		2,837,415	1,284,559
Ultra Portfolio		44,111	18,628
Value Portfolio		4,439,492	4,784,839
Vista Portfolio		1,422,694	2,198,285
Dreyfus Variable Investment Fund
Appreciation Portfolio		822,158	772,067
Developing Leaders		30,179	14,251
Quality Bond Portfolio		106,481	65,298
Socially Responsible Growth Fund		64,413	79,525
DWS Variable Series II
Dreman High Return Equity Portfolio		123,279	164,195
Dreman Small Cap Value Portfolio		3,169,486	1,840,573
DWS VIP Funds
Equity 500 Index Fund		185,377	132,922
Small Cap Index Fund		104,730	83,775
Franklin Templeton Variable Insurance Products Trust
Foreign Securities Fund		2,256,573	3,269,090
Mutual Shares Securities Fund		495,760	549,136
Global Real Estate Fund		905,362	668,466
Small Capitalization Fund		104,067	70,148
Small Cap Value Securities Fund		226,288	185,440
US Government		2,006,570	29,174
JP Morgan Series Trust II
International Equity Portfolio		1,753,075	1,079,242
Small Company Portfolio		447,537	441,608
(1) Formerly the Alger American Leveraged AllCap Portfolio.
(2) Formerly the Alger American Small Capitalization Portfolio.

F-109

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(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, 2008 aggregated the following:

			Sales
Portfolio		Purchases	Proceeds
Morgan Stanley Universal Institutional Funds
Core Plus Fixed Income Portfolio		$ 392,680	$ 273,713
Emerging Markets Equity Portfolio		311,375	166,812
High Yield Portfolio		13,359	28,561
US Real Estate Portfolio		110,114	41,317
Neuberger Berman Advisors Management Trust
Small Cap Portfolio	(3)	1,140,994	2,161,504
Lehman Brothers Short Duration Bond Portfolio	(4)	1,781,633	2,138,203
Mid Cap Growth Portfolio		160,513	135,994
Partners Portfolio		1,129,132	963,789
Oppenheimer
Balanced / VA		388	0
Sentinel Variable Products Trust
Balanced Fund		1,521,077	1,737,134
Bond Fund		2,749,890	3,648,215
Common Stock Fund		8,821,098	12,172,749
Mid Cap Growth Fund		2,151,720	3,201,231
Money Market Fund		9,076,290	7,680,870
Small Company Fund		4,914,810	5,813,405
T Rowe Price Equity Series
Blue Chip Growth Portfolio		1,970,538	3,591,285
Equity Income Portfolio		3,660,181	254,747
Health Sciences Portfolio		492,356	347,624
Van Eck Worldwide Ins Trust
Worldwide Emerging		1,271,137	33,731
Variable Insurance Product Funds
Contrafund Portfolio		3,525,267	3,610,293
Equity Income Portfolio		6,023,600	7,632,117
Growth Portfolio		4,586,331	5,654,208
High Income Portfolio		1,857,497	2,631,291
Index 500 Portfolio		9,716,402	11,483,177
Investment Grade Bond Portfolio		2,307,892	3,565,061
Mid Cap Portfolio		2,893,029	1,033,688
Overseas Portfolio		7,215,645	7,052,689
Wells Fargo Variable Trust Funds
Discovery		1,531,944	2,405,692
Opportunity		1,723,131	1,194,491
(3) Formerly the Neuberger Berman Fasciano Portfolio.
(4) Formerly the Neuberger Berman Limited Maturity Portfolio.

F-110

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product
BP = Benefit Provider Product	AIM Variable Insurance Funds			AIM Variable Insurance Funds			AIM Variable Insurance Funds
		Dynamics		Global Health Care				Technology
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	134,459.65	13,903.79	28,417.10	235,357.14	16,574.37	21,938.23	333,193.71	5,413.85	27,787.52
Units issued	24,785.31	225.99	7,927.34	47,768.00	828.35	175.22	84,880.29	667.17	242.38
Units transferred	8,826.79	(11,541.64)	-	(11,360.78)	(622.28)	(12,622.38)	5,639.97	353.35	9,413.88
Units redeemed	(30,376.70)	(199.81)	(13,934.99)	(39,572.57)	(745.07)	(3,582.80)	(82,497.92)	(274.06)	(18,642.88)
Ending balance	137,695.05	2,388.33	22,409.45	232,191.79	16,035.37	5,908.27	341,216.05	6,160.31	18,800.90
	Alger American Fund			Alger American Fund			Alger American Fund
		Growth		Capital Appreciation (1)			SmallCap Growth (2)
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	572,840.15	19,384.56	24,477.17	154,806.29	11,944.37	101,500.61	645,670.00	11,609.18	12,872.55
Units issued	137,088.94	2,652.17	1,063.86	34,513.18	115,263.80	1,645.74	62,468.97	211.48	492.46
Units transferred	250,918.29	30,536.07	(385.99)	(2,088.78)	(67,947.45)	7,225.63	(394.64)	(6,925.43)	(338.39)
Units redeemed	(201,984.74)	(2,139.39)	(2,480.42)	(38,385.16)	(48,055.11)	(22,422.36)	(104,619.00)	(351.15)	(1,501.03)
Ending balance	758,862.64	50,433.41	22,674.62	148,845.53	11,205.61	87,949.62	603,125.33	4,544.08	11,525.59
	Alliance Bernstein			Alliance Bernstein			Alliance Bernstein
		Value		Small/Mid Cap Value			International Value
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	-	-	-	-	-	-	-
Units issued	39.34	-	-	714.22	-	-	2,724.36	217.91	-
Units transferred	-	-	-	53,675.57	1,322.03	-	186,557.83	11,595.86	-
Units redeemed	-	-	-	1,091.84	48.98	-	7,999.52	587.97	-
Ending balance	39.34	-	-	55,481.63	1,371.01	-	197,281.71	12,401.74	-

(1)	Formerly the Alger American Leveraged AllCap Portfolio.
(2)	Formerly the Alger American Small Capitalization Portfolio.

F-111

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product				American Century			American Century
BP = Benefit Provider Product	Alliance Bernstein			Variable Portfolios			Variable Portfolios
	International Growth			Income & Growth			Inflation Protection
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	-	279,792.65	32,963.45	33,564.56	197,087.58	31,174.38	68,732.17
Units issued	278.74	-	-	38,461.80	2,218.47	375.08	36,878.64	922.35	-
Units transferred	19,295.75	2,624.93	-	(21,236.55)	889.92	(656.57)	(86,477.85)	(12,452.94)	-
Units redeemed	634.28	108.71	-	(50,922.83)	(2,350.66)	(7,796.11)	(34,759.67)	(5,681.16)	(1,964.76)
Ending balance	20,208.77	2,733.64	-	246,095.07	33,721.18	25,486.96	112,728.70	13,962.63	66,767.41
	American Century			American Century			American Century
	Variable Portfolios			Variable Portfolios			Variable Portfolios
		International			Ultra			Value
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	256,146.20	15,422.45	-	5,566.22	3,779.45	-	496,535.01	51,739.52	89,996.70
Units issued	69,993.74	3,231.15	-	1,448.74	369.71	-	97,494.47	4,948.76	4,619.51
Units transferred	69,805.26	10,242.15	-	622.99	(147.56)	-	(111,535.50)	(17,630.02)	(3,556.89)
Units redeemed	(48,753.93)	(2,329.51)	-	(570.43)	(671.21)	-	(99,289.15)	(5,829.65)	(5,637.27)
Ending balance	347,191.27	26,566.24	-	7,067.52	3,330.39	-	383,204.83	33,228.61	85,422.05
	American Century				Dreyfus Variable			Dreyfus Variable
	Variable Portfolios			Investment Fund			Investment Fund
		Vista			Appreciation		Developing Leaders
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	179,552.89	9,584.30	-	58,753.13	5,581.68	-	5,643.42	-	-
Units issued	57,775.47	221.74	-	62,581.58	1,872.29	-	2,443.22	-	-
Units transferred	(132,573.92)	62.88	-	(25,927.37)	(304.29)	-	(135.13)	-	-
Units redeemed	(41,349.48)	(2,172.50)	-	(41,397.10)	(2,434.88)	-	(770.39)	-	-
Ending balance	63,404.96	7,696.42	-	54,010.24	4,714.80	-	7,181.12	-	-

F-112

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product		Dreyfus Variable			Dreyfus Variable
BP = Benefit Provider Product	Investment Fund			Investment Fund				DWS
		Quality Bond		Socially Responsible Growth			Dreman High Return Equity
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	15,410.59	947.72	-	41,710.32	1,632.37	13,726.50	31,756.77	-	-
Units issued	3,126.21	-	-	8,272.97	11.54	5,073.77	3,176.36	-	-
Units transferred	1,694.11	-	-	(416.77)	-	-	(6,497.31)	165.04	-
Units redeemed	(1,598.47)	(235.51)	-	(9,184.89)	(498.76)	(6,898.88)	(5,343.76)	(5.37)	-
Ending balance	18,632.44	712.21	-	40,381.63	1,145.15	11,901.39	23,092.06	159.67	-
		DWS			DWS VIT Funds			DWS VIT Funds
	Dreman Small Cap Value				Equity 500 Index			Small Cap Index
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	215,498.59	16,197.40	-	-	-	82,791.55	-	-	26,955.08
Units issued	106,775.37	15,762.45	-	-	-	38,800.78	-	-	2,879.34
Units transferred	(28,178.17)	(9,396.77)	-	-	-	34,293.49	-	-	(3,289.85)
Units redeemed	(93,831.50)	(8,265.04)	-	-	-	(59,861.21)	-	-	(4,187.40)
Ending balance	200,264.29	14,298.04	-	-	-	96,024.61	-	-	22,357.17
	Franklin Templeton Variable			Franklin Templeton Variable			Franklin Templeton Variable
	Insurance Products Trust			Insurance Products Trust			Insurance Products Trust
	Foreign Securities			Mutual Shares Securities			Global Real Estate
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	287,468.80	32,229.25	-	81,295.16	7,340.17	-	95,840.63	9,890.45	-
Units issued	80,519.87	4,816.58	-	9,073.52	1,591.28	-	14,243.36	325.42	-
Units transferred	(183,468.72)	(13,400.63)	-	(7,138.09)	183.85	-	(1,447.93)	(756.24)	-
Units redeemed	(59,515.33)	(4,127.03)	-	(12,193.77)	(490.10)	-	(18,944.23)	(491.66)	-
Ending balance	125,004.62	19,518.17	-	71,036.82	8,625.20	-	89,691.83	8,967.97	-

F-113

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product	Franklin Templeton Variable			Franklin Templeton Variable			Franklin Templeton Variable
BP = Benefit Provider Product	Insurance Products Trust			Insurance Products Trust			Insurance Products Trust
	Small Capitalization			Small Cap Value Securities				US Government
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	16,743.82	461.97	-	35,254.57	6,342.84	-	-	-	-
Units issued	2,425.95	74.53	-	5,239.19	664.59	-	2,720.54	227.08	-
Units transferred	5.76	636.47	-	(1,191.53)	534.00	-	178,134.92	17,817.09	-
Units redeemed	(2,124.47)	(248.27)	-	(5,079.59)	(372.83)	-	(1,983.04)	(112.29)	-
Ending balance	17,051.06	924.70	-	34,222.64	7,168.60	-	178,872.42	17,931.88	-
							Morgan Stanley Universal
	JP Morgan Series Trust II			JP Morgan Series Trust II			Institutional Funds
	International Equity				Small Company		Core Plus Fixed Income
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	230,154.18	20,901.28	79,068.99	79,122.57	16,422.13	2,297.22	-	-	1,555,888.38
Units issued	30,582.16	363.70	2,237.94	10,232.49	1,116.95	33.42	-	-	61,248.62
Units transferred	(9,280.18)	1,344.51	4,099.42	(7,617.01)	2,302.55	-	-	-	11,833.49
Units redeemed	(31,641.12)	(661.28)	(3,682.20)	(12,423.12)	(1,669.78)	(293.97)	-	-	(48,841.53)
Ending balance	219,815.04	21,948.21	81,724.15	69,314.93	18,171.85	2,036.67	-	-	1,580,128.96
	Morgan Stanley Universal			Morgan Stanley Universal			Morgan Stanley Universal
	Institutional Funds			Institutional Funds			Institutional Funds
	Emerging Markets				High Yield			US Real Estate
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	272,906.67	-	-	65,691.90	-	-	88,990.29
Units issued	-	-	10,290.51	-	-	3,335.88	-	-	1,982.58
Units transferred	-	-	13,132.71	-	-	(9,019.65)	-	-	(2,071.31)
Units redeemed	-	-	(39,747.73)	-	-	(11,803.62)	-	-	(8,565.54)
Ending balance	-	-	256,582.16	-	-	48,204.51	-	-	80,336.02

F-114

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product	Neuberger Berman Advisors			Neuberger Berman Advisors			Neuberger Berman Advisors
BP = Benefit Provider Product	Management Trust			Management Trust			Management Trust
	Small Cap Growth (3)			Lehman Brothers Short Duration Bond (4)				Mid Cap Growth
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	224,575.29	13,979.80	-	321,489.59	31,140.29	-	24,896.70	241.59	-
Units issued	69,624.10	6,995.24	-	68,140.68	10,764.69	-	2,795.16	26.05	-
Units transferred	(194,899.22)	(9,156.67)	-	(71,892.84)	2,357.80	-	3,900.15	-	-
Units redeemed	(46,527.63)	(3,364.27)	-	(57,261.67)	(15,152.24)	-	(5,172.33)	(8.98)	-
Ending balance	52,772.54	8,454.10	-	260,475.76	29,110.54	-	26,419.68	258.66	-
	Neuberger Berman Advisors						Sentinel Variable
	Management Trust				Oppenheimer			Products Trust
		Partners			Balanced / VA			Balanced
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	149,662.90	38,568.33	14,167.82	-	-	-	179,391.14	56,489.89	5,483.33
Units issued	13,127.56	3,703.86	32.84	39.22	-	-	31,616.66	4,698.77	25.82
Units transferred	(8,059.64)	(973.79)	78.15	0.40	-	-	(6,317.56)	(2,184.43)	-
Units redeemed	(20,184.75)	(2,201.47)	(118.51)	0.35	-	-	(38,100.01)	(7,445.30)	(684.14)
Ending balance	134,546.07	39,096.93	14,160.30	39.97	-	-	166,590.23	51,558.93	4,825.01
	Sentinel Variable				Sentinel Variable		Sentinel Variable
		Products Trust			Products Trust			Products Trust
		Bond			Common Stock			Mid Cap Growth
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	323,743.15	41,694.11	4,278.05	1,425,320.23	79,332.30	77,529.85	400,337.75	65,796.36	48,069.17
Units issued	43,003.17	2,574.20	234.14	181,536.94	13,880.61	4,369.88	49,528.58	3,315.55	1,995.30
Units transferred	(51,964.14)	7,575.09	-	(48,964.21)	(10,381.25)	(2,404.09)	(11,246.02)	(5,655.25)	(1,708.28)
Units redeemed	(59,250.38)	(3,443.47)	(483.02)	(288,520.44)	(14,725.93)	(4,312.67)	(75,628.35)	(5,023.22)	(2,763.77)
Ending balance	255,531.80	48,399.93	4,029.17	1,269,372.52	68,105.73	75,182.97	362,991.96	58,433.44	45,592.42

(3)	Formerly the Neuberger Berman Fasciano Portfolio.
(4)	Formerly the Neuberger Berman Limited Maturity Portfolio.

F-115

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product	Sentinel Variable			Sentinel Variable				T Rowe Price
BP = Benefit Provider Product		Products Trust			Products Trust			Equity Series
		Money Market			Small Company		Blue Chip Growth
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	428,440.91	101,700.42	131,350.86	413,004.49	66,179.59	66,507.93	339,081.06	28,967.91	-
Units issued	123,960.47	101,952.50	19,225.65	50,941.90	4,039.57	1,204.24	108,896.76	7,844.99	-
Units transferred	71,786.15	(4,780.90)	109,149.40	(8,967.22)	(3,145.78)	(1,897.81)	(264,781.01)	(6,951.53)	-
Units redeemed	(173,089.11)	(28,972.55)	(111,333.68)	(62,181.29)	(5,596.52)	(1,206.76)	(74,850.20)	(9,451.42)	-
Ending balance	451,098.42	169,899.47	148,392.23	392,797.88	61,476.86	64,607.60	108,346.61	20,409.95	-
		T Rowe Price			T Rowe Price		Van Eck Worldwide
		Equity Series			Equity Series			Insurance Trust
		Equity Income			Health Sciences		Emerging Markets
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	63,213.50	6,906.94	-	46,869.56	5,210.45	-	-	-	-
Units issued	18,901.15	1,674.67	-	10,273.51	585.96	-	1,650.84	123.77	-
Units transferred	347,051.48	32,059.85	-	3,768.08	3,421.61	-	112,541.35	7,898.56	-
Units redeemed	(15,500.11)	(890.05)	-	(5,726.45)	(248.70)	-	2,598.55	248.90	-
Ending balance	413,666.02	39,751.41	-	55,184.70	8,969.32	-	116,790.74	8,271.23	-
	Variable Insurance			Variable Insurance			Variable Insurance
		Product Funds			Product Funds			Product Funds
		Contrafund			Equity Income			Growth
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	501,572.34	70,571.09	-	314,940.24	21,057.07	-	339,281.68	88,473.80	-
Units issued	52,853.36	6,922.58	-	48,365.36	2,450.37	-	37,150.31	5,573.75	-
Units transferred	(2,524.03)	(1,587.04)	-	(26,456.88)	(3,327.51)	-	(2,453.19)	(745.16)	-
Units redeemed	(66,889.59)	(6,761.86)	-	(74,023.32)	(3,258.65)	-	(56,511.24)	(5,970.73)	-
Ending balance	485,012.08	69,144.77	-	262,825.40	16,921.28	-	317,467.56	87,331.66	-

F-116

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2008
VT = VariTrak Product
EP = Estate Provider Product	Variable Insurance			Variable Insurance			Variable Insurance
BP = Benefit Provider Product		Product Funds			Product Funds			Product Funds
		High Income			Index 500		Investment Grade Bond
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	180,383.31	46,320.13	-	1,157,662.88	603,464.74	-	447,410.16	71,749.44	315,261.91
Units issued	20,442.92	2,780.09	-	152,652.99	187,817.06	-	69,647.35	8,091.27	22,901.12
Units transferred	(17,648.44)	(10,888.87)	-	(14,410.67)	15,345.55	-	(87,099.13)	(9,883.62)	(56,988.90)
Units redeemed	(37,149.55)	(5,246.08)	-	(219,776.33)	(209,754.68)	-	(81,829.10)	(6,530.18)	(22,516.76)
Ending balance	146,028.24	32,965.27	-	1,076,128.87	596,872.67	-	348,129.28	63,426.91	258,657.37
	Variable Insurance			Variable Insurance				Wells Fargo
		Product Funds			Product Funds		Variable Trust Funds
		Mid Cap			Overseas			Discovery
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	171,246.32	10,819.22	-	427,033.86	87,219.44	434,741.95	433,346.00	40,921.36	34,098.56
Units issued	46,237.09	1,709.51	-	67,669.09	5,903.18	19,897.51	51,826.36	2,136.27	651.60
Units transferred	126,238.79	10,110.24	-	(48,151.05)	(20,228.38)	19,042.03	(9,320.04)	(5,810.43)	(1,671.34)
Units redeemed	(45,898.89)	(878.47)	-	(93,390.62)	(8,090.61)	(36,782.33)	(73,363.42)	(3,859.11)	(6,975.86)
Ending balance	297,823.31	21,760.50	-	353,161.28	64,803.63	436,899.16	402,488.90	33,388.09	26,102.96
		Wells Fargo
	Variable Trust Funds
		Opportunity
Units Issued, Transferred	VT	EP	BP
and Redeemed:
Beginning balance	166,358.29	29,570.05	30,137.08
Units issued	19,262.64	8,903.51	741.24
Units transferred	(13,680.81)	(2,272.82)	(760.00)
Units redeemed	(27,227.92)	(5,644.76)	(2,519.61)
Ending balance	144,712.20	30,555.98	27,598.71

F-117

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product
BP = Benefit Provider Product	AIM Variable Insurance Funds			AIM Variable Insurance Funds			AIM Variable Insurance Funds
		Dynamics		Global Health Care				Technology
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	146,960.78	19,372.68	25,871.93	242,414.16	16,861.25	25,763.61	337,298.27	5,240.53	51,317.04
Units issued	15,138.65	321.78	6,603.96	40,140.04	683.75	2,150.34	64,655.48	442.46	5,628.89
Units transferred	(6,700.75)	(5,569.50)	1,914.55	(10,500.93)	9.14	(5,706.42)	(12,367.64)	(30.20)	(27,456.52)
Units redeemed	(20,939.03)	(221.17)	(5,973.33)	(36,696.13)	(979.77)	(269.30)	(56,392.40)	(238.94)	(1,701.89)
Ending balance	134,459.65	13,903.79	28,417.11	235,357.14	16,574.37	21,938.23	333,193.71	5,413.85	27,787.52
	Alger American Fund			Alger American Fund			Alger American Fund
		Growth		Leveraged AllCap			Small Capitalization
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	626,615.23	20,570.35	23,671.37	136,089.44	7,062.04	70,907.42	694,956.09	15,508.82	11,564.16
Units issued	69,412.16	1,528.79	1,471.28	21,523.80	1,429.36	9,286.89	60,351.82	113.82	911.26
Units transferred	(25,845.71)	(1,626.23)	206.75	21,301.57	3,872.34	22,975.71	(16,856.53)	(3,764.10)	853.66
Units redeemed	(97,341.53)	(1,088.35)	(872.23)	(24,108.52)	(419.37)	(1,669.41)	(92,781.38)	(249.36)	(456.53)
Ending balance	572,840.15	19,384.56	24,477.17	154,806.29	11,944.37	101,500.61	645,670.00	11,609.18	12,872.55
	American Century			American Century			American Century
	Variable Portfolios			Variable Portfolios			Variable Portfolios
	Income & Growth			Inflation Protection				International
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	272,398.45	38,155.66	42,467.27	162,617.08	13,288.97	69,977.16	225,619.35	10,883.61	-
Units issued	35,058.64	3,378.05	2,392.19	34,514.02	7,125.13	-	44,180.61	2,756.06	-
Units transferred	5,533.61	(5,157.13)	1,788.47	22,447.04	13,528.28	-	16,491.76	2,811.29	-
Units redeemed	(33,198.05)	(3,413.13)	(13,083.37)	(22,490.56)	(2,768.00)	(1,244.99)	(30,145.52)	(1,028.51)	-
Ending balance	279,792.65	32,963.45	33,564.56	197,087.58	31,174.38	68,732.17	256,146.20	15,422.45	-

F-118

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product	American Century			American Century			American Century
BP = Benefit Provider Product	Variable Portfolios			Variable Portfolios			Variable Portfolios
		Ultra			Value			Vista
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	4,781.78	3,132.95	-	463,154.91	46,852.78	128,326.16	242,497.80	10,046.61	-
Units issued	978.86	307.35	-	71,630.41	4,417.26	6,526.24	35,796.96	1,217.79	-
Units transferred	178.64	628.28	-	22,898.45	2,920.39	(32,778.86)	(75,637.57)	(973.78)	-
Units redeemed	(373.06)	(289.13)	-	(61,148.76)	(2,450.91)	(12,076.84)	(23,104.30)	(706.32)	-
Ending balance	5,566.22	3,779.45	-	496,535.01	51,739.52	89,996.70	179,552.89	9,584.30	-
		Dreyfus Variable			Dreyfus Variable			Dreyfus Variable
	Investment Fund			Investment Fund			Investment Fund
		Appreciation		Developing Leaders				Quality Bond
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	238,561.89	7,264.56	-	3,930.11	-	-	12,253.35	1,142.22	-
Units issued	32,856.69	1,439.58	-	1,708.02	-	-	3,127.23	-	-
Units transferred	(191,951.74)	(1,968.90)	-	750.19	-	-	2,368.74	-	-
Units redeemed	(20,713.71)	(1,153.56)	-	(744.90)	-	-	(2,338.73)	(194.50)	-
Ending balance	58,753.13	5,581.68	-	5,643.42	-	-	15,410.59	947.72	-
		Dreyfus Variable
	Investment Fund				DWS			DWS
	Socially Responsible Growth			Dreman High Return Equity (1)			Dreman Small Cap Value (1)
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	42,843.51	1,621.24	13,903.19	28,419.21	-	-	94,237.43	4,349.37	-
Units issued	7,166.46	50.66	1,299.94	3,276.23	-	-	24,318.04	2,080.37	-
Units transferred	(620.37)	-	(428.88)	2,040.58	-	-	117,053.41	10,487.78	-
Units redeemed	(7,679.28)	(39.53)	(1,047.75)	(1,979.25)	-	-	(20,110.29)	(720.12)	-
Ending balance	41,710.32	1,632.37	13,726.50	31,756.77	-	-	215,498.59	16,197.40	-

(1) Effective February 6, 2006, the Scudder Variable Series II Funds and the Scudder VIP Funds were renamed the DWS Variable Series II Funds and the DWS VIP Funds.

F-119

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product							Franklin Templeton Variable
BP = Benefit Provider Product		DWS VIP Funds			DWS VIP Funds		Insurance Products Trust
	Equity 500 Index (1)			Small Cap Index (1)			Foreign Securities
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	114,730.14	-	-	14,404.27	252,143.07	18,023.51	-
Units issued	-	-	11,201.55	-	-	1,758.23	44,108.75	4,889.68	-
Units transferred	-	-	(18,470.96)	-	-	19,397.75	21,419.40	10,743.87	-
Units redeemed	-	-	(24,669.18)	-	-	(8,605.17)	(30,202.42)	(1,427.81)	-
Ending balance	-	-	82,791.55	-	-	26,955.08	287,468.80	32,229.25	-
	Franklin Templeton Variable			Franklin Templeton Variable			Franklin Templeton Variable
	Insurance Products Trust			Insurance Products Trust			Insurance Products Trust
	Mutual Shares Securities			Global Real Estate (2)			Small Capitalization
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	69,236.47	6,376.77	-	84,906.32	7,680.18	-	12,295.00	591.71	-
Units issued	9,381.49	1,078.12	-	15,048.71	371.29	-	3,148.06	99.37	-
Units transferred	9,886.82	193.32	-	13,371.13	2,258.64	-	2,850.31	-	-
Units redeemed	(7,209.62)	(308.04)	-	(17,485.53)	(419.66)	-	(1,549.55)	(229.11)	-
Ending balance	81,295.16	7,340.17	-	95,840.63	9,890.45	-	16,743.82	461.97	-
	Franklin Templeton Variable
	Insurance Products Trust			JP Morgan Series Trust II			JP Morgan Series Trust II
	Small Cap Value Securities			International Equity				Small Company
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	40,260.12	5,222.17	-	211,123.78	18,394.97	10,985.12	78,633.20	21,893.72	2,506.13
Units issued	5,662.96	1,508.43	-	33,598.24	1,321.90	2,676.95	7,590.71	1,522.08	268.03
Units transferred	(1,487.37)	77.61	-	14,893.60	2,768.37	66,240.91	1,299.82	(4,605.48)	(451.48)
Units redeemed	(9,181.14)	(465.37)	-	(29,461.44)	(1,583.96)	(833.99)	(8,401.16)	(2,388.19)	(25.46)
Ending balance	35,254.57	6,342.84	-	230,154.18	20,901.28	79,068.99	79,122.57	16,422.13	2,297.22
	(1) Effective February 6, 2006, the Scudder Variable Series II Funds and the Scudder VIP Funds were renamed the DWS Variable Series II Funds
	and the DWS VIP Funds.
	(2) Formerly the Franklin Real Estate Fund

F-120

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product	Morgan Stanley Universal			Morgan Stanley Universal			Morgan Stanley Universal
BP = Benefit Provider Product	Institutional Funds			Institutional Funds			Institutional Funds
	Core Plus Fixed Income			Emerging Markets				High Yield
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	61,501.32	-	-	72,806.65	-	-	61,922.11
Units issued	-	-	52,578.57	-	-	5,538.91	-	-	7,320.09
Units transferred	-	-	1,447,331.10	-	-	220,250.52	-	-	(2,405.39)
Units redeemed	-	-	(5,522.61)	-	-	(25,689.41)	-	-	(1,144.91)
Ending balance	-	-	1,555,888.38	-	-	272,906.67	-	-	65,691.90
	Morgan Stanley Universal			Neuberger Berman Advisors			Neuberger Berman Advisors
	Institutional Funds			Management Trust			Management Trust
		US Real Estate			Fasciano			Limited Maturity
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	-	-	123,856.08	198,687.26	8,693.66	-	267,744.16	14,705.29	-
Units issued	-	-	6,288.58	38,243.84	3,523.57	-	54,968.84	4,123.87	-
Units transferred	-	-	(19,901.62)	14,601.50	2,425.77	-	40,257.37	14,893.88	-
Units redeemed	-	-	(21,252.75)	(26,957.31)	(663.20)	-	(41,480.78)	(2,582.75)	-
Ending balance	-	-	88,990.29	224,575.29	13,979.80	-	321,489.59	31,140.29	-
	Neuberger Berman Advisors			Neuberger Berman Advisors			Sentinel Variable
	Management Trust			Management Trust				Products Trust
		Mid Cap Growth			Partners			Balanced
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	15,053.86	2,519.72	-	161,432.22	39,639.77	16,843.78	180,322.61	63,050.34	5,158.74
Units issued	2,886.41	269.97	-	18,467.29	2,197.71	1,398.23	26,845.76	4,336.26	255.06
Units transferred	8,611.48	(2,433.16)	-	(11,753.37)	(1,192.07)	(3,714.55)	(1,323.27)	218.94	152.78
Units redeemed	(1,655.05)	(114.94)	-	(18,483.24)	(2,077.08)	(359.64)	(26,453.96)	(11,115.65)	(83.25)
Ending balance	24,896.70	241.59	-	149,662.90	38,568.33	14,167.82	179,391.14	56,489.89	5,483.33

F-121

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product	Sentinel Variable				Sentinel Variable		Sentinel Variable
BP = Benefit Provider Product		Products Trust			Products Trust			Products Trust
		Bond			Common Stock			Growth Index (3)
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	320,016.34	42,429.92	3,908.19	1,415,501.50	73,573.59	20,189.30	-	-	-
Units issued	43,677.01	10,086.95	650.80	183,136.01	8,169.95	4,485.49	-	-	-
Units transferred	12,502.06	(4,764.92)	(217.51)	37,577.74	4,397.85	53,748.99	-	-	-
Units redeemed	(52,452.26)	(6,057.84)	(63.43)	(210,895.02)	(6,809.09)	(893.93)	-	-	-
Ending balance	323,743.15	41,694.11	4,278.05	1,425,320.23	79,332.30	77,529.85	-	-	-
	Sentinel Variable				Sentinel Variable		Sentinel Variable
		Products Trust			Products Trust			Products Trust
		Mid Cap Growth			Money Market			Small Company
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	434,409.95	69,281.54	48,477.29	553,949.50	102,908.55	4,820,962.17	425,635.37	65,444.83	74,101.79
Units issued	49,652.83	5,217.30	3,994.38	173,086.23	30,645.43	81,558.39	55,099.80	2,936.75	4,954.56
Units transferred	(16,299.77)	(4,594.11)	(4,015.82)	(139,641.11)	1,255.99	(4,114,961.44)	(10,497.13)	300.83	(8,124.57)
Units redeemed	(67,425.26)	(4,108.37)	(386.68)	(158,953.71)	(33,109.55)	(656,208.26)	(57,233.55)	(2,502.82)	(4,423.85)
Ending balance	400,337.75	65,796.36	48,069.17	428,440.91	101,700.42	131,350.86	413,004.49	66,179.59	66,507.93
		T Rowe Price			T Rowe Price			T Rowe Price
		Equity Series			Equity Series			Equity Series
	Blue Chip Growth				Equity Income			Health Sciences
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	371,306.64	21,863.23	-	44,136.98	4,392.91	-	78,302.40	5,685.50	-
Units issued	66,051.32	5,139.51	-	8,099.20	2,636.57	-	13,787.95	584.22	-
Units transferred	(50,379.41)	4,173.33	-	17,492.93	203.22	-	(38,395.51)	(861.42)	-
Units redeemed	(47,897.49)	(2,208.16)	-	(6,515.61)	(325.76)	-	(6,825.28)	(197.85)	-
Ending balance	339,081.06	28,967.91	-	63,213.50	6,906.94	-	46,869.56	5,210.45	-
	(3) During 2006, the assets of the Sentinel Variable Products Trust Growth Index Fund were merged into the Sentinel Variable Products
	Trust Mid Cap Growth Fund.

F-122

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company
NOTES TO THE FINANCIAL STATEMENTS (continued
NOTE 6 - CHANGES IN UNITS (continued)
				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product	Variable Insurance			Variable Insurance			Variable Insurance
BP = Benefit Provider Product		Product Funds			Product Funds			Product Funds
		Contrafund			Equity Income			Growth
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	514,718.55	69,805.95	-	291,626.20	18,009.29	-	366,019.73	132,280.00	-
Units issued	53,879.23	5,316.29	-	29,875.40	1,613.54	-	39,124.87	9,130.10	-
Units transferred	(894.99)	(1,412.81)	-	34,629.52	2,263.86	-	(12,918.36)	(45,997.85)	-
Units redeemed	(66,130.45)	(3,138.34)	-	(41,190.88)	(829.62)	-	(52,944.56)	(6,938.45)	-
Ending balance	501,572.34	70,571.09	-	314,940.24	21,057.07	-	339,281.68	88,473.80	-
	Variable Insurance			Variable Insurance			Variable Insurance
		Product Funds			Product Funds			Product Funds
		High Income			Index 500		Investment Grade Bond
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	177,852.95	54,253.41	-	1,224,228.80	636,799.54	-	414,177.80	69,278.91	345,244.51
Units issued	21,639.54	4,255.71	-	157,494.89	46,564.28	-	73,688.81	10,323.38	21,621.82
Units transferred	2,987.92	(7,434.93)	-	(24,707.18)	(24,058.18)	-	29,302.06	(4,361.79)	60,615.05
Units redeemed	(22,097.10)	(4,754.06)	-	(199,353.63)	(55,840.90)	-	(69,758.51)	(3,491.06)	(112,219.47)
Ending balance	180,383.31	46,320.13	-	1,157,662.88	603,464.74	-	447,410.16	71,749.44	315,261.91
	Variable Insurance			Variable Insurance				Wells Fargo
		Product Funds			Product Funds		Variable Trust Funds
		Mid Cap			Overseas			Discovery
Units Issued, Transferred	VT	EP	BP	VT	EP	BP	VT	EP	BP
and Redeemed:
Beginning balance	163,506.72	10,074.54	-	403,893.06	79,034.81	386,019.88	460,989.98	46,740.44	29,538.49
Units issued	27,197.93	2,378.08	-	39,886.54	6,315.88	26,024.73	54,370.37	2,205.51	3,373.74
Units transferred	7,928.07	(1,291.03)	-	48,381.72	7,271.50	55,852.55	(19,130.73)	(2,556.76)	1,878.54
Units redeemed	(27,386.40)	(342.37)	-	(65,127.46)	(5,402.75)	(33,155.21)	(62,883.62)	(5,467.83)	(692.21)
Ending balance	171,246.32	10,819.22	-	427,033.86	87,219.44	434,741.95	433,346.00	40,921.36	34,098.56

F-123

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company

NOTES TO THE FINANCIAL STATEMENTS (continued

NOTE 6 - CHANGES IN UNITS (continued)

				FOR THE YEAR ENDED DECEMBER 31, 2007
VT = VariTrak Product
EP = Estate Provider Product		Wells Fargo
BP = Benefit Provider Product	Variable Trust Funds
		Opportunity
Units Issued, Transferred	VT	EP	BP
and Redeemed:
Beginning balance	175,603.69	30,602.42	12,956.49
Units issued	18,916.86	2,856.74	1,368.88
Units transferred	(6,475.95)	(2,211.99)	16,335.91
Units redeemed	(21,686.31)	(1,677.12)	(524.20)
Ending balance	166,358.29	29,570.05	30,137.08

F-124

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)

NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE 7 - 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 2008, 2007, 2006, 2005, and 2004 are shown below. Information for the years 2008, 2007, 2006, 2005, and 2004 reflect 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							For the Year
			Ended							Ended
		At December 31,	December							December 31,		For the Year Ended
		2008	31, 2008			At December 31, 2008				2008		December 31, 2008
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
AIM Variable Insurance Funds
Dynamics Fund		787,976	0.00%	137,695.05	2,388.34	22,409.45	5.46	5.87	0.97	0.90%	0.32%	-48.54% -48.10% -48.40%
Global Health Care Fund		2,036,172	0.00%	232,191.79	16,035.38	5,908.26	8.12	8.73	1.68	0.90%	0.32%	-29.27% -28.68% -28.81%
Technology Fund		978,696	0.00%	341,216.05	6,160.31	18,800.90	2.77	2.98	0.82	0.90%	0.32%	-45.04% -44.51% -44.59%
Alger American Fund
Growth Portfolio		11,095,683	0.22%	758,862.64	50,433.40	22,674.62	13.07	6.45	37.66	0.90%	0.32%	-46.61% -46.16% -46.32%
Capital Appreciation Portfolio	(a)	1,485,115	0.00%	148,845.53	11,205.61	87,949.63	7.55	8.12	3.06	0.90%	0.32%	-45.64% -45.14% -45.36%
SmallCap Growth Portfolio	(b)	5,970,435	0.00%	603,125.33	4,544.09	11,525.60	9.19	8.33	33.69	0.90%	0.32%	-47.09% -46.60% -46.77%
Alliance Bernstein
Value		406	0.00%	39.34	-	-	10.31	-	-	0.90%	0.32%	4.43%	-	-
Small/Mid Cap Growth		613,866	0.00%	55,481.62	1,371.01	-	10.80	10.81	-	0.90%	0.32%	10.55%	10.63%	-
International Growth		2,200,794	0.00%	197,281.70	12,401.74	-	10.50	10.50	-	0.90%	0.32%	9.31%	9.29%	-
International Value		245,119	0.00%	20,208.77	2,733.64	-	10.68	10.69	-	0.90%	0.32%	12.61%	12.72%	-
American Century Variable
Portfolios
Income & Growth Portfolio		2,744,259	2.14%	246,095.06	33,721.19	25,486.97	9.16	9.96	5.99	0.90%	0.32%	-35.22% -34.60% -34.82%
Inflation Protection Portfolio		1,538,524	5.60%	112,728.70	13,962.63	66,767.41	11.45	11.94	1.21	0.90%	0.32%	-2.14%	-1.24%	-2.42%
International Portfolio		3,778,708	0.78%	347,191.27	26,566.24	-	10.08	10.51	-	0.90%	0.32%	-45.31% -44.83%		-
Ultra Portfolio		76,783	0.00%	7,067.52	3,330.39	-	7.28	7.60	-	0.90%	0.32%	-42.04% -41.45%		-
Value Portfolio		6,667,047	2.62%	383,204.83	33,228.61	85,422.06	14.05	13.85	9.61	0.90%	0.32%	-27.43% -26.80% -26.98%
Vista Portfolio		632,201	0.00%	63,404.96	7,696.42	-	8.85	9.23	-	0.90%	0.32%	-49.08% -48.61%		-
Dreyfus Variable Investment Fund
Appreciation Portfolio		539,831	2.06%	54,010.24	4,714.79	-	9.16	9.55	-	0.90%	0.32%	-30.18% -29.57%		-
Developing Leaders Portfolio		46,132	0.85%	7,181.12	-	-	6.42	-	-	0.90%	0.32%	-38.21%	–	-
Quality Bond Portfolio		207,023	4.71%	18,632.44	712.21	-	10.68	11.14	-	0.90%	0.32%	-5.07%	-4.21%	-
Socially Responsible Growth Fund		251,959	0.81%	40,381.64	1,145.15	11,901.39	5.48	5.90	1.99	0.90%	0.32%	-35.07% -34.37% -34.75%
DWS Variable Series II
Dreman High Return Equity Portfolio		169,248	3.03%	23,092.06	159.67	-	7.28	7.59	-	0.90%	0.32%	-46.63%	-	-
Dreman Small Cap Value Portfolio		2,313,666	1.35%	200,264.29	14,298.04	-	10.75	11.21	-	0.90%	0.32%	-34.29% -33.71%		-

(a)	Formerly the Alger American Leveraged AllCap Portfolio.
(b)	Formerly the Alger American Small Capitalization Portfolio.

F-125

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year							For the Year
			Ended							Ended
		At December 31,	December							December 31,		For the Year Ended
		2008	31, 2008			At December 31, 2008				2008		December 31, 2008
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
DWS VIT Funds
Equity 500 Index Fund		1,003,611	2.49%	-	-	96,024.61	-	-	10.43	0.90%	0.32%	-	-	-45.02%
Small Cap Index Fund		279,084	1.71%	-	-	22,357.17	-	-	12.46	0.90%	0.32%	-	-	-25.17%
Franklin Templeton Variable
Insurance Products Trust
Foreign Securities Fund		1,494,852	2.79%	125,004.62	19,518.17	-	10.28	10.72	-	0.90%	0.32%	-40.92% -40.41%		-
Mutual Shares Securities Fund		723,622	3.31%	71,036.82	8,625.20	-	9.04	9.43	-	0.90%	0.32%	-37.70% -37.09%		-
Global Real Estate Fund		812,175	1.05%	89,691.83	8,967.97	-	8.20	8.55	-	0.90%	0.32%	-42.90% -42.39%		-
Small Cap Fund		139,117	0.00%	17,051.06	924.70	-	7.72	8.05	-	0.90%	0.32%	-43.03% -42.50%		-
Small Cap Value Securities Fund		403,101	1.18%	34,222.64	7,168.60	-	9.67	10.08	-	0.90%	0.32%	-33.59% -33.02%		-
US Government		2,009,249	0.00%	178,872.42	17,931.88	-	10.21	10.22	-	0.90%	0.32%	1.65%	1.73%	-
JP Morgan Series Trust II
International Equity Portfolio		3,079,647	1.86%	219,815.05	21,948.21	81,724.15	9.16	9.38	10.51	0.90%	0.32%	-41.88% -41.34% -41.55%
Small Company Portfolio		985,420	0.20%	69,314.92	18,171.85	2,036.67	11.13	10.19	13.98	0.90%	0.32%	-32.63% -31.98% -32.20%
Morgan Stanley Universal
Institutional Funds
Core Plus Fixed Income Portfolio		2,259,462	4.58%	-	-	1,580,128.96	-	-	1.43	0.90%	0.32%	-	-	-10.06%
Emerging Markets Equity Portfolio		366,962	0.00%	-	-	256,582.16	-	-	1.43	0.90%	0.32%	-	-	-56.67%
High Yield Portfolio		46,200	10.14%	-	-	48,204.52	-	-	0.96	0.90%	0.32%	-	-	-22.58%
US Real Estate Portfolio		156,697	3.49%	-	-	80,336.01	-	-	1.95	0.90%	0.32%	-	-	-38.10%
Neuberger Berman Advisors
Management Trust
Small Cap Growth Portfolio	(c)	429,822	0.00%	52,772.54	8,454.10	-	6.98	7.28	-	0.90%	0.32%	-39.98% -39.43%		-
Lehman Brothers Short Duration Bond Portfol (d)		2,690,799	0.00%	260,475.76	29,110.54	-	9.25	9.65	-	0.90%	0.32%	-14.19% -13.38%		-
Mid Cap Growth Portfolio		269,290	0.56%	26,419.68	258.66	-	10.09	10.52	-	0.90%	0.32%	-43.88% -43.38%		-
Partners Portfolio		1,653,849	5.17%	134,546.07	39,096.93	14,160.31	8.25	8.24	15.65	0.90%	0.32%	-52.80% -52.40% -52.53%
Oppenheimer
Balanced / VA		402	0.00%	39.98	-	-	10.06	-	-	0.90%	0.32%	3.52%	-	-
Sentinel Variable Products Trust
Balanced Fund		3,342,689	2.90%	166,590.23	51,558.93	4,825.01	15.70	12.32	19.05	0.90%	0.32%	-24.63% -23.95% -24.19%
Bond Fund		5,390,618	3.58%	255,531.80	48,399.93	4,029.17	17.60	17.03	17.04	0.90%	0.32%	2.44%	3.40%	3.02%
Common Stock Fund		22,985,480	1.14%	1,269,372.53	68,105.72	75,182.97	16.82	11.65	11.12	0.90%	0.32%	-33.65% -33.01% -33.25%
Mid Cap Growth Fund		5,986,626	0.00%	362,991.96	58,433.44	45,592.42	13.72	9.62	9.73	0.90%	0.32%	-46.53% -46.05% -46.24%
Money Market Fund		8,955,335	1.82%	451,098.41	169,899.47	148,392.23	14.09	14.16	1.32	0.90%	0.32%	1.00%	1.94%	1.54%
Small Company Fund		13,650,255	0.25%	392,797.88	61,476.86	64,607.60	28.93	20.92	15.44	0.90%	0.32%	-32.89% -32.30% -32.52%

(c)	Formerly the Neuberger Berman Fasciano Portfolio.
(d)	Formerly the Neuberger Berman Limited Maturity Portfolio.

F-126

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
		For the Year							For the Year
		Ended							Ended
	At December 31,	December							December 31,		For the Year Ended
	2008	31, 2008			At December 31, 2008				2008		December 31, 2008
				Units			Units Value		Expense Ratio**			Total Return***
VT = VariTrak Product		Investment
EP = Estate Provider Product		Income
BP = Benefit Provider Product	Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
T Rowe Price Equity Series
Blue Chip Growth Portfolio	1,008,443	0.04%	108,346.61	20,409.95	-	7.78	8.11	-	0.90%	0.32%	-43.17% -42.69%		-
Equity Income Portfolio	3,989,982	2.64%	413,666.02	39,751.41	-	8.77	9.14	-	0.90%	0.32%	-36.82% -36.26%		-
Health Sciences Portfolio	662,043	0.00%	55,184.70	8,969.32	-	10.26	10.70	-	0.90%	0.32%	-29.77% -29.14%		-
Van Eck Worldwide Insurance Trust
IT Worldwide Emerging Markets	1,314,503	0.00%	116,790.74	8,271.22	-	10.51	10.52	-	0.90%	0.32%	10.25% 10.33%		-
Variable Insurance Product Funds
Contrafund Portfolio	9,415,322	1.08%	485,012.08	69,144.77	-	17.46	13.73	-	0.90%	0.32%	-43.02% -42.50%		-
Equity Income Portfolio	8,012,660	2.42%	262,825.41	16,921.28	-	29.92	8.86	-	0.90%	0.32%	-43.16% -42.65%		-
Growth Portfolio	9,769,916	0.87%	317,467.55	87,331.66	-	28.34	8.83	-	0.90%	0.32%	-47.64% -47.19%		-
High Income Portfolio	3,689,610	8.08%	146,028.24	32,965.26	-	23.35	8.49	-	0.90%	0.32%	-25.66% -24.93%		-
Index 500 Portfolio	30,847,091	2.32%	1,076,128.88	596,872.67	-	23.42	9.46	-	0.90%	0.32%	-37.55% -37.02%		-
Investment Grade Bond Portfolio	6,039,464	4.41%	348,129.27	63,426.91	258,657.37	13.42	14.43	1.74	0.90%	0.32%	-4.14% -3.28%		-3.33%
Mid Cap Portfolio	3,552,149	0.67%	297,823.31	21,760.50	-	11.08	11.56	-	0.90%	0.32%	-40.01% -39.41%		-
Overseas Portfolio	8,774,398	2.51%	353,161.27	64,803.63	436,899.15	20.81	9.51	1.85	0.90%	0.32%	-44.31% -43.83%   -43.94%
Wells Fargo Variable Trust Funds
Discovery	4,742,257	0.00%	402,488.90	33,388.09	26,102.96	9.90	11.12	14.83	0.90%	0.32%	-44.85% -44.34% -44.54%
Opportunity	2,861,143	2.02%	144,712.21	30,555.97	27,598.71	12.09	12.21	26.70	0.90%	0.32%	-40.65% -40.09% -40.28%

F-127

*	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 and separate, that are assessed against contract owner accounts either through reductions in unit values or the redemptio 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.
**	These amounts represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges and separate account administrative charges, for each period indicated. The ratio include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund have been excluded.
***	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 LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS
			For the Year							For the Year
			Ended							Ended
		At December 31,	December							December 31,		For the Year Ended
		2007	31, 2007			At December 31, 2007				2007		December 31, 2007
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
AIM Variable Insurance Funds
Dynamics Fund		1,637,944	-	134,459.65	13,903.79	28,417.11	10.61	11.31	1.88	0.90%	0.22%	11.10%	12.20%	11.24%
Global Health Care Fund		2,957,254	-	235,357.14	16,574.36	21,938.22	11.48	12.24	2.36	0.90%	0.22%	10.81%	11.88%	10.80%
Technology Fund		1,747,859	-	333,193.72	5,413.85	27,787.51	5.04	5.37	1.48	0.90%	0.22%	6.78%	7.83%	7.25%
Alger American Fund
Growth Portfolio		15,975,209	0.34%	572,840.14	19,384.55	24,477.17	24.48	11.98	70.16	0.90%	0.22%	18.83%	19.92%	19.30%
Leveraged All Cap Portfolio		2,895,641	-	154,806.28	11,944.38	101,500.61	13.89	14.80	5.60	0.90%	0.22%	32.29%	33.45%	32.70%
Small Capitalization Portfolio		12,210,328	-	645,670.00	11,609.18	12,872.55	17.37	15.60	63.29	0.90%	0.22%	16.19%	17.21%	15.81%
American Century Variable
Portfolios
Income & Growth Portfolio		4,765,808	1.80%	279,792.65	32,963.47	33,564.55	14.14	15.23	9.19	0.90%	0.22%	-0.91%	-0.07%	-0.97%
Inflation Protection Portfolio		2,768,409	4.56%	197,087.58	31,174.38	68,732.17	11.70	12.09	1.24	0.90%	0.22%	8.74%	9.71%	9.73%
International Portfolio		5,015,237	0.61%	256,146.20	15,422.46	-	18.43	19.05	-	0.90%	0.22%	17.02%	18.03%	-
Ultra Portfolio		118,976	-	5,566.22	3,779.45	-	12.56	12.98	-	0.90%	0.22%	19.96%	20.97%	-
Value Portfolio		11,778,021	1.55%	496,535.01	51,739.53	89,996.70	19.36	18.92	13.16	0.90%	0.22%	-6.02%	-5.12%	-5.73%
Vista Portfolio		3,293,255	-	179,552.89	9,584.30	-	17.38	17.96	-	0.90%	0.22%	38.49%	39.77%	-
Dreyfus Variable Investment Fund
Appreciation Portfolio		846,606	2.44%	58,753.13	5,581.69	-	13.12	13.56	-	0.90%	0.22%	6.15%	7.11%	-
Developing Leaders Portfolio		58,618	0.65%	5,643.40	-	-	10.39	-	-	0.90%	0.22%	-11.80%	–	-
Quality Bond Portfolio		184,415	4.64%	15,410.59	947.72	-	11.25	11.63	-	0.90%	0.22%	2.55%	3.56%	-
Socially Responsible Growth Fund		408,469	0.51%	41,710.33	1,632.37	13,726.50	8.44	8.99	3.05	0.90%	0.22%	6.84%	7.79%	6.64%
DWS Variable Series II
Dreman High Return Equity Portfolio	(a)	433,098	1.00%	31,756.77	-	-	13.64	-	-	0.90%	0.22%	-3.06%	-	-
Dreman Small Cap Value Portfolio	(a)	3,799,012	0.37%	215,498.60	16,197.39	-	16.36	16.91	-	0.90%	0.22%	1.74%	2.67%	-
DWS VIP Funds
Equity 500 Index Fund	(a)	1,570,852	1.53%	-	-	82,791.55	-	-	18.97	0.90%	0.22%	-	-	19.08%
Small Cap Index Fund	(a)	448,720	0.50%	-	-	26,955.09	-	-	16.65	0.90%	0.22%	-	-	-14.92%

(a)      Effective February 6, 2006, the Scudder Variable Series II Funds and the Scudder VIP Funds were renamed the DWS Variable Series II Funds and the DWS VIP Funds.

F-128

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year							For the Year
			Ended							Ended
		At December 31,	December							December 31,		For the Year Ended
		2007	31, 2007			At December 31, 2007				2007		December 31, 2007
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
Franklin Templeton Variable
Insurance Products Trust
Foreign Securities Fund		5,582,930	1.85%	287,468.80	32,229.25	-	17.40	17.99	-	0.90%	0.22%	14.40%	15.47%	-
Mutual Shares Securities Fund		1,289,364	1.40%	81,295.15	7,340.16	-	14.51	14.99	-	0.90%	0.22%	2.54%	3.45%	-
Global Real Estate Fund	(b)	1,523,391	2.28%	95,840.62	9,890.45	-	14.36	14.84	-	0.90%	0.22%	-21.57% -20.90%		-
Small Cap Fund		233,350	-	16,743.81	461.97	-	13.55	14.00	-	0.90%	0.22%	10.25%	11.20%	-
Small Cap Value Securities Fund		608,856	0.63%	35,254.56	6,342.83	-	14.56	15.05	-	0.90%	0.22%	-3.26%	-2.40%	-
JP Morgan Series Trust II
International Equity Portfolio		5,382,169	0.88%	230,154.19	20,901.28	79,068.99	15.76	15.99	17.98	0.90%	0.22%	8.39%	9.30%	8.77%
Small Company Portfolio		1,600,289	0.01%	79,122.57	16,422.13	2,297.22	16.52	14.98	20.62	0.90%	0.22%	-6.51%	-5.67%	-6.82%
Morgan Stanley Universal
Institutional Funds
Core Plus Fixed Income Portfolio		2,480,314	0.28%	-	-	1,555,888.38	-	-	1.59	0.90%	0.22%	-	-	4.61%
Emerging Markets Equity Portfolio		901,580	0.21%	-	-	272,906.67	-	-	3.30	0.90%	0.22%	-	-	40.43%
High Yield Portfolio		81,686	8.50%	-	-	65,691.89	-	-	1.24	0.90%	0.22%	-	-	3.33%
US Real Estate Portfolio		280,100	1.28%	-	-	88,990.29	-	-	3.15	0.90%	0.22%	-	-	-17.11%
Neuberger Berman Advisors
Management Trust
Fasciano Portfolio		2,780,930	-	224,575.29	13,979.80	-	11.63	12.02	-	0.90%	0.22%	-0.43%	0.50%	-
Limited Maturity Portfolio		3,813,895	2.90%	321,489.59	31,140.29	-	10.78	11.14	-	0.90%	0.22%	3.75%	4.70%	-
Mid Cap Growth Portfolio		452,078	-	24,896.70	241.59	-	17.98	18.58	-	0.90%	0.22%	21.40%	22.56%	-
Partners Portfolio		3,751,000	0.62%	149,662.89	38,568.33	14,167.82	17.48	17.31	32.97	0.90%	0.22%	8.37%	9.35%	8.45%
Sentinel Variable Products Trust
Balanced Fund		4,790,129	2.31%	179,391.15	56,489.87	5,483.33	20.83	16.20	25.13	0.90%	0.22%	7.43%	8.43%	7.58%
Bond Fund		6,318,135	4.15%	323,743.15	41,694.10	4,278.05	17.18	16.47	16.54	0.90%	0.22%	6.11%	7.09%	6.71%
Common Stock Fund		38,805,442	1.14%	1,425,320.24	79,332.30	77,529.86	25.35	17.39	16.66	0.90%	0.22%	9.22%	10.20%	9.17%
Growth Index Fund	(c)	-	-	-	-	-	-	-	-	0.90%	0.22%	-	-	5.86%
Mid Cap Growth Fund		12,316,907	-	400,337.76	65,796.36	48,069.16	25.66	17.83	18.10	0.90%	0.22%	20.92%	21.96%	20.99%
Money Market Fund		7,559,914	5.11%	428,440.91	101,700.42	131,350.86	13.95	13.89	1.30	0.90%	0.22%	3.87%	4.75%	4.00%
Small Company Fund		21,372,971	0.59%	413,004.49	66,179.59	66,507.93	43.11	30.90	22.88	0.90%	0.22%	7.61%	8.61%	7.37%

(b)	Formerly the Franklin Real Estate Fund.
(c)	During 2006, the assets of the Sentinel Variable Products Trust Growth Index Fund were merged into the Sentinel Variable Products Trust Mid Cap Growth Fund.

F-129

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
		For the Year							For the Year
		Ended							Ended
	At December 31,	December							December 31,		For the Year Ended
	2007	31, 2007			At December 31, 2007				2007		December 31, 2007
				Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product		Investment
EP = Estate Provider Product		Income
BP = Benefit Provider Product	Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
T Rowe Price Equity Series
Blue Chip Growth Portfolio	5,050,930	0.08%	339,081.07	28,967.91	-	13.69	14.15	-	0.90%	0.22%	11.48%	12.57%	-
Equity Income Portfolio	976,452	1.51%	63,213.49	6,906.94	-	13.88	14.34	-	0.90%	0.22%	2.13%	3.02%	-
Health Sciences Portfolio	763,680	-	46,869.56	5,210.45	-	14.61	15.10	-	0.90%	0.22%	16.60%	17.69%	-
Variable Insurance Product Funds
Contrafund Portfolio	17,053,018	0.94%	501,572.34	70,571.10	-	30.64	23.88	-	0.90%	0.22%	16.55%	17.64%	-
Equity Income Portfolio	16,903,718	1.90%	314,940.24	21,057.09	-	52.64	15.45	-	0.90%	0.22%	0.61%	1.51%	-
Growth Portfolio	19,846,212	0.81%	339,281.67	88,473.81	-	54.13	16.72	-	0.90%	0.22%	25.83%	26.96%	-
High Income Portfolio	6,189,672	8.29%	180,383.31	46,320.13	-	31.41	11.31	-	0.90%	0.22%	1.88%	2.72%	-
Index 500 Portfolio	52,480,231	3.60%	1,157,662.87	603,464.74	-	37.50	15.02	-	0.90%	0.22%	4.49%	5.40%	-
Investment Grade Bond Portfolio	7,902,436	4.08%	447,410.16	71,749.44	315,261.90	14.00	14.92	1.80	0.90%	0.22%	3.40%	4.34%	4.05%
Mid Cap Portfolio	3,368,800	0.91%	171,246.32	10,819.22	-	18.47	19.08	-	0.90%	0.22%	14.58%	15.64%	-
Overseas Portfolio	18,867,291	3.31%	427,033.86	87,219.43	434,741.95	37.37	16.93	3.30	0.90%	0.22%	16.27%	17.33%	17.44%
Wells Fargo Variable Trust Funds
Discovery	9,506,076	-	433,346.01	40,921.34	34,098.56	17.95	19.98	26.74	0.90%	0.22%	21.28%	22.35%	21.16%
Opportunity	5,338,648	0.56%	166,358.28	29,570.05	30,137.08	20.37	20.38	44.71	0.90%	0.22%	5.71%	6.65%	5.77%

F-130

*	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 owner accounts either through reductions in 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.
**	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 owner accounts through the redemption of units and expenses of the underlying fund have been excluded.
***	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 LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS
			For the Year
			Ended							For the Year
		At December 31,	December							Ended December		For the Year Ended
		2006	31, 2006			At December 31, 2006				31, 2006		December 31, 2006
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
AIM Variable Insurance Funds
Dynamics Fund		1,642,070	-	146,960.78	19,372.68	25,871.93	9.55	10.08	1.69	0.90%	0.22%	15.06%	16.13%	16.55%
Global Health Care Fund		2,750,410	-	242,414.16	16,861.25	25,763.61	10.36	10.94	2.13	0.90%	0.22%	4.33%	5.19%	5.45%
Technology Fund		1,688,170	-	337,298.27	5,240.53	51,317.04	4.72	4.98	1.38	0.90%	0.22%	9.51%	10.42%	10.40%
Alger American Fund
Growth Portfolio		14,504,469	0.13%	626,615.23	20,570.35	23,671.37	20.60	9.99	58.81	0.90%	0.22%	4.25%	5.16%	5.06%
Leveraged All Cap Portfolio		1,805,763	-	136,089.44	7,062.04	70,907.42	10.50	11.09	4.22	0.90%	0.22%	18.24%	19.38%	19.21%
Small Capitalization Portfolio		11,227,008	-	694,956.09	15,508.82	11,564.16	14.95	13.31	54.65	0.90%	0.22%	18.93%	20.02%	20.72%
American Century Variable
Portfolios
Income & Growth Portfolio		4,863,809	1.98%	272,398.45	38,155.66	42,467.27	14.27	15.24	9.28	0.90%	0.22%	16.02%	17.05%	17.47%
Inflation Protection Portfolio		1,976,214	3.49%	162,617.08	13,288.97	69,977.16	10.76	11.02	1.13	0.90%	0.22%	0.94%	1.85%	0.89%
International Portfolio		3,730,169	1.34%	225,619.35	10,883.61	-	15.75	16.14	-	0.90%	0.22%	23.92%	25.02%	-
Ultra Portfolio		83,687	-	4,781.78	3,132.95	-	10.47	10.73	-	0.90%	0.22%	-4.21%	-3.25%	-
Value Portfolio		12,266,301	1.32%	463,154.91	46,852.78	128,326.16	20.60	19.94	13.96	0.90%	0.22%	17.58%	18.62%	18.61%
Vista Portfolio		3,172,187	-	242,497.80	10,046.61	-	12.55	12.85	-	0.90%	0.22%	8.00%	8.99%	-
Dreyfus Variable Investment Fund
Appreciation Portfolio		3,040,234	1.35%	238,561.89	7,264.56	-	12.36	12.66	-	0.90%	0.22%	15.41%	16.47%	-
Developing Leaders Portfolio		46,313	0.33%	3,930.11	-	-	11.78	-	-	0.90%	0.22%	2.79%	–	-
Quality Bond Portfolio		147,186	4.51%	12,253.35	1,142.22	-	10.97	11.23	-	0.90%	0.22%	3.39%	4.27%	-
Socially Responsible Growth Fund		391,640	0.10%	42,843.51	1,621.24	13,903.19	7.90	8.34	2.86	0.90%	0.22%	8.22%	9.16%	9.58%
DWS Variable Series II
Dreman High Return Equity Portfolio	(a)	399,835	1.20%	28,419.21	-	-	14.07	-	-	0.90%	0.22%	17.15%	-	-
Dreman Small Cap Value Portfolio	(a)	1,586,715	0.33%	94,237.43	4,349.37	-	16.08	16.47	-	0.90%	0.22%	23.50%	24.58%	-
DWS VIP Funds
Equity 500 Index Fund	(a)	1,828,205	1.10%	-	-	114,730.14	-	-	15.93	0.90%	0.22%	-	-	15.69%
Small Cap Index Fund	(a)	281,916	0.63%	-	-	14,404.27	-	-	19.57	0.90%	0.22%	-	-	18.11%

(a)      Effective February 6, 2006, the Scudder Variable Series II Funds and the Scudder VIP Funds were renamed the DWS Variable Series II Funds and the DWS VIP Funds.

F-131

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year
			Ended							For the Year
		At December 31,	December							Ended December		For the Year Ended
		2006	31, 2006			At December 31, 2006				31, 2006		December 31, 2006
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
Franklin Templeton Variable
Insurance Products Trust
Foreign Securities Fund		4,116,076	1.18%	252,143.07	18,023.51	-	15.21	15.58	-	0.90%	0.22%	20.33%	21.43%	-
Mutual Shares Securities Fund		1,071,787	1.17%	69,236.47	6,376.77	-	14.15	14.49	-	0.90%	0.22%	17.33%	18.38%	-
Real Estate Fund		1,699,039	1.86%	84,906.32	7,680.18	-	18.31	18.76	-	0.90%	0.22%	19.52%	20.64%	-
Small Cap Fund		158,567	-	12,295.00	591.71	-	12.29	12.59	-	0.90%	0.22%	7.71%	8.72%	-
Small Cap Value Securities Fund		686,529	0.60%	40,260.12	5,222.17	-	15.05	15.42	-	0.90%	0.22%	15.95%	17.00%	-
JP Morgan Series Trust II
International Equity Portfolio		3,520,811	0.99%	211,123.78	18,394.97	10,985.12	14.54	14.63	16.53	0.90%	0.22%	20.97%	22.12%	21.90%
Small Company Portfolio		1,792,499	-	78,633.20	21,893.72	2,506.13	17.67	15.88	22.13	0.90%	0.22%	14.00%	14.99%	15.68%
Morgan Stanley Universal
Institutional Funds
Core Plus Fixed Income Portfolio		93,272	4.11%	-	-	61,501.32	-	-	1.52	0.90%	0.22%	-	-	3.40%
Emerging Markets Equity Portfolio		171,278	0.75%	-	-	72,806.65	-	-	2.35	0.90%	0.22%	-	-	35.84%
High Yield Portfolio		74,213	7.67%	-	-	61,922.11	-	-	1.20	0.90%	0.22%	-	-	8.11%
US Real Estate Portfolio		470,322	1.03%	-	-	123,856.08	-	-	3.80	0.90%	0.22%	-	-	37.18%
Neuberger Berman Advisors
Management Trust
Fasciano Portfolio		2,424,607	-	198,687.26	8,693.66	-	11.68	11.96	-	0.90%	0.22%	4.29%	5.19%	-
Limited Maturity Portfolio		2,937,142	3.26%	267,744.16	14,705.29	-	10.39	10.64	-	0.90%	0.22%	3.28%	4.21%	-
Mid Cap Growth Portfolio		261,081	-	15,053.86	2,519.72	-	14.81	15.16	-	0.90%	0.22%	13.75%	14.67%	-
Partners Portfolio		3,743,940	0.74%	161,432.22	39,639.77	16,843.78	16.13	15.83	30.40	0.90%	0.22%	11.24%	12.19%	12.43%
Sentinel Variable Products Trust
Balanced Fund		4,558,169	2.35%	180,322.61	63,050.34	5,158.74	19.39	14.94	23.36	0.90%	0.22%	10.55%	11.49%	11.66%
Bond Fund		5,894,456	4.84%	320,016.34	42,429.92	3,908.19	16.19	15.38	15.50	0.90%	0.22%	2.79%	3.64%	3.40%
Common Stock Fund		34,325,255	1.49%	1,415,501.50	73,573.59	20,189.30	23.21	15.78	15.26	0.90%	0.22%	15.07%	16.11%	16.49%
Growth Index Fund	(b)	-	-	-	-	-	-	-	-	0.90%	0.22%	4.96%	5.96%	5.86%
Mid Cap Growth Fund		10,957,676	-	434,409.95	69,281.54	48,477.29	21.22	14.62	14.96	0.90%	0.22%	4.64%	5.64%	5.80%
Money Market Fund		14,809,970	4.65%	553,949.50	102,908.55	4,820,962.17	13.43	13.26	1.25	0.90%	0.22%	3.79%	4.74%	5.04%
Small Company Fund		20,491,414	0.21%	425,635.37	65,444.83	74,101.79	40.06	28.45	21.31	0.90%	0.22%	15.15%	16.17%	16.77%

(b)      During 2006, the assets of the Sentinel Variable Products Trust Growth Index Fund were merged into the Sentinel Variable Products Trust Mid Cap Growth Fund.

F-132

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
		For the Year
		Ended							For the Year
	At December 31,	December							Ended December		For the Year Ended
	2006	31, 2006			At December 31, 2006				31, 2006		December 31, 2006
				Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product		Investment
EP = Estate Provider Product		Income
BP = Benefit Provider Product	Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
T Rowe Price Equity Series
Blue Chip Growth Portfolio	4,833,809	0.22%	371,306.64	21,863.23	-	12.28	12.57	-	0.90%	0.22%	8.38%	9.30%	-
Equity Income Portfolio	661,130	1.30%	44,136.98	4,392.91	-	13.59	13.92	-	0.90%	0.22%	17.56%	18.67%	-
Health Sciences Portfolio	1,053,926	-	78,302.40	5,685.50	-	12.53	12.83	-	0.90%	0.22%	7.46%	8.45%	-
Variable Insurance Product Funds
Contrafund Portfolio	14,950,173	1.29%	514,718.55	69,805.95	-	26.29	20.30	-	0.90%	0.22%	10.69%	11.66%	-
Equity Income Portfolio	15,530,594	3.29%	291,626.20	18,009.29	-	52.32	15.22	-	0.90%	0.22%	19.13%	20.22%	-
Growth Portfolio	17,489,438	0.39%	366,019.73	132,280.00	-	43.02	13.17	-	0.90%	0.22%	5.88%	6.81%	-
High Income Portfolio	6,081,061	7.52%	177,852.95	54,253.41	-	30.83	11.01	-	0.90%	0.22%	10.23%	11.32%	-
Index 500 Portfolio	53,009,471	1.70%	1,224,228.80	636,799.54	-	35.89	14.25	-	0.90%	0.22%	14.70%	15.76%	-
Investment Grade Bond Portfolio	7,196,433	3.93%	414,177.80	69,278.91	345,244.51	13.54	14.30	1.73	0.90%	0.22%	3.44%	4.38%	4.22%
Mid Cap Portfolio	2,801,229	0.27%	163,506.72	10,074.54	-	16.12	16.50	-	0.90%	0.22%	11.71%	12.70%	-
Overseas Portfolio	15,207,501	0.86%	403,893.06	79,034.81	386,019.88	32.14	14.43	2.81	0.90%	0.22%	17.04%	18.09%	17.08%
Wells Fargo Variable Trust Funds
Discovery	8,239,344	-	460,989.98	46,740.44	29,538.49	14.80	16.33	22.07	0.90%	0.22%	13.58%	14.60%	15.01%
Opportunity	4,517,349	-	175,603.69	30,602.42	12,956.49	19.27	19.11	42.27	0.90%	0.22%	11.19%	12.21%	12.42%

F-133

*	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 owner accounts either through reductions in 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.
**	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 owner accounts through the redemption of units and expenses of the underlying fund have been excluded.
***	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 LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year
			Ended							For the Year
		At December 31,	December							Ended December		For the Year Ended
		2005	31, 2005			At December 31, 2005				31, 2005		December 31, 2005
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
AIM Variable Insurance Funds
Dynamics Fund		1,409,021	–	145,322.37	19,340.06	24,421.27	8.30	8.68	1.45	0.90%	0.22%	9.74%	10.75%	10.09%
Global Health Care Fund	(c)	2,480,229	–	227,540.40	16,478.45	24,262.24	9.93	10.40	2.02	0.90%	0.22%	7.14%	8.17%	7.91%
Technology Fund		1,493,914	–	325,765.07	6,910.65	47,427.46	4.31	4.51	1.25	0.90%	0.22%	1.37%	2.26%	1.50%
Alger American Fund
Growth Portfolio		14,776,860	–	668,877.90	19,015.98	24,575.64	19.76	9.50	55.98	0.90%	0.22%	11.04%	12.05%	11.68%
Leveraged All Cap Portfolio		1,349,211	–	134,929.26	6,735.28	24,968.33	8.88	9.29	3.54	0.90%	0.22%	13.42%	14.47%	14.13%
Small Capitalization Portfolio		10,019,725	–	750,611.80	18,085.98	8,529.08	12.57	11.09	45.27	0.90%	0.22%	15.83%	16.82%	16.52%
American Century Variable
Portfolios
Income & Growth Portfolio		5,412,905	1.94%	283,011.53	41,767.48	175,652.52	12.30	13.02	7.90	0.90%	0.22%	3.71%	4.65%	4.25%
Inflation Protection Portfolio		1,452,661	4.39%	124,440.40	5,172.13	62,873.52	10.66	10.82	1.12	0.90%	0.22%	0.93%	1.78%	1.25%
International Portfolio		2,322,154	0.80%	176,818.94	5,736.79	–	12.71	12.91	–	0.90%	0.22%	12.22%	13.21%	–
Ultra Portfolio		102,323	–	6,320.98	2,999.58	–	10.93	11.09	–	0.90%	0.22%	1.25%	2.21%	–
Value Portfolio		10,386,280	0.82%	452,544.11	50,755.33	136,553.05	17.52	16.81	11.77	0.90%	0.22%	4.13%	5.06%	4.68%
Vista Portfolio		2,118,951	–	177,627.79	4,730.00	–	11.62	11.79	–	0.90%	0.22%	7.15%	8.17%	–
Dreyfus Variable Investment Fund
Appreciation Portfolio		1,947,303	0.01%	177,936.62	3,901.65	–	10.71	10.87	–	0.90%	0.22%	3.44%	4.39%	–
Developing Leaders Portfolio		33,235	–	2,555.34	340.10	–	11.46	11.63	–	0.90%	0.22%	4.83%	–	–
Quality Bond Portfolio		108,025	3.37%	8,846.22	1,311.44	–	10.61	10.77	–	0.90%	0.22%	1.57%	–	–
Socially Responsible Growth Fund		328,747	–	38,682.66	1,626.41	13,040.72	7.30	7.64	2.61	0.90%	0.22%	2.64%	3.64%	3.10%
Franklin Templeton Variable
Insurance Products Trust
Foreign Securities Fund		2,618,471	1.07%	194,715.70	12,301.93	–	12.64	12.83	–	0.90%	0.22%	9.22%	10.20%	–
Mutual Shares Securities Fund		579,114	0.72%	45,725.45	2,272.95	–	12.06	12.24	–	0.90%	0.22%	9.61%	10.55%	–
Real Estate Fund		1,170,255	1.14%	68,188.72	8,057.19	–	15.32	15.55	–	0.90%	0.22%	12.43%	–	–
Small Cap Fund		87,995	–	7,080.48	622.52	–	11.41	11.58	–	0.90%	0.22%	3.82%	4.81%	–
Small Cap Value Securities Fund		548,633	0.68%	37,336.77	4,847.77	–	12.98	13.18	–	0.90%	0.22%	7.83%	8.73%	–

(c)      On July 1, 2005, AIM Health Sciences Fund was renamed AIM Global Health Care Fund.

F-134

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
		For the Year
		Ended							For the Year
	At December 31,	December							Ended December		For the Year Ended
	2005	31, 2005			At December 31, 2005				31, 2005		December 31, 2005
				Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product		Investment
EP = Estate Provider Product		Income
BP = Benefit Provider Product	Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
JP Morgan Series Trust II
International Equity Portfolio	2,789,753	0.80%	196,854.63	21,013.44	12,621.61	12.02	11.98	13.56	0.90%	0.22%	28.72%	30.98%	30.14%
Small Company Portfolio	1,799,011	–	89,983.76	24,620.67	3,354.63	15.50	13.81	19.13	0.90%	0.22%	29.17%	31.53%	30.68%
Morgan Stanley Universal
Institutional Funds
Core Plus Fixed Income Portfolio	105,144	3.47%	–	–	71,687.88	–	–	1.47	0.90%	0.22%	–	–	4.02%
Emerging Markets Equity Portfolio	105,434	0.38%	–	–	61,080.94	–	–	1.73	0.90%	0.22%	–	–	33.81%
High Yield Portfolio	80,953	7.55%	–	–	73,082.64	–	–	1.11	0.90%	0.22%	–	–	0.70%
US Real Estate Portfolio	262,823	1.16%	–	–	94,981.87	–	–	2.77	0.90%	0.22%	–	–	16.75%
Neuberger Berman Advisors
Management Trust
Fasciano Portfolio	1,634,588	–	140,636.74	5,274.71	–	11.20	11.37	–	0.90%	0.22%	1.97%	2.85%	–
Limited Maturity Portfolio	2,016,030	3.00%	195,123.95	5,268.51	–	10.06	10.21	–	0.90%	0.22%	0.56%	1.47%	–
Mid Cap Growth Portfolio	57,580	–	4,185.22	232.28	–	13.02	13.22	–	0.90%	0.22%	12.76%	–	–
Partners Portfolio	3,050,824	0.92%	148,605.68	42,069.13	11,178.49	14.50	14.11	27.04	0.90%	0.22%	16.95%	18.06%	17.67%
Scudder Variable Series II
Dreman High Return Equity Portfolio	261,608	0.51%	21,752.47	32.12	–	12.01	12.19	–	0.90%	0.22%	6.55%	–	–
Dreman Small Cap Value Portfolio	946,411	0.37%	68,791.19	3,840.40	–	13.02	13.22	–	0.90%	0.22%	8.77%	9.77%	–
Scudder VIT Funds
EAFE Equity Index Fund	–	4.10%	–	–	–	–	–	–	0.90%	0.22%	–	–	–
Equity 500 Index Fund	1,503,234	1.32%	–	–	109,140.40	–	–	13.77	0.90%	0.22%	–	–	4.34%
Small Cap Index Fund	253,258	0.61%	–	–	15,286.73	–	–	16.57	0.90%	0.22%	–	–	3.93%
Sentinel Variable Products Trust
Balanced Fund	4,730,589	2.29%	214,292.89	65,595.74	4,392.58	17.54	13.40	20.92	0.90%	0.22%	4.68%	5.68%	5.29%
Bond Fund	5,449,949	4.46%	302,015.86	41,671.01	4,945.99	15.75	14.84	14.99	0.90%	0.22%	0.98%	1.89%	1.56%
Common Stock Fund	29,115,553	1.17%	1,383,478.15	70,832.70	19,476.76	20.17	13.59	13.10	0.90%	0.22%	6.69%	7.68%	7.29%
Growth Index Fund	1,201,338	0.92%	133,454.67	3,520.11	127,126.91	8.00	8.37	0.82	0.90%	0.22%	2.13%	2.95%	2.66%
Mid Cap Growth Fund	11,020,464	–	462,998.94	66,907.14	49,889.47	20.28	13.84	14.14	0.90%	0.22%	2.83%	3.77%	3.44%
Money Market Fund	17,795,631	2.75%	750,957.47	118,927.50	5,504,282.89	12.94	12.66	1.19	0.90%	0.22%	1.93%	2.87%	2.52%
Small Company Fund	17,754,345	0.09%	420,901.77	64,104.49	84,426.42	34.79	24.49	18.25	0.90%	0.22%	7.25%	8.23%	7.87%

F-135

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year
			Ended							For the Year
		At December 31,	December							Ended December		For the Year Ended
		2005	31, 2005			At December 31, 2005				31, 2005		December 31, 2005
					Units			Units Value		Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
T Rowe Price Equity Series
Blue Chip Growth Portfolio		3,199,506	0.14%	269,838.87	12,340.24	–	11.33	11.50	–	0.90%	0.22%	13.31%	15.02%	–
Equity Income Portfolio		377,672	1.38%	29,966.89	2,664.16	–	11.56	11.73	–	0.90%	0.22%	15.60%	17.34%	–
Health Sciences Portfolio		727,010	–	57,255.74	5,033.21	–	11.66	11.83	–	0.90%	0.22%	16.57%	18.33%	–
Variable Insurance Product Funds
Contrafund Portfolio		13,500,821	0.27%	511,505.00	74,547.95	–	23.75	18.18	–	0.90%	0.22%	32.66%	35.03%	–
Equity Income Portfolio		13,836,635	1.62%	308,650.99	22,254.18	–	43.92	12.66	–	0.90%	0.22%	15.97%	18.02%	–
Growth Portfolio		17,512,332	0.49%	391,167.50	131,482.11	–	40.63	12.33	–	0.90%	0.22%	7.42%	9.36%	–
High Income Portfolio		5,842,145	14.87%	188,606.84	57,321.68	–	27.97	9.89	–	0.90%	0.22%	10.55%	12.56%	–
Index 500 Portfolio		47,558,614	1.75%	1,275,070.55	622,351.15	–	31.29	12.31	–	0.90%	0.22%	13.91%	15.92%	–
Investment Grade Bond Portfolio		6,771,097	3.38%	406,594.47	61,846.15	360,921.86	13.09	13.70	1.66	0.90%	0.22%	4.81%	6.71%	6.04%
Mid Cap Portfolio		1,731,568	–	114,317.96	5,614.66	–	14.43	14.64	–	0.90%	0.22%	44.28%	46.45%	–
Overseas Portfolio		13,269,426	0.62%	421,466.58	76,305.21	317,960.47	27.46	12.22	2.40	0.90%	0.22%	32.86%	35.32%	34.68%
Wells Fargo Variable Trust Funds
Discovery	(d)	7,498,810	–	474,171.08	49,407.92	32,164.89	13.03	14.25	19.19	0.90%	0.22%	8.66%	9.59%	9.24%
Opportunity	(d)	4,216,288	–	183,192.87	30,870.56	13,715.02	17.33	17.03	37.60	0.90%	0.22%	6.91%	7.86%	7.53%
(d) In 2005, Wells Fargo acquired assets from Strong Financial Corporation which became part of the Wells Fargo Variable Trust Funds.

*	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 owner accounts either through reductions in 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.
**	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 owner accounts through the redemption of units and expenses of the underlying fund have been excluded.
***	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.

F-136

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year							For the Year
			Ended							Ended
		At December 31,	December							December 31,		For the Year Ended
		2004	31, 2004		At December 31, 2004					2004		December 31, 2004
					Units		Units Value			Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
AIM Variable Insurance Funds
Dynamics Fund	(e)	1,396,954	–	149,887.44	18,922.71	87,643.84	7.56	7.84	1.32	0.90%	0.22%	12.33%	13.33%	12.53%
Health Sciences Fund	(e)	2,345,655	–	226,740.87	20,241.52	26,737.50	9.27	9.61	1.87	0.90%	0.22%	6.63%	7.52%	6.96%
Technology Fund	(e)	1,469,958	–	324,400.29	8,129.74	43,954.80	4.25	4.41	1.23	0.90%	0.22%	3.77%	4.59%	3.88%
Alger American Fund
Growth Portfolio		14,460,397	–	742,966.83	18,205.78	21,562.81	17.80	8.48	50.13	0.90%	0.22%	4.52%	5.49%	5.16%
Leveraged All Cap Portfolio		1,199,111	–	136,782.52	6,433.93	24,484.75	7.83	8.12	3.10	0.90%	0.22%	7.25%	8.14%	7.69%
Small Capitalization Portfolio		9,065,543	–	800,628.63	15,306.39	6,038.53	10.85	9.49	38.85	0.90%	0.22%	15.53%	16.52%	16.19%
American Century Variable
Portfolios
Income & Growth Portfolio		5,163,572	1.38%	283,639.63	40,755.48	170,429.76	11.86	12.44	7.58	0.90%	0.22%	12.04%	13.01%	12.57%
Inflation Protection Portfolio	(f)	668,672	2.44%	58,401.70	22.34	46,695.74	10.56	10.63	1.11	0.90%	0.22%	5.61%	6.25%	5.31%
International Portfolio	(f)	1,003,894	–	85,955.45	2,656.84	–	11.33	11.40	–	0.90%	0.22%	13.27%	13.95%	–
Ultra Portfolio	(f)	18,680	–	1,208.81	519.38	–	10.79	10.85	–	0.90%	0.22%	7.90%	8.55%	–
Value Portfolio		9,052,146	0.93%	412,152.56	54,178.72	111,380.07	16.82	16.00	11.24	0.90%	0.22%	13.28%	14.31%	13.98%
Vista Portfolio	(f)	1,057,019	–	94,855.05	2,659.72	–	10.84	10.90	–	0.90%	0.22%	8.38%	9.03%	–
Dreyfus Variable Investment Fund
Appreciation Portfolio	(f)	672,509	2.44%	63,684.83	1,293.07	–	10.35	10.41	–	0.90%	0.22%	3.49%	4.11%	–
Developing Leaders Portfolio	(f)	5,150	0.29%	471.27	–	–	10.93	–	–	0.90%	0.22%	9.27%	–	–
Quality Bond Portfolio	(f)	7,997	1.78%	765.22	–	–	10.45	–	–	0.90%	0.22%	4.50%	–	–
Socially Responsible Growth Fund		296,786	0.41%	34,543.04	1,580.56	15,700.20	7.11	7.37	2.53	0.90%	0.22%	5.28%	6.22%	5.67%
Franklin Templeton Variable
Insurance Products Trust
Foreign Securities Fund	(f)	1,100,190	0.13%	89,188.78	5,835.13	–	11.57	11.64	–	0.90%	0.22%	15.74%	16.44%	–
Mutual Shares Securities Fund	(f)	50,451	–	3,036.84	1,538.90	–	11.00	11.07	–	0.90%	0.22%	10.04%	10.70%	–
Real Estate Fund	(f)	364,502	0.05%	26,751.43	–	–	13.63	-	–	0.90%	0.22%	36.26%	–	–
Small Cap Fund	(f)	14,500	–	706.23	609.90	–	10.99	11.05	–	0.90%	0.22%	9.86%	10.52%	–
Small Cap Value Securities Fund	(f)	178,332	0.05%	12,222.47	2,569.06	–	12.04	12.12	–	0.90%	0.22%	20.44%	21.16%	–

(e)	On October 15, 2004, INVESCO Dynamics Fund was renamed AIM Dynamics Fund, INVESCO Health Sciences Fund was renamed AIM Health Sciences Fund and INVESCO Technology Fund was renamed AIM Technology Fund.
(f)	The Investment Income Ratio, Expense Ratio and Total Return are for the period from inception, May 1, 2004, through December 31, 2004.

F-137

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year							For the Year
			Ended							Ended
	At December 31,		December							December 31,		For the Year Ended
		2004	31, 2004		At December 31, 2004					2004		December 31, 2004
					Units		Units Value			Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
JP Morgan Series Trust II
International Equity Portfolio		2,304,943	0.55%	181,694.81	21,361.13	6,711.32	10.96	10.83	12.29	0.90%	0.22%	17.33%	18.33%	17.94%
Small Company Portfolio		1,924,996	–	95,738.75	30,801.30	3,545.02	15.12	13.35	18.56	0.90%	0.22%	26.03%	27.18%	26.77%
Morgan Stanley Universal
Institutional Funds
Core Plus Fixed Income Portfolio		106,021	3.77%	–	–	75,091.85	–	–	1.41	0.90%	0.22%	–	–	3.82%
Emerging Markets Equity Portfolio		78,248	0.64%	–	–	60,484.25	–	–	1.29	0.90%	0.22%	–	–	23.21%
High Yield Portfolio		77,397	4.99%	–	–	70,385.40	–	–	1.10	0.90%	0.22%	–	–	8.87%
US Real Estate Portfolio		210,338	1.55%	–	–	88,692.70	–	–	2.37	0.90%	0.22%	–	–	36.30%
Neuberger Berman Advisors
Management Trust
Fasciano Portfolio	(f)	766,387	–	65,609.25	4,170.97	–	10.98	11.05	–	0.90%	0.22%	9.79%	10.45%	–
Limited Maturity Portfolio	(f)	976,496	4.23%	94,061.07	3,544.38	–	10.00	10.06	–	0.90%	0.22%	0.02%	0.63%	–
Mid Cap Growth Portfolio	(f)	9,645	–	834.80	–	–	11.55	-	–	0.90%	0.22%	15.54%	–	–
Partners Portfolio		1,947,758	0.01%	116,225.23	38,299.23	2,150.33	12.40	11.95	22.98	0.90%	0.22%	17.94%	18.92%	18.58%
Scudder Variable Series II
Dreman High Return Equity Portfolio	(f)	47,658	–	4,228.88	–	–	11.27	–	–	0.90%	0.22%	12.70%	–	–
Dreman Small Cap Value Portfolio	(f)	707,841	–	57,126.80	2,013.79	–	11.97	12.04	–	0.90%	0.22%	19.66%	20.38%	–
Scudder VIT Funds
EAFE Equity Index Fund		302,751	2.20%	–	–	27,672.56	–	–	10.94	0.90%	0.22%	–	–	18.66%
Equity 500 Index Fund		1,126,939	1.04%	–	–	85,372.94	–	–	13.20	0.90%	0.22%	–	–	10.28%
Small Cap Index Fund		206,063	0.38%	–	–	12,926.68	–	–	15.94	0.90%	0.22%	–	–	17.39%
Sentinel Variable Products Trust
Balanced Fund		4,321,892	2.19%	207,705.38	59,631.71	4,286.84	16.76	12.68	19.87	0.90%	0.22%	6.46%	7.40%	7.09%
Bond Fund		5,100,289	4.62%	285,907.34	39,416.35	4,554.53	15.60	14.56	14.76	0.90%	0.22%	3.70%	4.66%	4.29%
Common Stock Fund		25,268,356	1.03%	1,281,861.62	67,037.38	15,848.59	18.90	12.62	12.21	0.90%	0.22%	8.69%	9.68%	9.30%
Growth Index Fund		1,306,921	1.41%	138,475.98	3,573.38	240,587.83	7.83	8.13	0.80	0.90%	0.22%	4.41%	5.35%	5.01%
Mid Cap Growth Fund		11,332,447	-	498,627.82	69,175.00	42,280.74	19.72	13.34	13.67	0.90%	0.22%	11.34%	12.29%	11.96%
Money Market Fund		17,602,414	0.95%	815,377.38	147,880.28	4,661,570.91	12.70	12.31	1.16	0.90%	0.22%	0.08%	0.93%	0.35%
Small Company Fund		16,496,249	0.09%	419,192.65	65,304.33	83,879.83	32.44	22.63	16.92	0.90%	0.22%	14.87%	15.89%	15.51%
Strong Variable Insurance Funds
Mid Cap Growth Fund II		7,561,771	–	530,164.34	51,305.09	30,530.93	11.99	13.00	17.57	0.90%	0.22%	18.05%	19.14%	18.78%
Opportunity Fund II		3,979,718	–	184,194.54	29,614.02	15,065.90	16.21	15.79	34.97	0.90%	0.22%	17.19%	18.25%	17.85%

(f)      The Investment Income Ratio, Expense Ratio and Total Return are for the period from inception, May 1, 2004, through December 31, 2004.

F-138

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT
(A Separate Account of National Life Insurance Company)
NOTES TO THE FINANCIAL STATEMENTS (continued)
NOTE 7 - FINANCIAL HIGHLIGHTS (continued)
			For the Year							For the Year
			Ended							Ended
	At December 31,		December							December 31,		For the Year Ended
		2004	31, 2004		At December 31, 2004					2004		December 31, 2004
					Units		Units Value			Expense Ratio**		Total Return***
VT = VariTrak Product			Investment
EP = Estate Provider Product			Income
BP = Benefit Provider Product		Net Assets	Ratio*	VT	EP	BP	VT	EP	BP	VT	BP	VT	EP	BP
T Rowe Price Equity Series
Blue Chip Growth Portfolio	(f)	1,054,992	0.76%	91,320.77	6,124.23	–	10.82	10.89	–	0.90%	0.22%	8.22%	8.88%	–
Equity Income Portfolio	(f)	134,477	0.73%	9,933.81	2,009.78	–	11.25	11.32	–	0.90%	0.22%	12.48%	13.16%	–
Health Sciences Portfolio	(f)	222,420	–	20,483.83	906.55	–	10.40	10.46	–	0.90%	0.22%	3.95%	4.58%	–
Variable Insurance Product Funds
Contrafund Portfolio		10,938,158	0.32%	484,390.70	65,707.73	–	20.49	15.43	–	0.90%	0.22%	14.46%	14.63%	–
Equity Income Portfolio		13,956,006	1.52%	328,494.08	17,282.36	–	41.86	11.96	–	0.90%	0.22%	10.52%	11.48%	–
Growth Portfolio		17,379,797	0.25%	408,020.27	134,876.87	–	38.74	11.65	–	0.90%	0.22%	2.44%	3.37%	–
High Income Portfolio		5,813,198	7.64%	190,561.43	59,905.24	–	27.48	9.63	–	0.90%	0.22%	8.61%	9.60%	–
Index 500 Portfolio		46,107,930	1.27%	1,290,304.77	617,023.77	–	30.12	11.74	–	0.90%	0.22%	9.64%	10.58%	–
Investment Grade Bond Portfolio		5,964,534	4.18%	369,439.41	55,508.18	272,354.52	12.93	13.41	1.63	0.90%	0.22%	3.49%	4.42%	4.10%
Mid Cap Portfolio	(f)	624,489	–	50,320.39	428.67	–	12.30	12.38	–	0.90%	0.22%	23.05%	23.79%	–
Overseas Portfolio		11,285,322	1.12%	438,568.50	67,802.24	188,650.48	23.28	10.26	2.02	0.90%	0.22%	12.61%	13.67%	13.49%

(f)	The Investment Income Ratio, Expense Ratio and Total Return are for the period from inception, May 1, 2004, through December 31, 2004.
*	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 owner accounts either through reductions in 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.
**	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 owner accounts through the redemption of units and expenses of the underlying fund have been excluded.
***	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.

F-139

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company) NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE 8 - FUND SUBSTITUTIONS

There have been no fund substitutions in the years 2004, 2005, 2006, 2007, or 2008.

NOTE 9 - DISTRIBUTION OF NET INCOME

The Variable Account does not expect to declare dividends to policyholders from accumulated net income. The accumulated net income will be distributed to policyholders as withdrawals (in the form of death benefits, surrenders or policy loans) in excess of the policyholders' net contributions to the Variable Account.

NOTE 10 - DIVERSIFICATION REQUIREMENTS

Under the provisions of Section 817(h) of the Internal Revenue Code (“IRC”), a variable universal life insurance contract, other than a contract issued in connection with certain types of employee benefit plans, will not be treated as a variable universal life insurance 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 11 - SUBSEQUENT EVENTS

Effective January 1, 2009, National Life will not issue new policies for Varitrak, Sentinel Estate Provider, or Sentinel Benefit Provider. All life insurance policies sold starting in January 1, 2009 are required by state insurance laws to use the 2001 CSO Mortality Table instead of the 1980 CSO Mortality Table as the basis for maximum mortality charges. After careful consideration, National Life determined it would not modify its existing products to comply with the regulations. Varitrak, Sentinel Estate Provider, and Sentinel Benefit Provider policies will no longer be issued to new or existing customers. National Life has no intention at this time to terminate existing coverage under the above mentioned policies and plans to continue administration of all in force policies.

National Life has developed a new product, Investor Select, that is compliant with the 2001 CSO Mortality table. This product will be available as a new Variable Life product effective as of December 23, 2008. There were no Investor Select policies issued in 2008.

NOTE 12 – ACCOUNTING PRINCIPLES (ADOPTED)

In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a consistent framework for measuring fair value, establishes a three-level fair value hierarchy based on the observability of inputs used to measure fair value, and requires enhanced disclosures about fair value measurements. The Company adopted SFAS 157 on January 1, 2008 and applied the provisions prospectively to financial assets that are required to be measured at fair value under existing U.S. GAAP. The adoption resulted in additional disclosures as required by the pronouncement but no change in our fair value calculation methodologies. Accordingly, the adoption had no impact on our financial condition or results of operations.

SFAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS 157 also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair

F-140

NATIONAL VARIABLE LIFE INSURANCE ACCOUNT

(A Separate Account of National Life Insurance Company) NOTES TO THE FINANCIAL STATEMENTS (continued)

NOTE 12 – ACCOUNTING PRINCIPLES (ADOPTED) (continued)

value, and identifies three levels of inputs that may be used to measure fair value:

Level 1-Quoted prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2-Observable inputs other than Level 1 prices, such as quoted prices fro similar instruments, quoted prices in markets that are not active, and inputs to model-derived valuations that are directly observable or can be corroborated by observable market data for substantially the full term of the asset.

Level 3-Unobservable inputs supported by little or no market activity and often requiring significant management judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability.

The fair values of all the investments in the respective Fund Portfolios listed above, are at net asset values and the investments are considered actively traded and fall within Level 1.

F-141

NLV Financial Corporation and Subsidiaries

Financial Statements December 31, 2008 and 2007

F-142

NLV FINANCIAL CORPORATION AND SUBSIDIARIES
Index
December 31, 2008 and 2007
	Page(s)
Report of Independent Auditors	1
Consolidated Financial Statements
Consolidated Balance Sheets	2
Consolidated Statements of Operations	3
Consolidated Statements of Changes in Stockholder’s Equity	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6 - 47

F-143

Report of Independent Auditors

To the Board of Directors and Stockholder of NLV Financial Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, changes in stockholder's equity and cash flows present fairly, in all material respects, the financial position of NLV Financial Corporation and its subsidiaries (the Company) at December 31, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of materia l misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for fair value measurement on January 1, 2008. Additionally, as discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for defined benefit pension and other postretirement plans on December 31, 2007 and changed its method of accounting for uncertainty in income taxes on January 1, 2007.

February 26, 2009

F-144

NLV FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
(In Thousands)	2008	2007
Assets:
Cash and investments:
Available-for-sale debt securities	$ 9,036,202	$ 9,330,759
Available-for-sale debt securities on loan	119,254	265,784
Total available-for-sale debt securities	9,155,456	9,596,543
Available-for-sale equity securities	86,908	152,870
Trading equity securities	15,714	23,456
Mortgage loans on real estate	1,676,877	1,659,951
Policy loans	719,251	706,278
Real estate investments	15,653	19,112
Securities lending invested collateral	81,440	234,691
Other invested assets	367,900	358,757
Cash and cash equivalents	147,987	179,405
Total cash and investments	12,267,186	12,931,063
Deferred policy acquisition costs	1,414,078	969,875
Accrued investment income	147,640	139,898
Premiums and fees receivable	23,774	21,158
Deferred income taxes	229,216	2,786
Amounts recoverable from reinsurers	142,775	135,874
Present value of future profits of insurance acquired	37,775	42,749
Property and equipment, net	50,912	46,829
Federal income tax recoverable	31,324	1,647
Other assets	199,715	195,273
Goodwill and intangibles	56,178	31,532
Separate account assets	609,236	983,815
Total assets	$ 15,209,809	$15,502,499
Liabilities:
Policy liabilities:
Policy benefit liabilities	$ 4,670,993	$ 4,648,082
Policyholder account liabilities	7,817,806	7,153,888
Policyholders’ deposits	65,321	55,599
Policy claims payable	47,269	42,339
Policyholders’ dividends	51,352	128,333
Total policy liabilities	12,652,741	12,028,241
Amounts payable to reinsurers	17,419	21,957
Securities lending payable	121,695	269,927
Other liabilities and accrued expenses	236,002	247,077
Pension and other post-retirement benefit obligations	217,421	168,451
Debt	294,747	294,713
Separate account liabilities	609,236	983,815
Total liabilities	14,149,261	14,014,181
Stockholder’s 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	1,483,880	1,470,504
Accumulated other comprehensive income	(423,332)	17,814
Total stockholder’s equity	1,060,548	1,488,318
Total liabilities and stockholder’s equity	$ 15,209,809	$15,502,499
The accompanying notes are an integral part of these financial statements.

F-145

NLV FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31,
(In Thousands)	2008	2007	2006
Revenues:
Insurance premiums	$ 322,470	$ 322,328	$ 336,007
Policy and contract charges	210,113	178,770	156,950
Net investment income	575,766	758,058	797,462
Net realized investment (losses) gains	(105,994)	(4,953)	1,122
Change in value of trading equity securities	(7,650)	847	1,538
Mutual fund commissions and fee income	98,837	104,017	105,919
Other income	19,659	21,800	18,563
Total revenues	1,113,201	1,380,867	1,417,561
Benefits and Expenses:
Increase in policy liabilities	45,105	29,717	81,783
Policy benefits	406,068	411,267	349,718
Policyholders' dividends and dividend obligations	113,798	111,097	122,308
Interest credited to policyholder account liabilities	108,679	274,928	327,445
Operating expenses	168,655	169,600	174,797
Interest expense on debt	21,666	21,944	21,975
Policy acquisition expenses and amortization of
present value of future profits, net	241,710	198,994	179,242
Total benefits and expenses	1,105,681	1,217,547	1,257,268
Income before income taxes and minority interest	7,520	163,320	160,293
Income tax (benefit) expense	(7,840)	48,101	43,566
Income before minority interest	15,360	115,219	116,727
Minority interest in consolidated subsidiaries	–	–	(103)
Net Income	$ 15,360	$ 115,219	$ 116,830

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

F-146

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER’S EQUITY

					Accumulated
	Class A	Class B			Other
	Common        Common      Preferred			Retained	Comprehensive
(In Thousands)	Stock	Stock	Stock	Earnings	Income	Total
January 1, 2006	$–	$–	$–	$1,238,607	$ 29,687	$ 1,268,294
Comprehensive income:
Net income	–	–	–	116,830	–	116,830
Change in unrealized gains on available-
for-sale securities, net	–	–	–	–	(9,620)	(9,620)
Change in cash flow hedge on debt
issuance, net	–	–	–	–	34	34
Change in additional minimum pension
liability, net	–	–	–	–	4,015	4,015
Total comprehensive income						111,259
December 31, 2006	–	–	–	1,355,437	24,116	1,379,553
Cumulative effect of adoption of
FIN 48	–	–	–	(152)	–	(152)
Comprehensive income:
Net income	–	–	–	115,219	–	115,219
Change in unrealized gains on available-
for-sale securities, net	–	–	–	–	(9,464)	(9,464)
Change in cash flow hedge on debt
issuance, net	–	–	–	–	34	34
Change in additional minimum pension
liability, net, prior to adoption of SFAS No.
158	–	–	–	–	11,263	11,263
Total comprehensive income						117,052
Adjustments for adoption of SFAS
No. 158:
Establishment of liability, net	–	–	–	–	(18,033)	(18,033)
Reduction of additional minimum pension
liability, net	–	–	–	–	9,898	9,898
December 31, 2007	–	–	–	1,470,504	17,814	1,488,318
Cumulative effect of FAS 158 measurement	–	–	–	(1,984)	–	(1,984)
date adjustment
Comprehensive income:
Net income	–	–	–	15,360	–	15,360
Change in unrealized gains on available-
for-sale securities, net	–	–	–	–	(404,865)	(404,865)
Change in cash flow hedge on debt
issuance, net	–	–	–	–	34	34
Change in FAS 158 liability, net	–	–	–	–	(36,315)	(36,315)
Total comprehensive income						(425,786)
December 31, 2008	$–	$–	$–	$ 1,483,880	$ (423,332)	$ 1,060,548
The accompanying notes are an integral part of these financial statements.

F-147

NLV FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
(In Thousands)	2008	2007	2006
Cash Flows from Operating Activities:
Net income	$ 15,360	$ 115,219	$ 116,830
Adjustments to reconcile net income to net cash provided by
operating activities:
Changes in assets and liabilities:
Accrued investment income	(7,742)	(9,187)	(3,364)
Policy acquisition costs	(75,430)	(66,360)	(83,564)
Policy benefit liabilities	24,872	35,585	43,992
Other assets and liabilities	64,658	22,025	36,319
Provision for deferred income taxes	12,193	6,411	26,917
Interest credited to policyholder account liabilities	108,679	274,928	327,445
Policy and contract charges	(210,113)	(178,770)	(156,950)
Net realized investment losses (gains)	105,994	4,953	(1,122)
Net option losses (gains)	197,184	(1,959)	(77,348)
Market value change on corporate owned life insurance policies	(3,388)	(5,706)	(4,037)
Change in present value of future profits of insurance acquired	4,974	6,172	8,176
Depreciation	7,867	6,941	8,276
Other	(22,674)	10,755	12,052
Net cash provided by operating activities	222,434	221,007	253,622
Cash Flows from Investing Activities:
Proceeds from sales, maturities and repayments of investments	1,917,642	2,261,479	2,906,885
Cost of investments acquired	(2,833,440)	(3,030,297)	(3,438,464)
Change in policy loans	(12,973)	(10,155)	(4,476)
Change in securities lending invested collateral	153,251	23,512	(99,321)
Other	(43,345)	(16,895)	(10,316)
Net cash used by investing activities	(818,865)	(772,356)	(645,692)
Cash Flows from Financing Activities:
Policyholders' deposits	1,548,519	1,125,012	1,047,595
Policyholders' withdrawals	(835,274)	(737,843)	(576,402)
Change in securities lending payable	(148,232)	(116,118)	18,659
Net cash provided by financing activities	565,013	271,051	489,852
Net (Decrease) Increase in Cash and Cash Equivalents	(31,418)	(280,298)	97,782
Cash and Short-term investments:
Beginning of year	179,405	459,703	361,921
End of year	$ 147,987	$ 179,405	$ 459,703
The accompanying notes are an integral part of these financial statements.

F-148

NLV FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2008 and 2007

NOTE 1 – NATURE OF OPERATIONS

NLV Financial Corporation (“NLVF”) and its subsidiaries and affiliates (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 900 people, primarily concentrated in Montpelier, Vermont and Dallas, Texas. 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 Life’s outstanding shares are currently held by its parent, NLVF, which is a wholly-owned subsidiary of National Life Holding Company (“NLHC”). NLHC and its subsidiaries are collectively known as the National Life Group. Concurrent with the conversion to a stock life insurance Company, National Life created a closed block of insurance and annuity policies (the “Closed Block”).

The Company’s insurance operations 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 plans, and asset management services. Insurance and annuity products are primarily distributed through twenty-two general agencies 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 530,000 policyholders and is licensed to do business in all 50 states and the District of Columbia through its affiliates. About 27% of the Company’s total collected premiums and deposits are from residents of the states of New York and California.

Through Sentinel Asset Management, Inc. (“SAMI”) and its subsidiaries and affiliates, the Company also distributes and provides investment advisory and administrative services to the Sentinel Group Funds, Inc. (“Sentinel Funds”). The Sentinel Funds’ $4.0 billion of net assets represent sixteen mutual funds managed on behalf of about 252,000 individual, corporate, and institutional shareholders worldwide.

During 2006, the Company sold its subsidiary, American Guaranty and Trust Company (“AG&T”), to an unrelated party. The Company also sold its interest in a consolidated real estate partnership to an entity controlled by the minority interest partner of the partnership.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The Company’s consolidated financial statements have been prepared on the basis of United States generally accepted accounting principals (“U.S. GAAP). Preparing financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates.

The consolidated financial statements of the Company include the accounts of NLVF and its direct and indirect subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Certain reclassifications have been made to conform prior periods to the current year’s presentation.

Cash and Cash Equivalents

Cash and cash equivalents is made up of unrestricted cash and restricted cash components. The restricted cash was $32.6 million and $65.9 million for the years ended December 31, 2008 and 2007, respectively. This included $23.1 million and $34.0 million associated with securities lending collateral and $9.5 million and $31.9 million associated with collateral assigned to purchased options for the years ended December 31, 2008 and 2007, respectively.

F-149

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments

Available-for-sale debt and equity securities are reported at estimated fair value. When determining estimated fair value, the Company utilizes observable market inputs and considers available data from third party pricing agencies, 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 estimated cash flows. The Company performs a monthly analysis on prices received from third parties to ensure that the price represents a reasonable estimate of fair value. This process includes quantitative and qualitative analysis and is performed by the Company’s investment professionals.

At the balance sheet date, the Company evaluates its security holdings that are in an unrealized loss position. When the Company’s intention is to dispose of securities before they recover to their cost basis, the Company deems that decline to be other than temporary, and the decline is recorded as a realized loss at the balance sheet date. If a loss is recognized from a sale subsequent to a balance sheet date pursuant to a change in circumstances, the loss is recognized in the period in which the intent to hold the securities until recovery no longer existed.

Certain investments with a beneficial interest in securitized financial assets with contractual cash flows, including asset-backed securities are carried at estimated fair value which is determined by a pricing model that generates the predicted cash flows based on observable inputs such as market spreads and trades of similar securities. Emerging Issues Task Force (EITF) 99-20, “Recognition of Interest Income and Impairment on Purchased Beneficial Interest that Continued to be Held by a Transferor in Securitized Assets (“EITF 99-20”) requires periodic updates of the Company’s best estimate of cash flows over the life of the security. If the fair value of an investment with a beneficial interest in a securitized financial asset is less than its amortized cost, and there has been a decrease in estimated cash flows since the last revised estimate, then considering both the timing and the amount of the decrease, an other than temporary impairment (“OTTI”) is recognized.

Trading equity securities are reported at estimated fair value. Realized and unrealized (losses) gains on trading equity securities are included in change in value of trading equity securities.

Mortgage loans are reported at amortized cost, less valuation allowances for the excess, if any, of the amortized cost of impaired loans over the estimated fair value of the related collateral. Changes in valuation allowances are included in net realized investment (losses) gains.

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

Real estate investments held for investment purposes are reported at depreciated cost. Real estate acquired in satisfaction of debt is generally held for investment and is transferred to real estate at the lower of cost or estimated fair value. In establishing real estate reserves, the Company considers, among other things, the estimated fair value of the real estate compared to depreciated cost. Real estate held for sale is held at the lower of cost or estimated fair value less estimated selling costs.

Long options and futures contracts are included in other invested assets and carried at estimated fair value. Short options contracts are included in other liabilities and accrued expenses and carried at estimated fair value. The estimated fair values of derivatives are based on independent broker pricing quotes when data is not publicly available. Changes in fair value are reflected in the statements of operations as a component of net realized investment (losses) gains.

F-150

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments (continued)

The Company’s investments in unconsolidated partnerships are included in other invested assets and are estimated at fair value by reference to the transaction price. Subsequently, the Company obtains the fair value of these investments generally from net asset value information provided by the general partner or manager of the investments, the financial statements of which generally are audited annually. Impairments are recorded in net realized investment (losses) gains if future earnings are projected to be less than the carrying value of the investment. Changes in the fair value of limited partnerships are included in change in unrealized gains on available-for-sale securities, net of related deferred income taxes.

Investments in affordable housing tax credit limited partnerships are included in other invested assets and are amortized using the effective yield method within net investment income.

Realized investment (losses) gains are recognized using the specific identification method and are reported as net realized investment (losses) gains. Changes in the estimated fair values of available-for-sale debt and equity securities are reflected in other comprehensive income after adjustments for related deferred policy acquisition costs, present value of future profits of insurance acquired, policyholder dividend obligations, and deferred income taxes.

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

Policy Acquisition Expenses

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

Deferred policy acquisition costs for participating life insurance, universal life insurance, and investment-type annuities are amortized in relation to estimated gross margins. Amortization is adjusted retrospectively for actual experience and when estimates of future gross margins are revised. Future gross margins 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 (losses) gains on available-for-sale debt and equity securities (after deducting any related policyholder dividend obligations) through other comprehensive income, net of related deferred income taxes.

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

A significant assumption in projecting estimated gross profits for universal life and annuity contracts is the difference between the earned interest rate and the credited interest rate. Another significant assumption is the rate of investment return on the assets held in variable product separate accounts. Gross profits for the variable life and variable annuity products in these separate accounts include charges assessed based on separate account asset levels.

In 2008, the Company updated certain actuarial assumptions including expenses, mortality and policyholder dividends underlying its closed block of traditional life business resulting in an increase of $0.6 million in deferred policyholder acquisition costs.

F-151

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Policy Acquisition Expenses (continued)

In 2007, the Company updated its assumptions related to the deferral of agent benefits, resulting in an additional $2.8 million of agent benefit costs being deferred in 2007. The Company also revised its utilization rate of free partial withdrawal assumption on annuity products resulting in increased amortization of $7.6 million in 2007. In addition, the Company revised its surrender and investment spread assumptions resulting in increased (decreased) amortization of $1.9 million and $(2.1) million, respectively, in 2007 on non-indexed life and annuity products.

In 2006, the Company completed a review of deferred underwriting and issuance costs resulting in the standardization of its deferral policy to provide consistency throughout the Company. As a result, an additional $3.8 million of underwriting and issuance costs were deferred in 2006.

Deferred policy acquisition costs assets are regularly evaluated for recoverability from product margins. In 2006, the Company amortized the remaining $1.2 million of deferred acquisition costs on its COLI line of business due to the expectation that future expenses associated with the underlying policies will exceed future profit margins.

In 2006, the Company changed its mortality assumption which increased future estimated gross profits resulting in reduced amortization of $3.8 million. The Company also reflected the impact of revenue sharing in the separate accounts of variable products for both historical and projected expected gross profits thereby increasing future estimated gross profits. This change resulted in reduced amortization of $1.9 million.

The assumed rate of investment return on the assets held in variable product separate accounts (after deduction of fund fees and mortality and expense charges) was 7.75% in 2008 and 2007.

Present Value of Future Profits of Insurance Acquired

Present value of future profits of insurance acquired (“PVFP”) is the actuarially-determined present value of future projected profits from policies in force at the date of their acquisition, and is amortized in relation to the gross profits of those policies. Amortization is adjusted retrospectively for actual experience and when estimates of future profits are revised. The PVFP asset is also adjusted for related unrealized (losses) gains on available-for-sale debt and equity securities through other comprehensive income, net of related deferred income taxes. In 2008, based on updated experience analysis of the annuity products, several assumptions related to the calculation of the PVFP asset were updated, resulting in an increase to the PVFP asset of approximately $3.2 million.

Goodwill and Other Intangible Assets

Goodwill, and other intangible assets with indefinite useful lives, are reviewed for impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. The assessment of impairment involves a two-step process whereby an initial assessment for potential impairment is performed, followed by a measurement of the amount of impairment, if any. Impairment testing is performed using the fair value approach, which requires the use of estimates and judgment, at the reporting unit level. The determination of a reporting unit’s fair value is based on management’s best estimate, which generally considers the market-based earning multiples of the unit’s peer companies or expected future cash flows. If the carrying value of a reporting unit 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. No impairment was recorded in 2008. In 2007, goodwill was reduced by $0.4 million and other intangible assets were reduced by $1.5 million due to impairment. Goodwill was $8.3 million and $8.2 million at December 31, 2008 and December 31, 2007, respectively, and was included in

F-152

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Goodwill and Other Intangible Assets (continued)

other assets. Total other intangible assets were $47.9 million and $23.3 million at December 31, 2008 and December 31, 2007, respectively, and was included in other assets. The change in goodwill and other intangible assets in 2008 is due to the purchase of assets related to the investment advisory and management of mutual fund assets which were reorganized into Sentinel Funds

Property and Equipment

Property and equipment is reported at depreciated cost. Real property is primarily depreciated over 39.5 years using the straight-line method. Furniture and equipment is depreciated using accelerated depreciation methods over 7 years and 5 years, respectively.

Corporate Owned Life Insurance

The Company holds life insurance contracts on certain members of management and other key individuals. The total cash surrender value of these Corporate Owned Life Insurance (“COLI”) contracts was $149.0 million and $147.2 million at December 31, 2008 and 2007, respectively, and is included in other assets. Approximately 59% and 58% of the total COLI cash surrender value was held at declared interest, with the remainder held in segregated variable separate account funds at December 31, 2008 and 2007, respectively.

COLI income includes the net change in cash surrender value and any benefits received. COLI income was $3.6 million, $5.7 million, and $6.2 million in 2008, 2007, and 2006, respectively, and is included in other income.

Separate Accounts

Separate accounts are variable product investment trusts relating to certain variable annuity contracts, variable life policies and the Company’s pension plans. The invested assets of the separate accounts are segregated from the general account assets of the Company and include common stocks, bonds and mutual fund share investments that are carried at estimated fair value. Investment income and investment (losses) gains accrue directly to, and investment risk is borne by, the policy and contract holders. Separate account liabilities, which reflect separate account policyholders’ interests in separate account assets, reflect the actual investment performance of the respective accounts. Minimum guarantees related to separate account policies are included in policy liabilities. Separate account results relating to policyholders’ interests are excluded from the Company’s 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 margins, and are included in policy benefit liabilities.

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

F-153

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Policy Liabilities (continued)

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 contract’s expected participation in future increases in the S&P 500 or Russell 2000 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, and the level and limits on contract participation in any future increases in the S&P 500 or Russell 2000 indexes. With the adoption of Statement of Financial Accounting Standards 157, “Fair Value Measurements” (“SFAS 157”), these methodologies were not changed, with the exception of incorporating an explicit risk margin for variance of policyholder behavior and the impact the Company’s own credit rating would have in the view of a market participant. As previously mentioned, the Company revised its utilization rate of free partial withdrawal assumption on indexed annuity products resulting in a reduction of policyholder account liabilities of $7.6 million in 2007.

The guaranteed minimum interest rates for the Company’s fixed interest rate annuities range from 1.0% to 4.5%. As of December 31, 2008 and 2007, less than 2% of the contracts inforce had a credited rate below 3%. The guaranteed minimum interest rates for the Company’s fixed interest rate universal life insurance policies range from 2.0% to 4.5%. 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. The average age of policyholders with the enhanced death benefit rider at December 31, 2008 was fifty-five. 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. Policyholder partial withdrawals to date have not been significant. 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.

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 margins of the products, with amortization adjusted periodically to reflect actual experience. The Company capitalized sales inducement costs of $16.5 and $4.7 million and recorded net amortization of $4.3 and $2.8 million during 2008 and 2007, respectively. Sales inducement assets were $25.9 and $13.6 million at December 31, 2008 and 2007, respectively.

The Company also offers persistency bonuses on certain products, whereby contract holders can receive additional interest credits by maintaining their policy inforce for predetermined durations. These additional interest credits are accrued ratably over the bonus period and adjusted for actual persistency. The Company accrued sales inducement liabilities of $0.4 and $0.2 million during 2008 and 2007 respectively, and recorded net increases for amortization and unlocking of $0.2 and $0.3 million during 2008 and 2007, respectively. Sales inducement liabilities were $10.3 and $9.7 million at December 31, 2008 and 2007, respectively.

F-154

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 arising from large risks, 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 National Life’s overall operating results. The dividend scale is approved annually by National Life’s Board of Directors.

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.

Federal Income Taxes

NLHC files a consolidated tax return for the tax year ended December 31, 2008 which includes NLHC and all subsidiaries of the Company. Current federal income taxes are charged or credited to operations based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income tax assets and liabilities are recognized based on temporary differences between financial statement carrying amounts and income tax bases of assets and liabilities using enacted income tax rates and laws.

F-155

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Minority Interests

Minority interests represented minority partners’ interests in entities within the Company. Minority interests attributable to common stockholders are carried on the equity method. Those attributable to preferred stockholders are carried on the cost method, with dividends paid reflected as minority interests expense within the consolidated financial statements.

During 2006, the Company sold its interests in two entities within the Company which had minority interests. There are no remaining minority interests in entities within the Company.

NOTE 3 – CHANGES IN ACCOUNTING PRINCIPLES New Accounting Principles (Adopted)

FIN No. 48 – Accounting for Uncertainty in Income Taxes – an interpretation of Financial Accounting Standards Board Statement No. 109. In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 requires an entity to determine whether it is “more likely than not” that an individual tax position will be sustained upon examination by the appropriate taxing authority prior to any part of the benefit being recognized in the financial statements.

The amount recognized would be the largest amount of tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement, along with any related interest and penalties (if applicable). Upon adoption of FIN 48, the guidance was applied to all tax positions, and only those tax positions meeting the “more likely than not” threshold are recognized or continue to be recognized in the financial statements. In addition, FIN 48 expands disclosure requirements to include additional information related to unrecognized tax benefits, including accrued interest and penalties, and uncertain tax positions where the estimate of the tax benefit may change significantly in the next twelve months. FIN 48 was effective for fiscal years beginning after December 15, 2006. The Company adopted FIN 48 effective January 1, 2007 by recording an increase in the liability for unrecognized tax benefits of $152,000 in its Consolidated Balance Sheets, offset by a reduction to the beginning balance of retained earnings.

SFAS No. 155 – Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140. In February 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” (“SFAS 155”) which permits fair value remeasurement for a hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation. Under SFAS 155, an entity may make an irrevocable election to measure a hybrid financial instrument at fair value, in its entirety, with changes in fair value recognized in earnings. SFAS 155 also: (a) clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”); (b) eliminates the interim guidance in SFAS 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets,” and establishes a requirement to evaluate beneficial interests in securitized financial assets to identify interests that are either freestanding derivatives or hybrid financial instruments that contain an embedded derivative requiring bifurcation; (c) clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives; and (d) eliminates restrictions on a qualifying special-purpose entity’s ability to hold passive derivative financial instruments that pertain to beneficial interests that are or contain a derivative financial instrument.

In December 2006, the FASB issued Derivative Implementation Group Statement 133 Implementation Issue No. B40, “Embedded Derivatives: Application of Paragraph 13(b) to Securitized Interests in Prepayable Financial Assets” (“DIG B40”). Since SFAS 155 eliminated the interim guidance related to securitized financial assets, DIG B40 provides a narrow scope exception for securitized interests that

NOTE 3 – CHANGES IN ACCOUNTING PRINCIPLES (continued)

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contain only an embedded derivative related to prepayment risk. Under DIG B40, a securitized interest in prepayable financial assets would not be subject to bifurcation if: (a) the right to accelerate the settlement of the securitized interest cannot be controlled by the investor and (b) the securitized interest itself does not contain an embedded derivative for which bifurcation would be required other than an embedded derivative that results solely from the embedded call options in the underlying financial assets. Any other terms in the securitized financial asset that may affect cash flow in a manner similar to a derivative instrument would be subject to the requirements of paragraph 13(b) of SFAS 133. The guidance in DIG B40 is to be applied upon the adoption of SFAS 155. The Company adopted the provisions SFAS 155 and DIG B40 on January 1, 2007. The adoption of SFAS 155 did not have a material impact on the Company’s consolidated financial condition or results of operations.

SFAS No. 158 - Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R). In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)” (“SFAS 158”). The guidance requires the Company to recognize on the balance sheet the funded status of its defined benefit postretirement plans as either an asset or liability, depending on the plans’ funded status, with changes in the funded status recognized through other comprehensive income. The funded status is measured as the difference between the fair value of the plan assets and the projected benefit obligation, for pension plans, or the accumulated postretirement benefit obligation for postretirement benefit plans. Prior service costs or credits and net actuarial (losses) gains which are not recognized in current net periodic benefit cost, pursuant to SFAS No. 87, “Employers’ Account for Pensions” or SFAS No. 106,

“Employers’ Accounting for Postretirement Benefits Other Than Pensions,” must be recognized in other comprehensive income, net of tax, in the period in which they occur. As these items are recognized in net periodic benefit cost, the amounts accumulated in other comprehensive income are adjusted. Disclosure requirements have also been expanded to separately provide information on the prior service costs or credits and net (losses) gains recognized in other comprehensive income and their effects on net periodic benefit costs. SFAS 158 was effective for fiscal years ending after June 15, 2007 and was applied prospectively. The Company adopted the recognition provision of SFAS 158 as of December 31, 2007. See Note 9 for more information regarding the Company’s adoption of SFAS 158.

SOP 05-01 – Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. In September, 2005, the Accounting Standards Executive Committee issued SOP 05-01, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts” (“SOP 05-01”). SOP 05-01 provides guidance on internal replacement of insurance and investment contracts, whereby an existing policyholder exchanges a current contract for a new contract, and whether certain acquisition costs associated with the original contract may continue to be deferred or must be expensed immediately. Under the terms of SOP 05-01, internal replacements qualifying for continued deferral of original acquisition costs must demonstrate that the new contract is substantially unchanged from the original contract, including coverage provided, insured individual, investment returns, and any dividend participation rights. SOP 05-01 is effective for fiscal years beginning after December 15, 2006. The Company adopted the provisions of SOP 05-01 on January 1, 2007. The adoption of SOP 05-01 did not have a material impact on the Company’s consolidated financial position or results of operations.

FSP 115-1 - The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments. In November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“FSP FAS 115-1”). The guidance in FSP FAS 115-1 nullifies the accounting and measurement provisions of

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NOTE 3 – CHANGES IN ACCOUNTING PRINCIPLES (continued) New Accounting Principles (Adopted) (continued)

Emerging Issues Task Force No. 03-1 - “The Meaning of Other Than Temporary Impairments and Its Application to Certain Investments” references existing guidance, and supersedes EITF Topic No. D-44 “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” FSP FAS 115-1 was effective for reporting periods beginning after December 15, 2005, on a prospective basis. The Company’s existing policy for recognizing other-than-temporary impairments is consistent with the guidance in FSP FAS 115-1, and includes the recognition of other than temporary impairments of securities resulting from credit related issues as well as declines in fair value related to rising interest rates, where the Company does not have the intent to hold the securities until either maturity or recovery. The Company applied the principles of FSP FAS 115-1 effective January 1, 2006. The initial application of FSP FAS 115-1 did not have a material effect on the Company’s consolidated financial condition or results of operations.

SFAS No. 157 – Fair Value Measurements. In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements”, which defines fair value, establishes a framework for measuring fair value under current accounting pronouncements that require or permit fair value measurement and enhances disclosures about fair value instruments. SFAS 157 retains the exchange price notion, but clarifies that exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability (exit price) in the principal market, or the most advantageous market in the absence of a principal market, for that asset or liability, as opposed to the price that would be paid to acquire the asset or receive a liability (entry price).

Prior to SFAS 157, the fair value of a liability was often based on a settlement price concept which assumed the liability was extinguished. Under SFAS 157, fair value is based on the amount that would be paid to transfer a liability to a third party with the same credit standing. An exit price valuation will include margins for risk even if they are not observable. SFAS 157 requires that fair value be a market-based measurement in which the fair value is determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant. Fair value measurement is based on assumptions used by market participants in pricing the asset or liability, which may include inherent risk, restrictions on the sale of use of an asset or non-performance risk, which would include the reporting entity’s own credit risk. In many cases, the exit price and the transaction (or entry) price will be the same at initial recognition. However, in certain cases, the transaction price may not represent fair value.

SFAS 157 establishes a three-level fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value. See Footnote 4 for a description of the three-level hierarchy for fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years.

The SFAS estimated fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. Release of risk margins will be reflected as realized gains in future periods’ net income. Each of the components described below are unobservable in the marketplace and require subjectivity by the Company in determining their value.

• Credit Standing Adjustment: This component makes an adjustment that market participants would make to reflect the risk that policyholder liabilities will not be fulfilled (“nonperformance risk”). SFAS 157 explicitly requires nonperformance risk to be reflected in fair value.
• Behavior Risk Margin: This component adds a margin that market participants would require for the risk that the Company’s assumptions about policyholder behavior used prior to adoption of

NOTE 3 – CHANGES IN ACCOUNTING PRINCIPLES (continued)

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SFAS 157 could differ from actual experience. The Behavior Risk Margin is calculated by taking the difference between adverse policyholder behavior assumptions that the Company believes market participants would use in developing risk margins.

Effective January 1, 2008 the Company adopted SFAS 157 and applied the provisions of the statement prospectively to assets and liabilities measured at fair value.

In February 2008, The FASB issued FASB Staff Position (“FSP”) No. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement under Statement 13, Accounting for Leases (“FSP FAS 157-1”). FSP FAS 157-1 provides a scope exception from SFAS 157 for the evaluation criteria on lease classification and capital lease measurement under SFAS No. 13 “Accounting for Leases” and other related accounting pronouncements. Accordingly, the Company did not apply the provisions of SFAS 157 in determining the classification of and accounting for leases and the adoption of FSP FAS 157-1 did not have an impact on the Company’s consolidated financial statements.

In February 2008, The FASB issued FSP FAS 157-2, Effective Date of FASB Statement No 157 (“FSP FAS 157-2”) which delays the effective date for certain nonfinancial assets and liabilities that are recorded at fair value on a nonrecurring basis. The effective date is delayed until January 1, 2009, and impacts balance sheet items including nonfinancial assets and liabilities in a business combination and the impairment testing of goodwill and long-lived assets. As a result of the issuance of FSP FAS 157-2, the Company did not apply the provisions of SFAS 157 to the nonfinancial assets and nonfinancial liabilities within the scope of FSP FAS 157-2.

In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active”, (“FSP FAS 157-3”) that provided SFAS 157 implementation guidance for fair value considerations of thinly traded securities. An active market is defined as one in which transactions for an asset or liability occur with sufficient frequency and volume in order to provide pricing information on a regular basis. The Company adopted FSP FAS 157-3 establishing a stale pricing policy for assets and liabilities for which prices have not changed from the prior month-end to the financial statement date. In accordance with this definition, securities that are actively traded on exchanges and dealer markets that are not deemed to be stale priced are assigned level 1, as described in Note 4.

SFAS No. 159 – The Fair Value Option for Financial Assets and Financial Liabilities. In February 2007, FASB issued SFAS 159, Fair Value Option for Financial Assets and Liabilities, to expand the use of fair value measurements to other financial assets and liabilities on an optional basis at the election of the reporting entity. Election of the fair value option under SFAS 159 enables financial instruments to be recorded at fair value on the balance sheet with changes in fair value recognized through net income. The election is made on an instrument-by-instrument bases at the time a contract is acquired or, for existing assets and in-force liabilities, at the date at which the standard is first adopted by the reporting entity. The election is irrevocable and applies over the life of the contract. Effective, December 31, 2008, the Company did not elect the fair value option under SFAS 159 for any instruments.

FSP EITF 99-20-1 – Amendments to the Impairment Guidance of EITF Issue No. 99-20. In January 2009, the FASB released final FSP No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (“EITF 99-20-1”). According to the FASB, the FSP amends the impairment guidance in EITF 99-20, to achieve more consistent determination of whether an OTTI has occurred. The FSP retains

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NOTE 3 – CHANGES IN ACCOUNTING PRINCIPLES (continued)

New Accounting Principles (Adopted) (continued)

and emphasizes the OTTI guidance and required disclosures in Financial Accounting Standard 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS 115”), FSP FAS 115-1 and FAS 124-1, SEC Staff Accounting Bulletin (SAB) Topic 5M, “Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities”, and other related literature. FSP EITF 99-20-1 is effective prospectively for financial statements issued for fiscal years and interim periods ending after December 15, 2008 with early adoption encouraged. The Company applied the principles of FSP EITF 99-20-1 effective January 1, 2008. The application of the FSP EITF 99-20-1 did not have an effect on the Company’s consolidated financial condition or results of operations for the year ending December 31, 2008.

New Accounting Principles (Future Adoption)

SFAS No. 161 – Disclosures about Derivative instruments and Hedging Activities – an Amendment of FASB Statement No. 133. In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and hedging Activities – an amendment of FASB Statement No. 133“ (“SFAS 161”), which amends and expands current qualitative and quantitative disclosure requirements for derivative instruments and hedging activities. Enhanced disclosures will include: how and why the Company uses derivative instruments; how derivative instruments and related hedged items are accounted for under SFAS 133; and how derivative instruments and related hedged items affect our financial position, financial performance and cash flows. Quantitative disclosures will be enhanced by requiring a tabular format by primary underlying risk and accounting designation for the fair value amount and location of derivative instruments in the financial statements and the amount and location of (losses) gains in the financial statements for derivative instruments and related hedged items. The tabular disclosures should improve transparency of derivative positions existing at the end of the reporting period and the effect of using derivatives during the reporting period. SFAS 161 also requires the disclosure of credit-risk-related contingent features in derivative instruments and cross-referencing within the notes to the consolidated financial statements to assist users in locating information about derivative instruments. The amended and expanded disclosure requirements apply to all derivative instruments within the scope of SFAS 133, non-derivative hedging instruments and all hedged items designated and qualifying as hedges under SFAS 133. SFAS 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company will adopt SFAS 161 effective January 1, 2009, at which time the Company will begin including these required enhanced disclosures related to derivative instruments and hedging activities in our financial statements.

NOTE 4 – FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES

Fair Value Definition and Hierarchy

Effective January 1, 2008, The Company applied the provisions of SFAS 157 prospectively to financial assets and financial liabilities that are required to be measured at fair value under existing U.S. GAAP. SFAS 157 defines fair value 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.

SFAS 157 requires consideration of three broad valuation techniques (i) the market approach, (ii) the income approach, and (iii) the cost approach. SFAS 157 requires that entities determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. SFAS 157 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

NOTE 4 – FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)

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Fair Value Definition and Hierarchy (continued)

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, 2008 consolidated 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 equity securities listed in active markets, investments in publicly traded mutual funds with quoted market prices, and listed derivatives. Separate accounts 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, certain municipal bonds, certain mortgage- backed securities (MBSs) and certain asset-backed securities (“ABSs”), certain corporate debt, certain private placement investments, certain preferred stocks, and certain derivatives, including options and credit default swaps. 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 management’s 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 certain private placement investments, certain preferred stocks and embedded derivative liabilities.

SFAS 157 Transition

The Company applied the provisions of SFAS 157 prospectively to financial instruments that are recorded at fair value. At January 1, 2008, the impact of adopting SFAS 157 for indexed products, accounted for under SFAS 133 was a reduction to income of $4.6 million, after taxes and deferred acquisition costs, and was recognized as a change in estimate in the accompanying audited consolidated statement of income. The adoption of SFAS 157 changed the valuation resulting from an adjustment for risks inherent in a particular input or valuation technique and the inclusion of the Company’s own credit standing in their valuation. There were no significant changes in fair value of items measured at fair value and reflected in accumulated other comprehensive (loss) income.

Valuation Techniques

Debt and Equity Securities - The fair values of U.S. government obligations, which include U.S. treasuries, are estimated 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.

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Valuation Techniques (continued)

Government agencies - authorities and subdivisions securities include U.S. agencies and municipal bonds. The fair values of municipal bonds are estimated 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.

Corporate bonds, non-trading preferred stocks - as well as investment-grade MBS and ABS securities are valued using cash flow models based on appropriate observable inputs such as market quotes, yield curves, interest rates, and spreads. 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; in instances where significant inputs are unobservable, they are categorized in Level 3 of the fair value hierarchy.

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.

Derivative Contracts - Fair values of exchange traded futures are based on quoted prices. These prices are readily and regularly available in an active market and the Company validates pricing information provided per brokerage statements to market closing prices. Therefore, these securities are categorized as Level 1 of the fair value hierarchy.

OTC derivative contracts - held by the Company include purchased credit default swaps and 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 observed from actively quoted markets and is widely accepted by the financial services industry. A substantial majority of the Company’s OTC derivative products use pricing models and are categorized as Level 2 of the fair value hierarchy. However, determination of the fair value of certain long dated credit default swaps where direct trading activity or quotes are unobservable requires significant judgment. These credit default swaps were purchased to hedge existing market exposure.

Equity Indexed Embedded Derivatives - The fair value of the embedded policy derivatives contained in equity-indexed annuity and life contracts is 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. With the adoption of SFAS 157, these methodologies were not changed, with the exception of incorporating an explicit risk margin for variance of policyholder behavior and the impact the Company’s own credit rating would have in the view of a market participant. Given significant unobservable inputs used to value the financial instruments, they are included in level 3.

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NOTE 4 – FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)

Presented here is the fair value of all assets and liabilities subject to fair value determination as well as the expanded fair value disclosures required by SFAS 157 (in thousands).

					Not
					Presented
					at Fair
Assets		Level 1	Level 2	Level 3	Value	Total
	AFS debt and equity securities:
	U.S. government obligations	$ 13,291	$ –	$ –	$ –	$ 13,291
	Government agencies, authorities and
	subdivisions	–	37,749	–	–	37,749
	Corporates	–	4,790,068	–		4,790,068
	Private placements	–	864,869	52,901	–	917,770
	Mortgage-backed securities	–	3,396,578	–	–	3,396,578
	Total AFS debt securities	13,291	9,089,264	52,901	–	9,155,456
	Preferred stock	19,612	22,985	1,879	–	44,476
	Common stock	42,432	–	–	–	42,432
	Total AFS equity securities	62,044	22,985	1,879	–	86,908
	Total AFS debt and equity securities	75,335	9,112,249	54,780	–	9,242,364
	Trading equity securities	15,714	–	–	–	15,714
	Securities lending invested collateral	–	81,440	–	–	81,440
	Other invested assets	7,4141	110,0361	–	250,450	367,900
	Cash and cash equivalents	119,453	19,313	–	9,221	147,987
	Total cash and investments	217,916	9,323,038	54,780	259,671	9,855,405
	Separate account assets	557,0022	52,2342	–	–	609,236
	Total assets subject to fair value disclosure	$ 774,918	$9,375,272	$ 54,780	$ 259,671	$10,464,641
Liabilities		Level 1	Level 2	Level 3
	Policyholder account liabilities	$ –	$ –	$ 651,704	$7,166,102	$ 7,817,806
	Other liabilities	–	72,5913	–	163,411	236,002
	Total liabilities subject to fair value disclosure	$ –	$ 72,591	$ 651,704	$7,329,513	$ 8,053,808

^1. Comprised of certain derivative contracts including credit default swaps, OTC options and exchange traded futures.

^2. 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 SOP 03-1. Separate account assets are principally comprised of public registered mutual funds, trading equities and certain MBS.

^3. Comprised of certain OTC options.

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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, 2008 for fair value measurements for which significant unobservable inputs were used in determining each instrument’s fair value:

		Net 1		Activity
		Investment		During			Assets and
		Gains/Loss		the period			liabilities
		In Earnings		(Purchases,			still held
		(realized	Unrealized2	Issuances,	Transfers		at the
	Beginning	and	In	Sales,	In/Out of	Ending	reporting
Assets	balance	unrealized)	OCI	Settlements)	Level 3	Balance	date
Private placements	$ 50,827	$ (1,773)	$ (15,945)	$ (1,968)	$ 21,760	$ 52,901	$ –
Preferred stock	3,329	–	(1,450)	–	–	1,879	–
Total AFS debt and equity							–
securities	54,156	(1,773)	(17,395)	(1,968)	21,760	54,780
Other invested assets	3,268	13	(3,186)	(95)	–	–	–
Total invested assets	$ 57,424	$ (1,760)	$ 20,581)	$ (2,063)	$ 21,760	$ 54,780	$ –
Liabilities
Policyholder account
liabilities	$ 689,818	$ (226,835)	$ –	$ 188,721	$ –	$ 651,704	$ (226,835)
Total liabilities	$ 689,818	$ (226,835)	$ –	$ 188,721	$ –	$ 651,704	$ (226,835)

^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.

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NOTE 4 – FAIR VALUE MEASUREMENTS OF ASSETS AND LIABILITIES (continued)

Fair Value of Financial Instruments

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

	2008			2007
	Carrying		Estimated Carrying		Estimated
	Value		Fair Value	Value	Fair Value
Cash and cash equivalents	$ 147,987	$ 147,987		$ 179,405	$ 179,405
Available-for-sale debt securities	9,155,456		9,155,456	9,596,543	9,596,543
Available-for-sale equity securities	86,908		86,908	152,870	152,870
Trading equity securities	15,714		15,714	23,456	23,456
Mortgage loans & mortgage loan commitments	1,676,877		1,583,733	1,659,951	1,727,322
Policy loans	719,251		797,482	706,278	708,398
Options purchased	110,036		112,998	144,880	144,880
Options written	(71,652)		(72,591)	(53,477)	(53,477)
Futures purchased	2,962		2,962	2,375	2,375
Credit default swaps	(939)		(939)	–	–
Securities lending invested collateral	81,440		81,440	234,691	234,691
Separate account assets	609,236		609,236	983,815	983,815
Reserve assets – cash	59,097		59,097	50,627	50,627
Other invested assets–bank syndicate loans	6,426		6,426	9,694	9,694
Investment product liabilities	6,735,332		6,703,532	6,193,414	6,258,286
Debt	294,747		203,619	294,713	302,774

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

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

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

The estimated fair value of securities lending invested collateral and bank loans is based on quoted market values.

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.

Debt fair values are estimated using quoted values determined through discounted cash flows derived from current interest rates adjusted for the Company’s credit rating.

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NOTE 5 – INVESTMENTS

Available-for-Sale Debt and Equity Securities

The amortized cost of available-for-sale (“AFS”) debt securities and the cost for AFS equity securities and for collateral related to the securities lending program, and the estimated fair values for all three at December 31 are as follows (in thousands):

		Gross Unrealized Gross Unrealized		Estimated Fair
2008	Cost	Gains	Losses	Value
AFS debt and equity securities:
U.S. government obligations	$ 11,678	$ 1,613	$ -	$ 13,291
Government agencies, authorities
and subdivisions	36,035	1,839	125	37,749
Corporate:
Communications	642,907	11,080	68,338	585,649
Consumer & retail	821,989	12,156	73,124	761,021
Financial institutions	1,300,244	9,003	248,276	1,060,971
Industrial and chemicals	1,069,979	5,502	182,596	892,885
Other corporate	90,300	7,406	8,547	89,159
REITS	185,585	-	65,323	120,262
Transportation	207,665	4,839	17,800	194,704
Utilities	1,184,090	11,531	110,204	1,085,417
Total corporate	5,502,759	61,517	774,208	4,790,068
Private placements	1,003,742	6,512	92,484	917,770
Mortgage-backed securities	3,513,391	53,811	170,624	3,396,578
Total AFS debt securities	10,067,605	125,292	1,037,441	9,155,456
Preferred stocks	72,747	-	28,271	44,476
Common stocks	53,959	882	12,409	42,432
Total AFS equity securities	126,706	882	40,680	86,908
Securities lending invested collateral	89,467	-	8,027	81,440
Total AFS debt and equity securities and
securities lending invested collateral	$ 10,283,778	$ 126,174	$ 1,086,148	$ 9,323,804

			Gross Unrealized
		Gross Unrealized	Losses	Estimated Fair
2007	Cost	Gains		Value
AFS debt and equity securities:
U.S. government obligations	$ 38,768	$ 1,449	$ –	$ 40,217
Government agencies, authorities
and subdivisions	81,872	5,303	–	87,175
Corporate:
Communications	654,441	26,622	6,784	674,279
Consumer & retail	880,250	17,764	17,609	880,405
Financial institutions	1,323,431	27,494	49,622	1,301,303
Industrial and chemicals	637,738	17,441	11,299	643,880
Other corporate	82,070	9,676	37	91,709
REITS	173,181	1,072	5,272	168,981
Transportation	146,921	5,523	2,074	150,370
Utilities	1,304,837	44,025	15,377	1,333,485
Total corporate	5,202,869	149,617	108,074	5,244,412
Private placements	909,762	26,403	8,704	927,461
Mortgage-backed securities	3,288,850	34,956	26,528	3,297,278
Total AFS debt securities	9,522,121	217,728	143,306	9,596,543
Preferred stocks	98,942	2,347	6,220	95,069
Common stocks	48,761	10,658	1,618	57,801
Total AFS equity securities	147,703	13,005	7,838	152,870
Total AFS debt and equity securities	$ 9,669,824	$ 230,733	$ 151,144	$ 9,749,413

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Available-for-Sale Debt and Equity Securities (continued)

Unrealized (losses) gains 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):

	2008	2007		2006
Net unrealized (losses) gains on available-for-sale securities	$ (1,039,563)	$(34,049)	$ (69,569)
Net unrealized (losses) gains on separate accounts	(1,094)	256		407
Net unrealized (losses) gains on other invested assets	(24,997)	17,693		940
Related deferred policy acquisition costs	368,773	2,257		16,020
Related present value of future profits of insurance acquired	-	1,188		1,439
Related deferred income taxes		5,096		5,180
	218,004
Related policyholder dividend obligation	74,012	(1,905)		35,963
Decrease in net unrealized gains	(404,865)	(9,464)		(9,620)
Balance, beginning of year	36,709	46,173		55,793
Balance, end of year	$ (368,156)	$ 36,709	$ 46,173
		2008		2007
Balance, end of year includes:
Net unrealized (losses) gains on available-for-sale securities		$ (959,974)    $		79,589
Net unrealized gains on separate accounts		2,516		3,610
Net unrealized gains on other invested assets		2,520		27,517
Related deferred policy acquisition costs		373,068		4,295
Related deferred income taxes		198,238		(19,766)
Related policyholder dividend obligation		15,476		(58,536)
Balance, end of year		$(368,156)    $		36,709

Net other comprehensive income (loss) related to unrealized (losses) gains on available-for-sale securities for 2008, 2007, and 2006 of $(404.9) million, $(9.5) million, and $(9.6) million is presented net of reclassifications to net income for net realized (losses) gains during the period of $9.7 million, $(3.7) million, and $(32.4) million and net of tax and deferred acquisition cost offsets of $1.8 million, $(2.5) million, and $(21.2) million, respectively.

The amortized cost and estimated fair values of debt securities and securities lending invested collateral by contractual maturity at December 31, 2008, 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.

	Amortized	Estimated Fair
	Cost	Value
Due in one year or less	$ 267,941	$ 257,255
Due after one year through five years	1,594,147	1,488,881
Due after five years through ten years	3,262,578	2,785,356
Due after ten years	1,519,015	1,308,826
Mortgage-backed securities	3,513,391	3,396,578
Total	$ 10,157,072	$ 9,236,896

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

F-168

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Available-for-Sale Debt and Equity Securities (continued)

Proceeds from sales of available-for-sale debt and equity securities for the years ended December 31, 2008, 2007, and 2006 were $931.7 million, $1,330.2 million, and $1,936.8 million, respectively. Gross realized gains on sales of available-for-sale debt securities for the years ended December 31, 2008, 2007, and 2006 were $18.4 million, $5.0 million, and $4.5 million, respectively. Gross realized losses on sales of available-for-sale debt securities for the years ended December 31, 2008, 2007, and 2006 were $9.9 million, $15.6 million, and $48.0 million, respectively. Gross realized gains on available-for-sale equity securities for the years ended December 31, 2008, 2007, and 2006 were $2.0 million, $20.0 million, and $4.1 million, respectively. Gross realized losses on available-for-sale equity securities for the years ended December 31, 2008, 2007, and 2006 were $2.3 million, $0.3 million, and $0.5 million, respectively.

The Company recognized losses of $114.9 million, $11.0 million, and $3.1 million on available-for-sale debt and equity securities for the years ended December 31, 2008, 2007, and 2006, respectively, resulting from other-than-temporary declines in the fair value of individual securities held. Factors considered in determining whether declines in the fair value of securities are other-than temporary include 1) the significance of the decline, 2) the Company’s ability and intent to retain the investment for a sufficient period of time for it to recover, 3) the time period during which there has been a significant decline in value, and 4) fundamental analysis of the liquidity, business prospects, and overall financial condition of the issuer. Based upon these factors, securities that have indications of potential impairment are subject to intensive review. Where such analysis results in a conclusion that declines in fair values are other-than-temporary, the security is written down to fair value.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Available-for-Sale Debt and Equity Securities (continued)

Investments’ gross unrealized losses and estimated fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2008 and 2007, were as follows (in thousands):

2008	Less than 12 months		12 months or more		Total
	Estimated	Unrealized	Estimated	Unrealized	Estimated	Unrealized
Description of Securities	Fair Value	Losses	Fair Value	Losses	Fair Value	Losses
U.S. government obligations
Government agencies, authorities
and subdivisions	$ 3,129	$ 125	$ -	$ -	$ 3,129	$ 125
Corporate:
Communications	337,097	44,489	75,809	23,849	412,906	68,338
Consumer & retail	386,760	38,880	96,631	34,244	483,391	73,124
Financial institutions	599,236	112,102	329,353	136,174	928,589	248,276
Industrial and chemicals	557,361	109,355	194,451	73,241	751,812	182,596
Other corporate	9,746	3,034	1,450	5,513	11,196	8,547
REITS	39,466	22,465	80,797	42,858	120,263	65,323
Transportation	80,615	7,284	26,469	10,516	107,084	17,800
Utilities	595,876	66,886	205,783	43,318	801,659	110,204
Total corporate	2,606,157	404,495	1,010,743	369,713	3,616,900	774,208
Private placements	701,382	76,724	61,700	15,760	763,082	92,484
Mortgage-backed securities	656,275	122,137	11,580	48,487	667,855	170,624
Subtotal debt securities	3,966,943	603,481	1,084,023	433,960	5,050,966	1,037,441
Preferred stock	29,105	15,290	13,863	12,981	42,968	28,271
Common stock	28,184	12,409	182	-	28,366	12,409
Securities lending invested collateral	-	-	81,440	8,027	81,440	8,027
Total securities	$ 4,024,232	$ 631,180	$ 1,179,508	$ 454,968	$ 5,203,740	1,086,148

2007	Less than 12 months		12 months or more			Total
	Estimated	Unrealized	Estimated	Unrealized	Estimated	Unrealized
Description of Securities	Fair Value	Losses	Fair Value	Losses	Fair Value	Losses
U.S. government obligations
Government agencies, authorities
and subdivisions
Corporate:
Communications	$ 120,842	$ 3,164	$ 70,531	$ 3,620	$ 191,373	$ 6,784
Consumer & retail	212,015	9,194	142,164	8,415	354,179	17,609
Financial institutions	488,650	30,485	248,401	19,137	737,051	49,622
Industrial and chemicals	196,317	8,122	82,300	3,177	278,617	11,299
Other corporate	4,957	37	–	–	4,957	37
REITS	91,195	2,987	46,648	2,285	137,843	5,272
Transportation	47,071	1,506	13,193	568	60,264	2,074
Utilities	284,375	7,148	190,785	8,229	475,160	15,377
Total corporate	1,445,422	62,643	794,022	45,431	2,239,444	108,074
Private placements	283,438	5,259	84,742	3,445	368,180	8,704
Mortgage-backed securities	670,448	10,525	793,386	16,003	1,463,834	26,528
Subtotal debt securities	2,399,308	78,427	1,672,150	64,879	4,071,458	143,306
Preferred stock	26,592	5,398	7,889	822	34,481	6,220
Common stock	10,592	1,481	583	137	11,175	1,618
Total securities	$2,436,492	$ 85,306	$1,680,622	$ 65,838	$4,117,114	$ 151,144

F-170

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Available-for-Sale Debt and Equity Securities (continued)

Of the $603.5 million total unrealized losses on debt securities in the less than 12 months category, $404.5 million total unrealized losses on the corporate bond portfolio are concentrated in the financial institution, industrial and chemicals, and utility sectors. In 2008, the JPMorgan US Liquid Index (“JULI”), an investment grade corporate bond index widened by approximately 322 basis points from 182 basis points at the beginning of the year to 504 basis points at the end of the year. Over the same time period, the JULI high yield corporate bond index widened by approximately 1,127 basis points from a beginning level of 597 basis points to a year end level of 1,724. This spread widening was primarily a function of the global economic slowdown, the corresponding increase in the corporate bond default rate and the perceived credit risk associated with these defaults.

MBSs are primarily attributable for another $122.1 million of the $603.5 million unrealized losses on debt securities purchased in 2008. The decline in market value of these securities pertained primarily to increased credit spreads over treasury yields associated with the U.S. housing crisis which was partially offset by lower treasury yields as investors fled to treasuries over the last four months of 2008, driving yields down. In addition to the $122.1 million attributable to unrealized losses in 2008, there is another $48.5 million of MBS losses attributable to the $434.0 million of unrealized debt security losses that have been in a loss position for 12 months or more. The Company believes that the current matrix pricing, based on market observable transactions for similar securities, reflects both distressed sales (which are excludable under SFAS 157) and sales of securities that do not have all of the same characteristics as the Company’s MBS holdings, and therefore, is not completely indicative of the fair value of the Company’s MBS positions. There are considerations, such as concentration risk, underwriting, geographical diversification, property type diversification and quality of underlying cash flows that the Company considers when determining whether a pricing decline is temporary in nature. The Company has the intent and ability to hold these securities until they recover and will continue to monitor these holdings for any underlying deterioration in future quarters that would indicate that an individual security will not recover, at which time the Company will record OTTI as appropriate.

Of the $434.0 million unrealized losses on debt securities in the more than 12 months category, $369.7 million was in the corporate bond portfolio. The unrealized losses are concentrated in the financial institution, industrial and chemical, utility and REITs sectors. As noted in the earlier comments about the less than 12 month category, the main reason for the unrealized losses in this group was the pervasive market spread widening caused by the global economic slowdown and the corresponding increase in the corporate bond default rate. Based on the facts and circumstances surrounding the individual securities, the Company’s assessment around the probability of all contractual cash flows and the Company’s 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, 2008 are temporary.

The Company periodically lends certain U.S. government or corporate bonds to approved counterparties to enhance the yield of its bond portfolio. The Company initially receives cash collateral or U.S. government or government agency bonds for at least 102% of the market value of securities loaned. Collateral adequacy is evaluated daily and periodically adjusted for changes in the market value of securities loaned in order to ensure that the cash collateral is at least equal to 100% of the market value of securities loaned. The carrying values of securities loaned are unaffected by the transaction.

The fair value of the loaned securities was $119.3 million and $265.8 million at December 31, 2008 and 2007, respectively. At December 31, 2008 and 2007, the Company has recognized a liability for outstanding cash and bond collateral received (included in securities lending payable) of $121.7 million and $269.9 million, respectively.

F-171

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Available-for-Sale Debt and Equity Securities (continued)

The cash collateral received is generally invested in short-term investments including fixed income and other securities with debt-like characteristics and is reported at estimated fair value. The change in fair value of invested collateral is adjusted through other comprehensive income, net of related deferred income taxes. The invested collateral is evaluated for other-than-temporary impairment by applying the same criteria used for other investments in debt securities held by the Company. At December 31, 2008 and 2007, the fair value of invested collateral was $81.4 million and $234.7 million, respectively.

The Company’s earnings with respect to its lending program were $0.9 million less expenses of $0.2 million in 2008, $1.5 million less expenses of $0.4 million in 2007, and $0.9 million less expenses of $0.2 million in 2006.

Trading Equity Securities

These securities represent investments by the Company in the mutual funds, or registered investment companies of The Sentinel Group Funds. Sentinel Asset Management Inc., a wholly owned subsidiary of the Company, has a contract with the Sentinel Group Funds, renewed annually, to manage the assets of the Funds. For the years ended December 31, 2008, 2007, and 2006 the equity securities held in the trading category recorded $0.2 million, $1.6 million, and $1.3 million of net investment income. The cost of trading securities held at December 31, 2008 and 2007 was $21.4 million and $22.2 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:

	2008	2007
Geographic Region
New England	2.6%	2.7%
Middle Atlantic	3.0	4.4
East North Central	17.6	17.4
West North Central	7.2	7.1
South Atlantic	21.9	21.9
East South Central	3.4	2.7
West South Central	15.1	14.4
Mountain	11.8	11.6
Pacific	17.4	17.8
Total	100.0%	100.0%
Property Type
Apartment	12.1%	13.2%
Retail	12.2	9.3
Office Building	46.1	45.1
Industrial	26.0	28.0
Hotel/Motel	.5	1.0
Other Commercial	3.1	3.4
Total	100.0%	100.0%
Total mortgage loans and real estate
(in thousands)	$1,692,530	$1,679,063

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NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Mortgage Loans and Real Estate (continued)

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

		2008	2007
Unimpaired loans	$1,676,877		$1,659,951
Impaired loans without valuation allowances		–		–
Subtotal		1,676,877	1,659,951
Impaired loans with valuation allowances		–		–
Related valuation allowances		–		–
Subtotal		–		–
Total	$1,676,877		$1,659,951
		2008                   2007		2006
Impaired loans:
Average total investment	$ –		$ –	$2,834
Interest income recognized		–	–	37
Interest received		–	–	37

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

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

	2008	2007	2006
Additions for impaired loans charged to realized losses	$ –	$ –	$ –
Changes to previously established valuation allowances	–	–	(860)
Decrease in valuation allowances	–	–	(860)
Balance, beginning of year	–	–	860
Balance, end of year	$ –	$ –	$ –

F-173

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 5 – INVESTMENTS (continued)

Net Investment Income

The components of net investment income for the years ended December 31 were as follows (in thousands):

	2008	2007	2006
Debt securities interest	$611,975	$575,215	$538,839
Equity securities dividends	7,014	11,582	14,242
Mortgage loan interest	115,661	115,555	121,614
Policy loan interest	41,570	40,647	39,286
Real estate income	3,377	3,391	17,222
Options	(197,184)	1,959	77,348
Other investment income	5,468	20,814	12,056
Gross investment income	587,881	769,163	820,607
Less: investment expenses	12,115	11,105	23,145
Net investment income	$ 575,766	$758,058	$797,462

Other investment income includes income distributions from unconsolidated partnership investments and the amortization of investments in affordable housing credits.

Net Realized (Losses) Gains

The following summarizes the components of net realized investment (losses) gains, including other than temporary impairments, by investment category for the years ended December 31 (in thousands):

	2008	2007	2006
Debt securities	$ (70,527)	$(21,517)	$ (37,872)
Equity securities	(34,666)	16,751	3,457
Sale of AG&T	–	–	8,144
Real estate partnership	–	–	30,609
Mortgage loans	–	(95)	190
Real estate investments	310	(692)	(2,013)
Other invested assets	(1,111)	600	(1,393)
Total	$(105,994)	$ (4,953)	$1,122
Derivatives

The Company purchases OTC options and exchange-traded futures on the S&P 500 and Russell 2000 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 in the statements of operations. Call options purchased are included in other invested assets and are carried at fair value. Call options written are included in other liabilities and carried at fair value. Credit default swaps were purchased to hedge existing market exposure.

The Company purchases options only from highly rated counterparties. However, in the event a counterparty fails to perform, the Company’s 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 $9.5 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 or Russell 2000 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 or Russell 2000 indexes. The Company incorporated two additional requirements in determining the fair value of a financial liability: (1) reflection of the reporting company’s nonperformance risk and (2) reflection of a risk margin.

The embedded derivative value was $651.7 million and $664.8 million at December 31, 2008 and 2007 respectively.

Results of operations for 2008, 2007, and 2006 included after-tax earnings from indexed annuities of $13.5 million, $23.4 million, and $23.6 million, respectively. The cost of options and changes in assumptions had a neutral impact on results of operations in 2008 and 2007.

The net notional amount of options purchased, options written, and those embedded in policy liabilities, all related to equity indexed products for the current policy year, is essentially zero. The notional amounts and the fair market value of options, futures, and credit default swaps at December 31 were as follows (in thousands):

	2008		2007
	Fair Market			Fair Market
	Notional	Value	Notional	Value
Options purchased (included in other
invested assets)	$2,776,700 $	110,036	$2,538,600	$ 144,880
Options written (included in other liabilities)	2,401,800	(71,652)	2,136,000	(53,477)
Futures purchased (included in other
invested assets)	27,311	2,962	26,598	2,375
Credit Default Swaps (included in other
invested assets)	15,000	(939)	–	–
Net fair market value	$ 40,407			$ 93,778
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”). In February 2003, the Company executed amendments to disability income reinsurance agreements with UNUM. Under the terms of the amendments, virtually all of the existing disability income coinsurance was converted to modified coinsurance. This change resulted in $286 million in cash and reinsurance liabilities being transferred to

F-175

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 6 – REINSURANCE (continued)

the Company from UNUM. The Company has agreed to pay UNUM an interest rate of 7% on the reserves held by the Company. All other rights and responsibilities outlined in the reinsurance agreements between the Company and UNUM remain in force.

In 2008 and 2007, a number of assumptions used in the calculation of the Company’s disability income reserves were revised, resulting in disability income reserves being increased by $13.1 million and $21.2 million, respectively. This increase in reserves resulted in $9.6 million and $16.5 million in cash being transferred to the Company from UNUM in 2008 and 2007 respectively. The impact on the Company’s operations in 2008 and 2007 was an increase in policy liabilities expense of $3.4 million and $4.7 million respectively.

Other income on the statements of operations includes income of $6.9 million, $10.8 million, and $9.0 million for 2008, 2007, and 2006, respectively, related to the Company’s 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 on the statements of operations as a component of increase in policy liabilities expense.

Interest costs included in reinsurance agreements in place at December 31, 2008 and 2007 are either fixed rate, or vary based solely on the Company's net investment income earnings rate. As such, these contracts do not pass through credit experience related to underlying pools of assets, and therefore do not contain embedded derivatives.

The effects of reinsurance for the years ended December 31 were as follows (in thousands). Transactions between the Closed Block and non-Closed Block operations have been excluded.

	2008	2007	2006
Insurance premiums:
Direct	$388,867	$390,466	$405,222
Reinsurance assumed	829	412	1,439
Reinsurance ceded	(67,226)	(68,550)	(70,654)
Total insurance premiums	$322,470	$322,328	$336,007
Increase in policy liabilities:
Direct	$20,803	$20,854	$64,412
Reinsurance assumed	2	53	(35)
Reinsurance ceded	24,300	8,810	17,406
Total increase in policy liabilities	$45,105	$29,717	$81,783
Policy benefits:
Direct	$482,090	$489,209	$445,087
Reinsurance assumed	486	2,020	540
Reinsurance ceded	(76,508)	(79,962)	(95,909)
Total policy benefits	$406,068	$411,267	$349,718
Policyholders’ dividends:
Direct	$115,541	$112,915	$124,462
Reinsurance ceded	(1,743)	(1,818)	(2,154)
Total policyholders’ dividends	$113,798	$111,097	$122,308

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.

Total life insurance inforce as of December 31, 2008 and 2007 was $59.4 billion and $57.5 billion, respectively.

NOTE 7 – DEFERRED POLICY ACQUISITION COSTS

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The following reflects the changes in the deferred policy acquisition costs asset (in thousands):

	2008	2007	2006
Balance, beginning of year	$969,875	$901,214	$801,557
Acquisition costs deferred during the year	236,105	184,572	172,116
Amortization during the year	(160,675)	(118,168)	(88,479)
Adjustment through other comprehensive income
during the year	368,773	2,257	16,020
Balance, end of year	$1,414,078	$969,875	$901,214

NOTE 8 – FEDERAL INCOME TAXES

The Company files income tax returns in the U.S. federal jurisdiction, and various states. With few exceptions, the Company is no longer subject to U.S federal, state, and local income tax examinations by tax authorities for years prior to 2005.

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):

	2008		2007		2006
	Amount	Rate	Amount	Rate	Amount	Rate
Current	($20,033)		$41,690		$16,649
Deferred	12,193		6,411		26,917
Total income tax expense	($7,840)		$48,101		$43,566
Expected income taxes	2,632	35.0%	$57,162	35.0%	$56,102	35.0%
Dividends received deduction	(3,067)	(40.8)	(3,562)	(2.3)	(2,821)	(1.9)
Affordable housing tax credit	(4,596)	(61.1)	(4,905)	(3.2)	(6,796)	(4.5)
Audit settlements			197	0.1	(2,261)	(1.5)
Corporate owned life insurance	(1,478)	(19.7)	(2,271)	(1.5)	(2,401)	(1.6)
Other, net	(1,331)	(17.7)	1,480	1.0	1,743	1.2
Total income tax expense	($7,840)		$48,101		$43,566
Effective federal income tax rate		(104.3)%		29.1%		26.7%

The Company paid $8.5 million, $37.8 million, and $20.1 million in federal income taxes during 2008, 2007, and 2006, respectively.

During 2006 the Internal Revenue Service completed the audit of the Company’s Federal Income Tax Returns for the years 2001 to 2003. A number of issues were settled resulting in a $2.3 million dollar favorable impact to income tax expense for 2006.

As discussed in Note 3, the Company implemented FIN 48 as of January 1, 2007. Total unrecognized tax benefits were $14.7 million at December 31, 2008, including $1.4 million that would impact net income if recognized.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – FEDERAL INCOME TAXES (continued)

A reconciliation of the beginning to ending amount of unrecognized tax benefits is as follows (in thousands):

	2008	2007
Balance, beginning of year	$17,217	$1,442
Additions based on tax positions related to the current year	40	13,346
Additions/(reductions) for tax positions of prior years	(2,232)	2,629
Reductions to unrecognized tax benefits as a result of a lapse of	(285)	(200)
the applicable statute of limitations
Balance, end of year	$14,740	$17,217

Due to expiration of the statute of limitations, it is possible that approximately $40,000 of an uncertain tax benefit related to the treatment of a contractual issue could be recognized within the next twelve months.

In 2007, the IRS completed federal exams for tax years ending prior to 2004. No changes to unrecognized tax benefits occurred due to the closing of these exams.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in tax expense. During the years ended December 31, 2008 and December 31, 2007, the Company has recognized approximately $0.6 million and $0.3 million in interest expense and penalties, respectively. The Company had approximately $0.8 million and $0.3 million accrued for interest and penalties at December 31, 2008 and 2007, respectively.

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

	2008	2007
Deferred income tax assets:
Pension and other post retirement liabilities	$ 70,505	$ 59,781
Policy liabilities	255,000	256,837
Other liabilities and accrued expenses	3,376	5,338
Debt and equity securities	17,294	- -
Net unrealized loss on available-for-sale securities	198,238	- -
Loss carryforwards	5,246	- -
Other	447	465
Total deferred income tax assets	550,106	322,421
Deferred income tax liabilities:
Debt and equity securities	-	1,836
Net unrealized gain on available-for-sale securities	-	19,766
Deferred policy acquisition costs	288,908	265,624
Present value of future profits of insurance acquired	13,221	14,962
Property and investments	8,371	7,510
Other	10,390	9,937
Total deferred income tax liabilities	320,890	319,635
Total net deferred income tax assets	$ 229,216	$ 2,786

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 8 – FEDERAL INCOME TAXES (continued)

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, 2008 or 2007.

The downturn in the debt and equity markets during 2008 has resulted in deferred tax assets for unrealized investment losses and other than temporary impairment losses at December 31, 2008. Such losses generally represent capital losses, which can only be offset with capital gains for U.S. income tax purposes. Management believes that it will have sufficient income of the appropriate character to realize the deferred tax assets based upon its prior history of capital gains, capacity for carry-back of capital losses and its ability and intent to implement tax planning strategies, including its ability to hold debt securities to maturity, and thus no valuation allowance is required.

The Company has federal operating loss carryforwards in the amount of $14,989,000 at December 31, 2008. These operating losses are related to the non-life insurance companies and begin to expire in 2028.

NOTE 9 – BENEFIT PLANS

The Company sponsors a defined benefit pension plan covering substantially all employees. The plan is administered by the Company and is non-contributory, with benefits for National Life employees hired prior to July 1, 2001, based on an employee's 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 employee's account each year, which is a factor of the employee's age, service, and compensation, increased at a specified rate of interest. This pension plan is separately funded. Plan assets are primarily bonds and common stocks held in a Company separate account and funds invested in a general account group annuity contract issued by the Company. None of the securities held in the Company separate account were issued by the Company.

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

The Company sponsors four defined benefit postretirement plans that provide medical, dental, and life insurance benefits to retired employees, agency staff, agents and general agents. Spouses of participants generally qualify for the medical and dental plans. Substantially all employees who began service prior to July 1, 2001 may be eligible for medical, dental, and life insurance retiree benefits if they reach retirement age and meet certain minimum service requirements while working for the Company. Substantially all employees beginning service prior to January 1, 2005 may be eligible for life insurance retiree benefits if they reach retirement age and meet certain minimum service requirements while working for the Company. Agency staff employees may be eligible for life insurance retiree benefits if they reach retirement age and meet certain minimum service requirements while working for an Agency of the Company.

Most of the defined benefit postretirement plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features such as deductibles and copayments. These postretirement 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – BENEFIT PLANS (continued)

Information with respect to the defined benefit plans at December 31 was as follows (in thousands):

	Pension Benefits					Other Benefits
	2008	2007		2006	2008	2007	2006
Change in benefit obligation:
Benefit obligation, beginning of year	$ 251,701	$ 249,907	$ 251,354		$ 33,205	$ 36,510	$ 36,268
Service cost for benefits earned during the
period	5,991	4,929		5,540	1,254	1,119	1,164
Interest cost on benefit obligation	18,584	14,329		13,723	2,465	2,093	1,999
Actuarial (gains) losses	10,111	(4,433)		(5,850)	2,280	(2,075)	(755)
Curtailment	–	–		–	–	(1,971)	–
Benefits paid	(19,024)	(13,031)		(14,860)	(3,194)	(2,471)	(2,166)
Benefit obligation, end of year	267,363	251,701		249,907	36,010	33,205	36,510
Change in plan assets:
Plan assets, beginning of year	148,450	131,705		108,682	–	–	–
Actual income on plan assets	(30,433)	21,614		7,625	–	–	–
Employer contributions	4,000	3,116		22,300	–	–	–
Benefits paid	(9,290)	(7,985)		(6,902)	–	–	–
Plan assets, end of year	112,727	148,450		131,705	–	–	–
Funded Status	(154,636)	(103,251)		(118,202)	(36,010)	(33,205)	(36,510)
Unrecognized actuarial losses	–	–		47,260	–	–	3,332
Unrecognized prior service costs (benefits)	–	–		382	–	–	(61)
Net activity subsequent to measurement
date	–	2,057		(1,062)	–	–	–
Net amount recognized	$ (154,636)	$ (101,194)	$ (71,622)		$(36,010)	$ (33,205)	$ (33,239)

		Pension Benefits				Other Benefits
	2008	2007		2006	2008	2007		2006
Amounts recognized in the consolidated
balance sheet:
Pension and other post-retirement benefit
obligations liability	$ –	$ –	$ (104,177)		$ –	$ –	$ (33,239)
Accumulated other comprehensive income	–	–		32,555	–	–		–
Net amount recognized	–	–	$ (71,622)		–	–	$ (32,239)
Pension and other post-retirement benefit
obligations liability	$(154,636)	$(101,194)	$ –		$(36,010)	$(33,205)	$ –
	–	–		–	–	–		–
	–	–		–	–	–		–
Amounts recognized in accumulated other	–	–		–	–	–		–
comprehensive income consists of:
Net actuarial loss	$ 82,283	$ 28,842	$ –		$ 2,824	$ 490	$ –
Net prior service costs (benefits)	120	261		–	(1,618)	(1,849)		–
	$ 82,403	$ 29,103	$ –		$ 1,206	$ (1,359)	$ –

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – BENEFIT PLANS (continued)

The total accumulated benefit obligation (“ABO”), the accumulated benefit obligation and fair value of plan assets for the Company’s pension plans with accumulated benefit obligation 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:

	2008	2007	2006
Total Accumulated Benefit Obligation	$ 254,171	$ 237,256	$ 234,820
Plans with ABO in excess of plan assets:
ABO	254,171	237,256	234,820
Fair value of plan assets	112,727	148,450	131,705
Plans with PBO in excess of plan assets:
PBO	267,363	251,701	249,907
Fair value of plan assets	112,727	148,450	131,705

As previously discussed, the Company applied the recognition provisions of SFAS 158 as of December 31, 2007. The incremental effect of applying SFAS 158 on its Consolidated Balance Sheets at December 31, 2007 was as follows (in thousands):

		Reversal of
	Before	Minimum		After
	Application	Pension	SFAS 158	Application
	of SFAS 158	Liability	Adjustment	of SFAS 158
Deferred income taxes	$ 4,798	$ (5,329)	$ 9,711	$ 9,180
Total assets	15,506,725	(5,329)	9,711	15,511,107
Pension and other post-retirement benefit obligations	(155,934)	15,227	(27,744)	(168,451)
Total liabilities	(14,033,013)	15,227	(27,744)	(14,045,530)
Minimum pension liability adjustment, net of tax	9,898	(9,898)	–	–
SFAS 158 liability adjustment, net of tax	–	–	18,033	18,033
Accumulated other comprehensive income	(25,949)	(9,898)	18,033	(17,814)
Total stockholder’s equity	(1,473,712)	(9,898)	18,033	(1,465,577)

The incremental effect of applying SFAS 158, net of tax, on accumulated other comprehensive income for the Company’s pension plans and postretirement benefit plans was $9.0 million and $(0.9) million, respectively, at December 31, 2007.

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

		Pension Benefits			Other Benefits
	2008	2007	2006	2008	2007	2006
Service cost for benefits earned during the
period	$ 4,793	$ 4,929	$ 5,540	$ 1,003	$ 1,119	$ 1,164
Interest cost on benefit obligation	14,867	14,329	13,723	1,972	2,093	1,999
Expected (income) on plan assets	(11,245)	(9,926)	(9,221)	–	–	–
Net amortization of actuarial losses
(gains)	927	2,297	2,924	(43)	767	1,167
Amortization of prior service costs (benefits)
and plan amendments	113	121	121	(185)	(183)	(1,139)
Net periodic benefit cost (included in
operating expenses)	$ 9,455	$ 11,750	$ 13,087	$ 2,747	$ 3,796	$ 3,191

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – BENEFIT PLANS (continued)

Other changes in plan assets and benefit obligations recognized in other comprehensive income:

		Pension Benefits			Other Benefits
	2008	2007	2006	2008	2007	2006
Net loss (gain)	$ 54,600	–	–	$ 2,280	–	–
Amortization of (gain)/loss	(1,158)			53
Amortization of prior service cost	(141)			231
		–	–		–	–
Total recognized in net periodic benefit cost
and other comprehensive income	$ 53,301	–	–	$ 2,564	–	–

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 $6.4 million and $0.1 million, respectively.

In accordance with SFAS 158, the Company has modified its’ measurement of plan assets and benefit obligations to align with the Company’s fiscal year-end. The prior measurement date was October 1 preceding the date of the balance sheet. The amount of net periodic benefit cost from the period of October 1, 2007 to December 31, 2007, net of tax, was recognized as an adjustment to retained earnings for approximately $2.0 million.

The actuarial assumptions used in determining benefit obligations at the measurement dates were as follows:

		Pension Benefits		Other Benefits
	2008	2007	2006	2008	2007	2006
Discount rate	6.00%	6.00%	5.75%	6.00%	6.00%	5.75%
Rate of increase in future
compensation levels	3.0% - 6.5%	3.0% - 6.5%	3.0% - 6.5%
The weighted-average assumptions used to determine net periodic benefit cost:
		Pension Benefits		Other Benefits
	2008	2007	2006	2008	2007	2006
Discount rate	6.00%	5.75%	5.50%	6.00%	5.75%	5.50%
Rate of increase in future
compensation levels	3.0% - 6.5%	3.0% - 6.5%	3.0% - 6.5%
Expected long term
return on plan assets	7.75%	7.75%	8.00%

Additional minimum pension liabilities at December 31, 2007 and 2006, prior to the adoption of SFAS 158 were $15.2 million and $32.6 million, respectively, for pension benefits where the excess of the ABO liability over the plan assets exceeded the accrued benefit cost. These liabilities were included, net of income tax effects of $5.3 million and $11.4 million, as a component of accumulated other comprehensive income in 2007 and 2006, respectively, prior to the adoption of SFAS 158.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – BENEFIT PLANS (continued)

Effective January 1, 2007, the Company closed its postretirement benefit plans for agents to new retirees. This change generated prior service benefits of $2.0 million and is being amortized over the remaining life expectancy of plan participants.

Included in the pension and other post-retirement benefit obligations liability as reported on the balance sheets are deferred compensation and employee disability liabilities of $26.8 million and $34.1 million as of December 31, 2008 and 2007, respectively.

Assumed health care cost trend rates at December 31, 2008:
Health care cost trend rate assumed for next year	7%
Rate to which the cost trend rate is assumed to decline	5%
Year that the rate reaches the ultimate trend rate	2012

Increasing the assumed HCCTR by one percentage point in each year would increase the accumulated postretirement benefit obligation (“APBO”) by about $3.3 million and increase the 2008 service cost component of net periodic postretirement benefit cost by about $0.1 million. Decreasing the assumed HCCTR by one percentage point in each year would reduce the APBO by about $2.8 million and the 2008 service cost component 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.

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, 2008	October 1, 2007
Bonds	43%	38%
Common stocks	53	61
Group annuity contract
and other	4	1
Total	100%	100%

Investments are selected pursuant to investment objectives, policy, and guidelines as approved by the Chief Investment Officer of the Company, the Asset Allocation Committee and ultimately the Company’s Board of Directors. The primary objective is to maximize long-term total return within the investment policy and guidelines. The Company’s investment policy for the plan assets is to maintain a target allocation of approximately 50%-75% equities, and 25%-50% bonds and other fixed income instruments when measured at fair value. Investments in the obligations of any one issuer, other than the United States of America government or its agencies, shall not exceed 5% of the total investment portfolio. Further, no more than 50% of the total investment portfolio shall be invested in any major industry group (for example, public utilities, industrial, mortgage-backed or asset-backed securities, etc.), and no more than 30% shall be invested in any sub-industry (for example, oil, gas, or steel).

The Company’s expected long-term rate of return of 7.50% is based upon an expected return on stock investments of 10%-11%, and a weighted expected return of 5%-6% on fixed income investments. These projections were based on the Company’s historical and projected experience and on long term projections by investment research organizations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 9 – BENEFIT PLANS (continued)

Projected benefit payments for defined benefit obligations, and for projected Medicare Part D reimbursements for each of the five years following December 31, 2008, 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
2009	$17,026	$ 2,796	$ 267
2010	17,007	2,867	284
2011	17,604	2,957	300
2012	18,146	3,010	318
2013	18,559	3,067	330
2014-2018	102,402	15,839	1,903

The Company’s 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 Company’s expected contribution for 2009 into its separately funded defined benefit pension plan is estimated at $6.8 million based on November 2008 information.

The Company provides employee thrift and 401(k) plans for its employees. For employees hired prior to July 1, 2001, up to 3% of an employee's salary may be invested by the employee in a plan and matched by funds contributed by the Company subject to applicable maximum contribution guidelines. Employees hired prior to July 1, 2001, and below specified levels of compensation also receive a foundation contribution of 1.5% of compensation. Employees beginning service after June 30, 2001 will receive a 50% match on up to 6% of an employee’s 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 Company’s matching contributions.

The Company also provides a 401(k) plan for its regular full-time agents whereby accumulated funds may be invested by the agent in a group annuity contract with the Company or in mutual funds (several of which are sponsored by a subsidiary of SAMI). Total annual contributions cannot exceed certain limits which vary based on total agent compensation. No company contributions are made to the plan.

The Company provides non-qualified defined contribution deferred compensation plans for certain employees and agents. 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 10 – DEBT
Debt consists of the following (in thousands):
	2008	2007
7.5% Senior Notes:	$ 199,675	$ 199,662
$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:	74,453	74,432
$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.
Note Payable:	20,619	20,619
$20.6 million, callable at par on May 15, 2008, and maturing on May 15, 2033. The
note is unsecured and subordinate to all current and future obligations. The
interest rate floats based on LIBOR and resets quarterly.
Total debt	$ 294,747	$ 294,713

Interest paid on the 7.5% senior notes was $15.0 million in 2008, 2007, and 2006. Interest paid on the 6.5% senior notes was $4.9 million in 2008, 2007 and 2006. Interest paid on the $20.6 million note payable was $1.6 million, $1.8 million, and $1.9 million in 2008, 2007, and 2006, respectively.

Interest paid or accrued on the real estate investment mortgage was $3.0 million in 2006 and is included as a component of net investment income.

The Company has three lines of credit available. A $25 million line of credit with State Street Bank, based on an adjustable rate equal to LIBOR plus 75 basis points. A $20 million line of credit with Banknorth Group, based on an adjustable rate equal to LIBOR plus 37.5 basis points. A $20 million line of credit with Key Bank, based on an adjustable rate equal to LIBOR plus 30 basis points. The outstanding balance on all lines of credit was $0 as of December 31, 2008 and 2007.

In 2008, the Company became a member of the Federal Home Loan Bank of Boston (“FHLB”). This membership, which required an investment of $6.1 million in the common stock of FHLB provides the Company with access to a secured asset-based borrowing capacity of $1.7 billion at December 31, 2008. The outstanding balance on this borrowing facility was $0 at December 31, 2008.

NOTE 11 – COMMITMENTS AND CONTINGENCIES

Although there were no outstanding mortgage loan funding commitments at December 31, 2008, there were $54.8 million at December 31, 2007.

During 1997, several class action lawsuits were filed against the Company in various states related to the sale of life insurance policies during the 1980’s and 1990’s. The Company specifically denied any wrongdoing. The Company agreed to a settlement of these class action lawsuits in June 1998. This agreement was subsequently approved by the court in October 1998. The settlement provides class members with various policy enhancement options and new product purchase discounts. Class members could have pursued alternative dispute resolution according to predetermined guidelines. Qualifying members could also opt out of the class action and pursued litigation separately against the company. Most of the alternative dispute resolution cases had been settled by December 31, 2000. Management believes that while the ultimate cost of this litigation (including those who opted out of the class action) is still uncertain, it is unlikely to have a material adverse effect on the Company’s fi nancial position.

Equity Services, Inc. (“ESI” ), a wholly owned subsidiary of NLV Financial Corporation, received an inquiry in 2006 from the SEC regarding insufficient monitoring of certain investment advisory accounts. After estimating the impact to affected investors, ESI reimbursed the affected parties approximately $1.6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

million in May 2007. On February 26, 2009, the SEC issued a “Wells notice” to ESI recommending that enforcement proceedings be commenced against ESI. The SEC has indicated that it will also issue a Wells notice to an ESI employee. ESI intends to review the Wells notices and the record and respond in an appropriate manner.

The Company currently leases rights to the use of certain data processing hardware and software from Perot Systems Corporation, Plano, Texas. The following is a schedule of future minimum lease payments as of December 31, 2008 (in millions). At February 18, 2011, the Company has the option to renew the contract at a reduced rate through February 18, 2013.

	Operating
Year	Leases
2009	$ 4.9
2010	4.9
2011	.8
Total minimum lease payments	$10.6

The Company has a multi-year contract for information systems application and infrastructure services from Keane, Inc., Boston, Massachusetts. The contract became effective on February 1, 2004 and expires January 31, 2014. The Company’s remaining obligation under the contract as of December 31, 2008 (in millions):

	Contract
Year	Obligation
2009	$13.4
2010	13.9
2011	14.5
2012	15.1
2013	15.7
Thereafter	1.4
Total contract obligation	$74.0

In the ordinary course of business, the nature of the Company’s business subjects it to claims, law suits, regulatory examinations, and other proceedings. The results of these matters cannot be predicted with certainty. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period and a material judgment could have a material adverse impact on the Company’s financial condition and results of operations. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these matters will not have a material adverse impact on the business, financial condition, or operating results of the Company.

NOTE 12 – NATIONAL LIFE CLOSED BLOCK

The Company 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 inforce 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 Block’s 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 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

NOTE 12 – NATIONAL LIFE CLOSED BLOCK (continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

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 Company’s 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. The Company 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. A policyholder dividend obligation for distribution of accumulated excess earnings of $15.5 million and $18.3 million was required at December 31, 2008 and 2007, respectively. Similarly, unrealized (losses) gains on Closed Block investments may increase (decrease) a policyholder dividend obligation liability. Unrealized losses in the Closed Block reduced the policyh older dividend obligation by ($15.5) million at December 31, 2008 and unrealized gains in the Closed Block generated a policyholder dividend obligation of $58.5 million at December 31, 2007. These (losses) gains and their related policyholder dividend obligation and income tax offsets are included in other comprehensive income. The total policyholder dividend obligation included in policyholders' dividends liability at December 31, 2008 and 2007 was $0 and $76.8 million, respectively.

NOTE 12 – NATIONAL LIFE CLOSED BLOCK (continued)

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NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Summarized financial information for the Closed Block effects included in the consolidated financial statements as of December 31, 2008 and 2007, and for the three years ended December 31, 2008, is as follows (in thousands):

	2008	2007
Liabilities:
Policy liabilities and accruals	$ 3,700,557	$ 3,811,175
Securities lending payable	21,981	56,662
Other liabilities	948	681
Total liabilities	$ 3,723,486	$ 3,868,518
Assets:
Cash and cash equivalents	$ 11,408	$ 8,457
Securities lending invested collateral	14,710	50,253
Available-for-sale debt and equity securities	2,354,236	2,448,046
Available-for-sale debt securities on loan	21,530	55,579
Other invested assets	632	–
Mortgage loans	322,448	352,772
Policy loans	497,693	510,059
Accrued investment income	43,999	44,735
Premiums and fees receivable	11,551	11,279
Other assets	107,827	74,416
Total assets	$ 3,386,034	$ 3,555,596
Excess of reported closed block liabilities over closed block assets	$ 337,452	$ 312,922
Closed block accumulated other comprehensive loss represented above	(38,563)	–
Maximum future earnings to be recognized from closed block assets
and liabilities	$ 298,889	$ 312,922

F-188

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 – NATIONAL LIFE CLOSED BLOCK (continued)
	2008	2007	2006
Revenues:
Premiums and other income	$ 207,414	$210,757	$222,437
Net investment income	207,700	209,423	211,095
Net investment loss	(8,057)	(347)	(429)
Total revenues	407,057	419,833	433,103
Benefits and Expenses:
Increase (decrease) in policy liabilities	(22,622)	(32,564)	8,032
Policy benefits	275,572	297,005	252,366
Policyholders' dividends	110,706	109,037	120,924
Interest credited to policyholder account liabilities	10,176	10,403	12,130
Operating expenses	8,423	8,067	8,606
Commission expenses	1,927	2,320	3,045
Total benefits and expenses	384,182	394,268	405,103
Pre-tax results of operations	22,875	25,565	28,000
Income taxes	8,842	8,947	9,800
Closed block results of operations	14,033	16,618	18,200
Other comprehensive income:
Unrealized loss	(38,563)	–	–
Total closed block comprehensive income	$ (24,530)	$ 16,618	$ 18,200
Excess of reported closed block liabilities over closed
block assets:
Beginning of year	$312,922	$329,540	$347,740
Closed block comprehensive income	(24,530)	16,618	18,200
End of year	$ 337,452	$312,922	$329,540

Amortized cost of bonds held by the Closed Block at December 31, 2008 and 2007 were $2,439.1 million and $2,435.1 million, respectively.

Participating insurance in force within the Closed Block was $8.5 billion and $9.1 billion at December 31, 2008 and 2007, 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.

F-189

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 13 – CORPORATE STRUCTURE

On January 1, 1999, National Life converted from a mutual to a stock insurance Company as part of a reorganization into a mutual holding Company corporate structure.

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. 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. NLHC currently owns all the outstanding common stock class B shares of NLVF, a stock holding Company created for this purpose, which in turn currently owns all the outstanding shares of National Life. NLHC’s ownership of NLVF’s stock consists of 100 shares with par value of $0.01 per share. NLHC holds all of the NLVF stock currently outstanding. NLVF has a total of 1,001 shares authorized. NLHC currently has no assets, liabilities or operations other than that related to its ownership of NLVF's outstanding stock. NLVF has assets and operations primarily related to is suance of $275 million in senior notes and $21 million in debt related to trust preferred securities issued through a trust vehicle. See Note 8 for more information. Under the terms of the reorganization, NLHC must always hold a majority of the voting shares of NLVF.

This reorganization was approved by policyowners of National Life and was completed with the approval of the Commissioner of the Vermont Department of Banking, Insurance, Securities, and Health Care Administration (the “Commissioner”).

Under the provisions of the reorganization, National Life issued 2.5 million common stock $1 par shares to its parent, NLVF, as a transfer from retained earnings. There were no dividends paid or declared in 2004 by National Life, NLVF, or NLHC. In 2005, National Life dividended its ownership interests in SAMI and another subsidiary to NLVF. There have been no distributions to members of NLHC. 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. Statutory surplus was $792.2 million and $826.6 million at December 31, 2008 and 2007, respectively. Statutory net (loss) income was $(4.9) million and $64.9 million in 2008 and 2007, respectively.

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

NOTE 14 – PRESENT VALUE OF FUTURE PROFITS OF INSURANCE ACQUIRED

Interest accrued on present value of future profits of insurance acquired (“PVFP”) was $2.4 million, $2.8 million, and $3.1 million for the years ended December 31, 2008, 2007, and 2006, respectively. The Company holds 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. The first block accrues interest at 5.92%; the second accrues interest at 5.54%. Amortization of PVFP was $5.0 million, $6.2 million, and $8.2 million for the years ended December 31, 2008, 2007, and 2006, respectively.

F-190

NLV FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 14 – PRESENT VALUE OF FUTURE PROFITS OF INSURANCE ACQUIRED (continued)

Projected amortization of PVFP during the next five years is as follows (in thousands):

	Projected
Year	Amortization
2009	$6,400
2010	5,400
2011	4,800
2012	4,100
2013	3,600

Amortization is adjusted retrospectively for actual experience and when estimates of future profits are revised.

NOTE 15 – PARTICIPATING LIFE INSURANCE

Participating life insurance inforce was 49.3% and 52.0% of the face value of total insurance inforce at December 31, 2008 and 2007, respectively. The premiums on participating life insurance policies were 43.3%, 48.2%, and 53.0% of total individual life insurance premiums in 2008, 2007, and 2006, respectively.

NOTE 16 – Acquisitions and Divestitures

Sale of AG&T

On September 29, 2006, the Company sold its 95.73% interest in its consolidated subsidiary, AG&T. Prior to the sale, AG&T paid a dividend of $2.8 million to its shareholders. The portion received by the Company was eliminated upon consolidation. The Company recognized a realized gain of $8.1 million on the sale of its interest in AG&T. The results of operations of AG&T in all years presented are immaterial to the operations of the Company.

Sale of Lake Carlton Arms

The Company sold its 60% interest in Lake Carlton Arms (LCA) in late 2006, which resulted in a gain of $30.6 million and deconsolidation of the entity. LCA assets of $31.6 million, liabilities of $70.5 million, including a mortgage note of $67.5 million, and a partnership deficit of $38.9 million were deconsolidated upon the sale of the interest on October 29, 2006.

Acquisition of Citizens Funds

Effective April 4, 2008 Sentinel Asset Management (SAMI) entered into a reorganization of eight Citizens Funds with Citizens Advisers Inc., whereby SAMI purchased assets relating to Citizens Advisors, Inc. (“Citizens”) business of providing investment advisory and investment management services to the Citizens Balanced, Core Growth, Emerging Growth, Global Equity, Income, Money Market and Small Cap Core Growth Funds. The transaction included an exchange of assets of approximately $738 million and was recorded under the purchase method of accounting as outlined under FAS 141. The total cost of the transaction was $24.6 million and included a direct transaction cost component of $1.6 million and a purchase price component of $23.0 million. Under FAS 141 the cost of the transaction is considered to be the fair value of the exchange and no gain or loss was recognized. The cost of the transaction was capitalized by the Company as a combination of goodwill and other intangible assets, where by the goodwill and intangible assets at December 31, 2008 were $0.1 million and $24.5 million respectively.

F-191

Part C: OTHER INFORMATION
Item 26. Exhibits
(a)	Resolutions of the Board of Directors of National Life Insurance Company ("Depositor")
authorizing establishment of National Variable Life Insurance Account ("Registrant") (1)
(b)	Not applicable
(c)(1)	Form of Distribution Agreement between National Life Insurance Company and Equity Services,
	Inc (14)
(c)(2)	Form of Selling Agreement (14)
(d)(1)	Specimen VariTrak Policy Form (6)
(d)(2)	Rider for Guaranteed Insurability Options (6)
(d)(3)	Rider for Waiver of Monthly Deductions (6)
(d)(4)	Rider for Accidental Death Benefit (6)
(d)(5)	Rider for Guaranteed Death Benefit (6)
(d)(6)	Specimen VariTrak (NY) Policy Form (3)
(d)(7)	Specimen VariTrak (NY - Unisex) Policy Form (3)
(d)(8)	NY Rider for Guaranteed Insurability Options (3)
(d)(9)	NY Rider for Waiver of Monthly Deductions (3)
(d)(10)	NY Rider for Accidental Death Benefit (3)
(d)(11)	Form of Additional Protection Benefit Rider (8)
(d)(12)	Form of Long Term Care - Chronic Illness Rider (8)
(d)(13)	Form of Long Term Care Insurance Rider (10)
(d)(14)	No Lapse Guarantee Rider (9)
(d)(15)	Limited Power of Attorney(11)
(d)(16)	Endorsement to the Payment Options (14)
(d)(17)	Accelerated Benefits Rider for Terminal Illness (14)
(d)(18)	Accelerated Benefits Rider for Covered Chronic Illness (14)
(d)(19)	Endorsement to the Premium Allocation Provision (14)
(d)(20)	Endorsement to the Surrender Charges Provision (14)
(d)(21)	Overloan Protection Rider (16)
(d)(22)	Endorsement to Remove the Maturity at 99 Provision(17)
(d)(23)	No Lapse Guarantee Rider (Florida) (20)
(d)(24)	No Lapse Guarantee Rider (Maryland) (20)
(d)(25)	Rider for Waiver of Monthly Deductions (Pennsylvania) (20)
(e) (1)	VariTrak Application Form (14)
(e) (2)	VariTrak (NY) Application Form (3)
(e) (3)	9212 Life Insurance Application(17)
(f)(1)	National Life Insurance Company's Charter documents (14)
(f)(2)	National Life Insurance Company's By-laws (14)
(g)(1)	Reinsurance Agreement - National Life Insurance Company and xxx, effective September 1, 1997
	(12)
(g)(2)	Automatic and Facultative YRT Reinsurance Agreement - National Life Insurance Company and
	xxx, effective January 1, 2002 (11)
(g)(3)	Automatic Modified -Coinsurance (Mod-Co) Reinsurance and Service Agreement - National Life
	Insurance Company and xxx, effective December 31, 1998 (11)
(g)(4)	Automatic and Facultative Yearly Renewable Term Reinsurance Agreement - National Life
	Insurance Company and xxx, effective January 1, 2002 (11)
(g)(5)	Automatic Yearly Renewable Term Reinsurance Agreement - National Life Insurance Company
	and xxx, effective May 1, 1999 (11)
(g)(6)	Reinsurance Agreement - National Life Insurance Company and xxxx, effective April 1, 1993 (11)
(g)(7)	Reinsurance Agreement - National Life Insurance Company and xx, effective October 1, 1994 (11)
(g)(8)	Mod Co Reinsurance Agreement between National Life Insurance Company and xxx, as amended
	through September 1, 2002(17)
(g)(9)	Reinsurance Agreement between National Life Insurance Company and xxx, effective October 16,
	2001 (17)
(g)(10)	Reinsurance Agreement between National Life Insurance Company and xxx, effective as amended
	through June 1, 2002(17)
(g)(11)	Reinsurance Agreement between National Life Insurance Company and xxx, effective July 22,

	2002(17)
(g)(12)	Reinsurance Agreement between National Life Insurance Company and xxx, effective November 1,
	2005 (15)
(g)(13)	Reinsurance Agreement between National Life Insurance Company, Life Insurance Company of the
	Southwest and xxx, effective July 1, 2008
(g)(14)	Automatic YRT Reinsurance Agreement between National Life Insurance Company and xxx,
	effective September 1, 2008
(g)(15)	Automatic and Facultative YRT Reinsurance Agreement between National Life Insurance
	Company and xxx, effective December 1, 2008
(g)(16)	Automatic Self Administered YRT Reinsurance Agreement between National Life Insurance
	Company and xxx, effective July 1, 2006
(h)(1)	Form of Participation Agreement - Alger American Fund, National Life insurance Company and
	Fred Alger and Company (2)
	(a) Amendment No. 2 to Participation Agreement- Alger American Fund, National Life Insurance
	Company dated November 18, 1998 (18)
(h)(2)	Form of Shareholder Service Agreement between National Life Insurance Company and American
	Century Investment Management, Inc. (4)
	(a) Form of Amendment to Shareholder Services Agreement (12)
(h)(3)	Form of Participation Agreement between National Life Insurance Company and Neuberger &
	Berman Advisers Managers Trust (5)
	(a)Form of Amendment to Participation Agreement (12)
	(b) Amendment to Participation Agreement dated June 2, 2008 (22)
(h)(4)	Participation Agreement between National Life Insurance Company and The Dreyfus Socially
	Responsible Growth Fund, Inc. (7)
	(a)Form of Amendment to Participation Agreement (12)
	(b) Supplemental Agreement to the Participation Agreement entered into April 16, 2007 (17)
(h)(5)	Participation Agreement between Sentinel Variable Products Trust, National Life Insurance
	Company and Equity Services, Inc. (10)
(h)(6)	Form of Amended and Restated Participation Agreement among Variable Insurance Products
	Funds, Fidelity Distributors Corporation and National Life Insurance Company (12)
	(a)Amendment to Participation Agreement dated May 18, 2007 (18)
(h)(7)	Form of Participation Agreement - National Life Insurance Company, Franklin Templeton Variable
	Insurance Products Trust and Franklin Templeton Distributors, Inc. (12)
	(a) Amendment to Participation Agreement dated June 1, 2007 (19)
	(b) Amendment Number 2 dated October 30, 2008 to the Participation Agreement between National
	Life Insurance Company, Franklin Templeton Variable Insurance Products Trust and Franklin
	Templeton Distributors, Inc. (22)
(h)(8)	Form of Participation Agreement among T. Rowe Price Equity Services, Inc., T. Rowe Price
	Investment Services, Inc. and National Life Insurance Company (12)
	(a) 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 (22)
(h)(9)	Form of Participation Agreement - National Life Insurance Company, Scudder Variable Series II,
	Scudder Distributors, Inc. and Deutsche Investment Management Americas, Inc. (12)
	(a) Supplemental Agreement to the Participation Agreement entered into March 12, 2007 (17)
(h)(10)	Form of Participation Agreement - AIM Variable Insurance Funds, A I M Distributors, Inc.,
	National Life Insurance Company and Equity Services, Inc. (13)
(h)(11)	Form of Participation Agreement – Wells Fargo Variable Trust, Wells Fargo Funds Distributor,
	LLC and National Life Insurance Company (14)
(h)(12)	Participation agreement among National Life Insurance Company, Equity Services , Inc. and
	ALLIANCEBERNSTEIN L.P. AND ALLIANCEBERNSTEIN INVESTMENTS, INC. dated as of
	September 2, 2008 (22)
(h)(13)	Participation Agreement among National Life Insurance Company and Oppenheimer dated October
	November 11, 2008 (22)
(h)(14)	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 (22)
(h)(15)	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

(i)(1)	Administrative Services Agreement among National Life Insurance Co. and AIM Advisors, INC.
	dated April 30, 2004 (18)
(i)(2)	Service Agreement among National Life Insurance Co. and Fred Alger Management, Inc. as
	amended through June 1, 1997 (18)
(i)(3)	Shareholder Services Agreement as amended through May 19, 2004 among National Life Insurance
	Co. and American Century Investment Management (18)
(i)(5)	Administrative Services Agreement as amended through November 8, 2000 among National Life
	Insurance Co. and Dreyfus Corporation (18)
(i)(6)	Service Agreement among National Life Insurance Co. and Fidelity Investments Institutional
	Operations Company, Inc. dated April 1, 2000 (18)
(i)(7)	Sub- License Agreement among National Life Insurance Co. and Fidelity Distributors Corp.
	effective April 30, 2004 (18)
(i)(8)	Administrative Services Agreement among Franklin Templeton Services, LLC and National Life
	Insurance Co. dated May 1, 2004 (18)
	(b) Amendment Number 1 dated October 30, 2008 to the Administrative Services Agreement (22)
(i)(9)	Services Distribution Agreement as supplemented through May 1, 2004 among National Life
	Insurance Co. and T. Rowe Price Investment Services, Inc. (18)
(i)(10)	Service Agreement as amended through October 1, 2001 among National Life Insurance Co. and
	Neuberger Berman Management Inc. (18)
	(a) Amendment to Service Agreement dated June 2, 2008 among National Life Insurance Co. and
	Neuberger Berman Management Inc. (23)
(i)(11)	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.
(i)(12)	Services Agreement dated October 22, 2008 among National Life Insurance Co. and Deutsche
	Investment Management Americas Inc.
(i)(13)	Supplemental Payment Agreement between National Life Insurance Company, JPMorgan
	Investment Advisors Inc. and J.P. Morgan Investment Management Inc dated April 24, 2009
(j)(1)	Rule 22c-2 Agreement- National Life Insurance Company and Fred Alger & Company entered into
	April 16, 2007 (17)
(j)(2)	Rule 22c-2 Agreement among Aim Investment Services, Inc. and National Life Insurance Company
	entered into March 16, 2007(17)
(j)(3)	Rule 22c-2 Agreement among American Century Investment Services, Inc. and National Life
	Insurance Company entered into October 16, 2006(17)
(j)(4)	Rule 22c-2 Agreement among Fidelity Distributors Corporation and National Life Insurance
	Company effective October 16, 2007(17)
(j)(5)	Rule 22c-2 Agreement among Franklin Templeton Variable Insurance Products Trust and National
	Life Insurance Company entered into April 16, 2007(17)
(j)(6)	Rule 22c-2 Agreement among Neuberger Berman Family of Funds and National Life Insurance
	Company entered into October 1, 2006(17)
(j)(7)	Rule 22c-2 Agreement among T. Rowe Price Services, Inc. and National Life Insurance Company
	entered into April 16, 2007(17)
(j)(8)	Rule 22c-2 Agreement among Wells Fargo Advantage Funds and National Life Insurance Company
	entered into October 16, 2006(17)
(j)(9)	Data Sharing Agreement among SunGard Institutional Products Inc. and National Life Insurance
	Co. dated October 12, 2007 (19)
(j)(10)	Information Sharing agreement among Sentinel Variable Products Trust and National Life
	Insurance Company dated April 7, 2007
(j)(11)	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 (22)
(k)	Opinion and Consent of Counsel
(l)	Actuarial Opinion and Consent
(m)	Calculation
(n)(1)	Consent of PricewaterhouseCoopers LLP, Auditors
(n)(2)	Consent of Sutherland Asbill & Brennan LLP
(o)	Not applicable
(p)	Not applicable
(q)	Redeemability exemption: Memorandum describing issuance, transfer and redemption procedures

	(17)
(r)	(1) Powers of Attorney for David Coates, Deborah Ellinger, Bruce Lisman, V. Louise McCarren
	and Roger B. Porter (20)
	(2) Powers of Attorney for E. Miles Prentice (23)
(s)	Pledge And Security Agreement, dated as of January 1, 1999 made By NLV Financial Corporation
	And National Life Insurance Company. (23)
(t)	Keep Well Agreement, dated as of January 1, 1999 made By NLV Financial Corporation And
	National Life Insurance Company. (23)

(1)	Incorporated herein by reference to Pre-Effective Amendment No. 2 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (Sentinel Benefit Provider - File No. 333-
	67003) filed on February 11, 1999.
(2)	Incorporated herein by reference to Post-Effective Amendment No. 1 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed
	March 12, 1996.
(3)	Incorporated herein by reference to Post-Effective Amendment No. 2 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed April
	30, 1997.
(4)	Incorporated herein by reference to Post-Effective Amendment No. 2 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed April
	30, 1997.
(5)	Incorporated hereby by reference to nce 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.
(6)	Incorporated herein by reference to Post-Effective Amendment No. 4 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed
	February 26, 1999.
(7)	Incorporated herein by reference to Post-Effective Amendment No. 4 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (Sentinel Estate Provider - File No. 333-
	44723) May 1, 2001.
(8)	Incorporated herein by reference to Post-Effective Amendment No. 8 to Form S-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed May
	1, 2001.
(9)	Incorporated hereby by reference to Post Effective Amendment No. 10 to the Form N-6 Registration
	Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938) filed June
	28, 2002.
(10)	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.
(11)	Incorporated herein by reference to Post-Effective Amendment No. 14 to Form N-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed March
	1, 2004.
(12)	Incorporated herein by reference to Post-Effective Amendment No. 15 to Form N-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed April
	30, 2004.
(13)	Incorporated herein by reference to Post-Effective Amendment No. 17 to Form N-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak - File No. 33-91938) filed May
	2, 2005.
(14)	Incorporated herein by reference to Post-Effective Amendment No. 18 to For N-6 Registration
	Statement for National Variable Life Insurance Account (VariTrak- File No. 33-91938) filed May 1,
	2006.
(15)	Incorporated herein by reference to Post-Effective Amendment No. 11 to the Form N-6 Registration
	Statement for National Variable Life Insurance Account (Sentinel Estate. Provider-File No. 333-
	44723) filed May 1, 2006.
(16)	Incorporated herein by reference to the Post-Effective Amendment No. 19 to the Form N-6
	Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938)
	filed August 28, 2006.
(17)	Incorporated herein by reference to the Post-Effective Amendment No. 20 to the Form N-6
	Registration Statement for National Variable Life Insurance Account (Varitrak- File No. 33-91938)

	filed May 1, 2007.
(18)	Incorporated herein by reference to Post- Effective Amendment No. 14 to the Form N-6
	Registration Statement for National Variable Life Insurance Account (Sentinel Estate Provider File
	No. 333-44723) filed June 25, 2007.
(19)	Incorporated herein by reference to Post- Effective Amendment No. 15 to the Form N- 6
	Registration Statement for National Variable Life Insurance Account (Sentinel Estate Provider File
	No. 333-44723) filed May 1, 2008.
(20)	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.
(21)	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.
(22)	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.
(23)	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, 2009.

Item 27. Directors and Officers of the Depositor
Name and Principal Business Address*	Positions and Offices with Depositor
Thomas H. MacLeay	Chair (Director)
Mehran Assadi	Director, President & CEO
David Coates	Director
47 Coates Island
Colchester, VT 05446
Deborah G. Ellinger	Director
15 Koch Road, Suite J
Corte Madera, CA 94925
Bruce Lisman	Director
923 5th Avenue
New York, NY 10021
V. Louise McCarren	Director
5736 East Immigration Canyon
Salt Lake City, UT 84108
Roger B. Porter	Director
Center for Business & Government
Kennedy School of Government
Harvard University
79 John F. Kennedy St.
Cambridge, MA 02138
E. Miles Prentice	Director
Eaton & Van Winkle
3 Park Ave., 16th Floor
New York, NY 10016
Michele S. Gatto	Executive Vice President - Corporate Services, Chief
	People Officer & Chief Legal Officer
Edward J. Parry, III	Executive Vice President & Chief Financial Officer

Christian W. Thwaites	Executive Vice President
Vincent G. Vitiello	Executive Vice President & Chief Marketing Officer
Thomas H. Brownell	Senior Vice President & Chief Investment Officer
Gregory D. Woodworth	Senior Vice President & General Counsel
Gregory H. Doremus	Senior Vice President - New Business & Customer
	Services
Wade H. Mayo	Senior Vice President
Ruth B. Smith	Senior Vice President – Registered Product & Life Event
	Distribution
Allen N. Hansen	Senior Vice President
Richard Pedersen	Senior Vice President – Chief Information Officer
James K. McQueston	Secretary of the Corporation & Assistant General Counsel
Robert S. Burke	Assistant General Counsel
Robert E. Cotton	Vice President & Treasurer
Ann T. Dehner	Vice President - Marketing Operations
Matthew L. DeSantos	Vice President – Marketing & Business Development
Alfred J. Foice, Jr.	Vice President - Audit
Christopher L Graff	Vice President - Communications
Richard A. Horchler	Vice President – Career System
Joyce B. LaRosa	Vice President – Finance, Independent Distribution
Bennett E. Law	Vice President - Policy Forms and General Services
Carl J. Lutz	Vice President
Elizabeth H. MacGowan	Vice President – Product Development
Donald Messier	Vice President - Finance & Strategy, NL Financial Alliance
D. Russell Morgan	Chief Compliance Officer - Separate Accounts
Gail A. Prescott	Vice President - Contract Services
Louis D. Puglisi	Vice President - LEA Distribution
Craig A. Smith	Vice President & Chief Actuary
Peter M. Weinbaum	Vice President – Marketing Development
Gregory Rooney	Vice President & Controller
Alfred J. Warburton	Vice President – Corporate Tax
Robert J. Riggen	Chief Medical Officer
Carolyn P. Kittredge	Assistant Tax Officer
Barbara B. Fitch	Compliance Officer
Rhonda J. Miller	Assistant Secretary
Kelly Fournier	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 28. 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, a Texas 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, 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 29. 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 30. Principal Underwriter

	(a) Equity Services, Inc. (ESI) is also the principal underwriter for National Variable Annuity Account
II.
	(b) The following information is furnished with respect to the officers and directors of ESI:
	Name and Principal	Positions and Offices with ESI
	Business Address*
	Lance A. Reihl	President & Chief Executive Officer
	Stephen A. Englese	Senior Vice President
	James Clements	Vice President - Sales
	Isabelle Keiser	Vice President
	Heather L. Lyon	Vice President – ESI Operations
	Donald Messier	Vice President – Finance
	Gregory D. Teese	Vice President – Compliance & Chief
		Compliance Officer
	Ian A. McKenny	Counsel

Robert E. Cotton	Treasurer
James K. McQueston	Secretary
Rhonda J. Miller	Assistant Secretary
Kelly Fournier	Assistant Secretary
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
Registrant's last fiscal year by each principal underwriter:

Name of	Net Underwriting	Compensation on	Brokerage	Other Compensation
Principal	Discounts and	Redemption	Commissions*
Underwriter	Commissions*
Equity Services, Inc.	$3,209,692	$0	$3,209,692	$0

* The compensation includes commissions paid to ESI that relate to variable life insurance policies supported
by the Separate Account.

Item 31. 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 32. Management Services

All management contracts are discussed in Part A or Part B.

Item 33. Fee Representation

National Life Insurance Company hereby represents that the fees and charges deducted under the variable life
insurance policies described in the prospectus contained in this registration statement, in the aggregate are
reasonable in relationship 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 Life Insurance Account, certifies that it meets the requirements of Securities
Act Rule 485(b) for effectiveness of this registration statement and has duly caused this Post-Effective
Amendment No. 24 to be signed on its behalf by the undersigned thereunto duly authorized, in the City of
Montpelier and the State of Vermont, as of the 1st day of May, 2009.

	NATIONAL VARIABLE LIFE
	INSURANCE ACCOUNT (Registrant)
	By: NATIONAL LIFE INSURANCE COMPANY
Attest: /s/ James K. McQueston	By: /s/ Mehran Assadi
James K. McQueston	Mehran Assadi
Secretary	President and
	Chief Executive Officer
	NATIONAL LIFE INSURANCE COMPANY (Depositor)
Attest: /s/ James K. McQueston	By: /s/ Mehran Assadi
James K. McQueston	Mehran Assadi
Secretary	President and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 24 to the
Registration Statement has been signed below by the following persons in the capacities indicated on the date(s)
set forth below.

Signature	Title	Date
/s/ Mehran Assadi	President, Chief	May 1, 2009
Mehran Assadi	Executive Officer
	(Principle Executive Officer)
/s/Ed Parry	Senior Vice President- Finance	May 1, 2009
Ed Parry	(Principle Financial &
	Accounting Officer)
/s/ Thomas H. MacLeay
Thomas H. MacLeay	Director	May 1, 2009
Bruce Lisman*	Director	May 1, 2009
E. Miles Prentice, III*	Director	May 1, 2009
David R. Coates*	Director	May 1, 2009
V. Louise McCarren*	Director	May 1, 2009
Deborah Ellinger*	Director	May 1, 2009
Roger B. Porter*	Director	May 1, 2009
Harris Simmons**	Director	May 1, 2009

* Mehran Assadi signs this document pursuant to the power of attorney filed with the Initial Registration
Statement on form N-6 for National Variable Life Insurance Account (Investor Select File No. 333-51535) filed
June 9, 2008.
** Mehran Assadi signs this document pursuant to the power of attorney filed with Pre-Effective Registration
Statement No. 1 on form N-6 for National Variable Life Insurance Account (Investor Select File No. 333-
51535) filed December 23, 2008.

/s/ Mehran Assadi
Mehran Assadi

Exhibit Index
(g)(13)	Reinsurance Agreement between National Life Insurance Company, Life Insurance Company of the
	Southwest and xxx, effective July 1, 2008
(g)(14)	Automatic YRT Reinsurance Agreement between National Life Insurance Company and xxx,
	effective September 1, 2008
(g)(15)	Automatic and Facultative YRT Reinsurance Agreement between National Life Insurance
	Company and xxx, effective December 1, 2008
(g)(16)	Automatic Self Administered YRT Reinsurance Agreement between National Life Insurance
	Company and xxx, effective July 1, 2006
(h)(15)	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
(i)(12)	Services Agreement dated October 22, 2008 among National Life Insurance Co. and Deutsche
	Investment Management Americas Inc.
(i)(13)	Supplemental Payment Agreement between National Life Insurance Company, JPMorgan
	Investment Advisors Inc. and J.P. Morgan Investment Management Inc dated April 24, 2009
(j)(10)	Information Sharing agreement among Sentinel Variable Products Trust and National Life
	Insurance Company dated April 7, 2007
(k)	Opinion and Consent of Counsel
(l)	Actuarial Opinion and Consent
(m)	Calculation
(n)(1)	Consent of PricewaterhouseCoopers LLP, Auditors
(n)(2)	Consent of Sutherland Asbill & Brennan LLP

EX-1

	ADDENDUM 1 attaching to and forming a part of ACCIDENTAL DEATH CARVE OUT QUOTA SHARE REINSURANCE AGREEMENT
ISSUED TO:	NATIONAL LIFE INSURANCE COMPANY LIFE INSURANCE COMPANY OF THE SOUTHWEST (hereinafter called the "Company")
ISSUED BY:	XXXXXXXX XXX XXXX XXXXXXXXXX XXXXXX (hereinafter called the "Reinsurer")

     It is hereby mutually understood and agreed that, as respects Losses occurring during the 18-month term extending from July 1, 2008, 12:01 a.m. standard time, to January 1, 2010, 12:01 a.m. standard time, the second paragraph of the Coverage Article will be amended as follows:

     "The Reinsurer's limit of liability will not exceed $1,000,000 per person, regardless of the number of policies or riders covering such person issued by the Company plus appropriate reimbursement for Loss Expense. In addition to the foregoing, as respects the National Life employee plan, coverage hereunder will be limited to a maximum occurrence amount of $75,000,000 per building, plus appropriate reimbursement for Loss Expense."

     All other terms and conditions of the captioned Agreement will remain unchanged.

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives.

NATIONAL LIFE INSURANCE COMPANY

Signature:

Title:

Date:________________________

LIFE INSURANCE COMPANY OF THE SOUTHWEST

XXXXXXXX XXX XXXX XXXXXXXXXXX XXXXXXX

Signature:

Title:

Date:________________________

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ACCIDENTAL DEATH CARVE OUT QUOTA SHARE
REINSURANCE AGREEMENT
ARTICLE	PAGE
COVERAGE	2
TERM	3
SPECIAL TERMINATION	3
TERRITORY	4
EXCLUSIONS	5
DEFINITIONS	5
NET RETAINED LIABILITY	6
RATE AND PREMIUM	6
EXTRA CONTRACTUAL OBLIGATIONS	6
REPORTS AND REMITTANCES	7
RESERVES AND FUNDING	7
LOSS NOTICES AND SETTLEMENTS	7
OFFSET	8
DELAYS, ERRORS, OR OMISSIONS	8
ENTIRE AGREEMENT/AMENDMENTS	8
ACCESS TO RECORDS	8
INSOLVENCY	9
ARBITRATION	9
CONFIDENTIALITY	11
DAC TAX	13
GOVERNING LAW	14
TAXES	14
AGENCY	14
OFFICE OF FOREIGN ASSETS CONTROL	15
COUNTERPARTS	15
INTERMEDIARY	15
BROKERAGE	15

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ACCIDENTAL DEATH CARVE OUT QUOTA SHARE REINSURANCE AGREEMENT

     This Accidental Death Carve Out Quota Share Reinsurance Agreement (the "Agreement") is made and entered into by and between NATIONAL LIFE INSURANCE COMPANY, a Vermont corporation, and LIFE INSURANCE COMPANY OF THE SOUTHWEST, a Texas corporation (hereinafter called the "Company"), jointly for all purposes under this Agreement other than as provided for by the terms of the Insolvency Article, of the one part, and XXXXXXXX XXX XXXX XXXXXXXXXXX XXXXXXX (“Reinsurer”) on the other part.

     The parties hereto agree as hereinbelow, in consideration of the mutual covenants contained in the following Articles and upon the terms and conditions set forth therein:

COVERAGE

     The Company will cede to the Reinsurer, and the Reinsurer will accept, one hundred percent (100%) of the Accidental Death (as defined in the Definitions Article) contractual liability, up to a limit of $1,000,000 per person, arising out of and for all policies and riders combined, in excess of the Company's "Aggregate Retention" (as defined below), in respect to all business classified by the Company as of the inception date of the Agreement as:

ACCIDENTAL DEATH EXPOSURE			OF THE COMPANY'S
PORTFOLIO	OF	INDIVIDUAL	LIFE	INSURANCE,

INCLUDING ACCIDENTAL DEATH BENEFIT RIDERS. COVERAGE INCLUDES ALL ACTS OF TERRORISM, INCLUDING THOSE OF A NUCLEAR, CHEMICAL OR BIOLOGICAL ORIGIN.

     The Reinsurer's limit of liability will not exceed $1,000,000 per person, regardless of the number of policies or riders covering such person issued by the Company plus appropriate reimbursement for Loss Expense.

     The coverage under this Agreement will be for Loss in excess of the Company's Aggregate Retention. The Aggregate Retention will initially equal $13,500,000. Within 90 days following expiration of this Agreement, the Company will adjust the Aggregate Retention to equal the greater of i) an amount of Loss equal to $0.___ per $1,000 of the Mean In-Force Net Retained Volume for the Agreement term, or ii) $13,500,000, and will advise the Reinsurer of the resulting Aggregate Retention amount. In the event Reinsurers have paid Loss(es) to the Company and the resulting Aggregate Retention amount is greater than the initial Aggregate Retention, the Company will return to the Reinsurers the amount of Loss(es) paid that exceed the initial $13,500,000 Aggregate Retention, up to the amount of the resulting Aggregate Retention.

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     All reinsurance for which the Reinsurer will be obligated by virtue of this Agreement will be subject to the same terms, rates, conditions, interpretations, waivers, modifications, and alterations as the respective policies of the Company to which this Agreement applies, but subject always to the terms and conditions of this Agreement. Nothing herein will in any manner create any obligations or establish any rights against the Reinsurer in favor of any third parties or any persons not parties to this Agreement except as provided in the Insolvency Article.

TERM

     This Agreement will apply to all Losses occurring during the 18-month term extending from July 1, 2008 12:01 a.m. standard time (as set forth in the Company's policies) to January 1, 2010 12:01 a.m. standard time.

     Notwithstanding the expiration of this Agreement as hereinabove provided, the provisions of this Agreement will continue to apply to all obligations and liabilities of the parties incurred hereunder to the end that all such obligations and liabilities will be fully performed and discharged.

SPECIAL TERMINATION

     The Company may terminate the Reinsurer's participation hereon at any time on a cut-off basis by giving 30 days prior written notice to said Reinsurer upon the happening of any one of the following circumstances:

A.	The Reinsurer ceases assuming new and renewal accidental death treaty reinsurance;
B.	A state insurance department or other legal authority orders the Reinsurer to cease writing business;
C.	The Reinsurer has become insolvent or has been placed into liquidation or receivership (whether voluntary or involuntary), or there has been instituted against it proceedings for the appointment of a receiver, liquidator, rehabilitator, conservator, or trustee in bankruptcy, or other agent known by whatever name, to take possession of its assets or control of its operations;
D.	The Reinsurer's "Authorized Control Level RBC" (as defined in sections 375.1250 to 375.12745 R.S.Mo), falls below two hundred percent (200%, the "RBC Threshold") and it is not cured as follows. Reinsurer will calculate the RBC value each calendar quarter and notify the Company in writing within five (5) days if the value drops below the RBC Threshold.
	Reinsurer will have forty-five (45) days from the date of the notice, to take

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	such actions as it deems, in its exclusive judgment, warranted to raise the RBC Ratio above the RBC Threshold, all in accordance with the pertinent RBC regulatory provisions;
E.	The Company is unable to take credit for the reinsurance in its state of domicile;
F.	The Reinsurer has reinsured its entire liability under this Agreement without the Company's prior written consent.

     If said Reinsurer's participation is so terminated, the Company will adjust the Minimum Deposit Premium paid to the Reinsurer as of the date of termination against a rate of $0.___ per $1,000 of the Company's "pro-rata net volume" as of the date of termination and any additional premium determined to be due by reason of the adjustment will be paid. For purposes of this Article, "pro-rata Mean In-Force Net Retained Volume" will be the Mean In-Force Net Retained Volume multiplied by (the number of days the Agreement is in force divided by 547.5).

     Additionally, if said Reinsurer's participation is terminated pursuant to subparagraphs A. through F. above, then the Company, at its sole discretion, may elect to commute the Reinsurer's liability for Losses, including Loss Expense, whether known or unknown, on policies covered under this Agreement. In the event the Company and the Reinsurer cannot agree upon the capitalized value of the Reinsurer's liability on such policies, the two parties will mutually appoint an actuary, not under the control of either party, within 30 days to resolve the matter of valuation. The parties will share equally in any expense associated with such appointment in a manner agreed upon at the time of appointment. The value determined by said actuary will be set forth in a sworn statement expressing the actuary's professional opinion that said value is fair for the complete release of all liabilities being commuted. Payment by the Reinsurer of the amount of liability ascertained wil l constitute a complete and final release of the Reinsurer with respect to its liability for all Losses, including Loss Expense, whether known or unknown, on policies covered under this Agreement.

     If the inclusion of any provision in this Article causes a state insurance commissioner or other legal authority to prohibit the Company from taking credit for reinsurance ceded under this Agreement, then that provision will be considered void.

TERRITORY

The territorial scope of this Agreement will follow that of the Company's policies.

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EXCLUSIONS

     The exclusions applicable to this Agreement will follow the exclusions in the Company's policies. Additionally, this Agreement does not apply to and specifically excludes Extra Contractual Obligations except as set forth in the Extra Contractual Obligations Article.

DEFINITIONS

     The following terms, wherever used in this Agreement, will have the meanings set forth herein, and will be deemed to refer to the singular, plural, or otherwise inflected forms of such terms, as the context requires:

A.	"Accidental Death" will mean any death due to an accident occurrence,
	homicide, act of terrorism (including those of a nuclear, chemical or
	biological origin), or suicide which qualifies for benefits under a policy
	reinsured hereunder. A determination of what constitutes an "Accidental
	Death" under a specific policy or rider will be determined by the Company
	on a case by case basis given due consideration to the terms and
	conditions of the policy or rider, the applicable State or Federal law and
	the specific unique facts and circumstances of each claim of which the
	manner of death listed on the death certificate is only one such fact or
	circumstance. In the absence of fraud or bad faith by the Company, such a
	determination will be binding upon the Reinsurer.
B.	"Loss" will mean the amount of any benefit, interest, settlement, award, or
	judgment paid by the Company or for which the Company has become
	liable to pay arising from an Accidental Death, exclusive of any extra
	contractual obligations. All recoveries and subrogations, which are
	actually recovered, and inuring to reinsurance whether recovered or not,
	will be deducted from the amount of Loss. Loss will not include Loss
	Expense.
C.	"Loss Expense" will mean all expenses incurred by the Company in the
	investigation, appraisal, adjustment, litigation and/or defense of claims
	under policies reinsured hereunder, including court costs, interest accrued
	prior to and after final judgment, but excluding internal office expenses,
	salaries, per diem, and other remuneration of regular Company employees.
	The Reinsurer will pay its pro rata share of all such Loss Expense,
	including a pro rata share of Loss Expense in addition to their limit of
	liability under this Agreement as set forth in the Coverage Article, and the
	Reinsurer will benefit pro rata in all subrogations, discounts and other
	recoveries.
D.	"Mean In-Force Net Retained Volume" will be derived by application of
	the following formula: (net in-force volume as of the effective date of this

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	Agreement) + (net in-force volume as of the date of Agreement expiration or termination)/2.
E.	"Policies" will mean all policies, binders, riders, contracts, or agreements of insurance, whether written or oral.

NET RETAINED LIABILITY

     This Agreement will apply only to that portion of any insurance or reinsurance that the Company retains net for its own account, and such portion will be used in calculating the amount of any Loss hereunder as well as the amount in excess of which this Agreement attaches; however, recovery from any underlying reinsurance will inure to the sole benefit of the Company and will be disregarded for the purposes of this Agreement. The amount of the Reinsurer's liability hereunder with respect to any Loss will not be increased by the inability of the Company to collect from any other reinsurers any amounts that may have become due from them, whether such inability arises from the insolvency of such reinsurers or otherwise.

RATE AND PREMIUM

     The Company will pay, as a condition for coverage, the following reinsurance premium. A "Minimum Deposit Premium" of $___,___ will be payable in six equal installments of $__,___.__, in advance, on July 1, 2008, October 1, 2008, January 1, 2009, April 1, 2009, July 1, 2009, and October 1, 2009. Within 90 days following Agreement expiration, the Company will compute and report to the Reinsurer a "Final Premium" which will be based upon calculating the Mean In-Force Net Retained Volume at a rate of $0.___ per $1,000 of Net Volume. If the Final Premium exceeds the amount of the Minimum Deposit Premium, the Company will pay the difference at the time it makes the report to the Reinsurer.

EXTRA CONTRACTUAL OBLIGATIONS

     In no event will the Reinsurer have any liability for any punitive, exemplary, extra contractual or similar damages, fines or penalties which are assessed against the Company as a result of acts, omissions or course of conduct committed by the Company. The parties recognize that circumstances may arise in which the Reinsurer's conduct would require, based upon equitable principals of law, the Reinsurer to share proportionately in punitive and compensatory damages awarded, to the extent permitted by law. The parties agree that for this to occur, the Reinsurer must have been a direct, active, decision making participant in the conduct that gives rise to the extra-contractual

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liability and that the intervention is to such an extent that it equitably should be considered when extra-contractual liabilities are apportioned.

A.	For purposes of this Article, the following are examples of where the Reinsurer's conduct will give rise to such a responsibility: a) it has actively taken control of the litigation and is directing the Company's action; b) it is attempting to compel acceptance of its direction by a specific written threat of withholding payment of reinsurance proceeds.
B.	The parties agree that the decision to participate in a Contest is not a sufficiently direct, active, decision making role so as to give rise to extra- contractual damages nor is the provision of advice concerning a claim that was solicited by the Company.

REPORTS AND REMITTANCES

     Within 90 days following Agreement expiration, the premium due the Reinsurer will be balanced against the Minimum Deposit Premium set forth in the Rate and Premium Article, and any balance shown to be due the Reinsurer will be paid. In addition, the Company will furnish the Reinsurer with information as may be required by the Reinsurer for completion of its NAIC interim and/or annual statements.

RESERVES AND FUNDING

     To the extent that the Company would be denied credit for reinsurance ceded hereunder to the Reinsurer pursuant to Vermont Insurance Regulation 97-3 and Title 21, Part 1, Chapter 7, Subchapter F, Rule Sections 7.601 through 7.614 of the Texas Administrative Code, the Reinsurer agrees to provide funding, and otherwise take actions necessary, as may be required under the Code of Vermont Rules or the Texas Administrative Code, in form and amount satisfactory to the Vermont Insurance Division and the Texas Department of Insurance, in order to allow the Company to realize full credit for the reinsurance ceded hereunder.

LOSS NOTICES AND SETTLEMENTS

     The Company will advise the Reinsurer promptly of all Losses that, in the opinion of the Company, may involve the Reinsurer under this Agreement and of all subsequent developments pertaining thereto that may materially affect the Reinsurer as well. Inadvertent omission in dispatching the aforementioned notices will in no way affect the obligation of the Reinsurer under this Agreement, provided the Company informs the Reinsurer of such omission promptly upon discovery.

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     The Company will have the right to settle all claims under its policies. The settlements, provided they are within the terms of this Agreement, will be unconditionally binding on the Reinsurer in proportion to its participation in this Agreement. When so requested, however, the Company will afford the Reinsurer, at the Reinsurer's own expense, an opportunity to be associated with the Company in the defense of any claim, suit, or proceeding involving this Agreement, and the Company and the Reinsurer will cooperate in every respect in such defense. Amounts due the Company hereunder in the settlement of Loss will be payable by the Reinsurer immediately upon being furnished by the Company with reasonable evidence of the amount paid or to be paid.

OFFSET

     The Company and the Reinsurer may offset any balance or amount due from one party to the other under this Agreement or any other reinsurance agreement entered into between them.

DELAYS, ERRORS, OR OMISSIONS

     Any inadvertent delay, error, or omission will not be held to relieve either party hereto from any liability that would attach to it hereunder if such delay, error, or omission had not been made, provided any error or omission is be rectified upon discovery.

ENTIRE AGREEMENT/AMENDMENTS

     This Agreement constitutes the entire agreement between the parties with respect to the business being reinsured hereunder and there are no understandings between the parties other than as expressed in the Agreement. Any change or modification to the Agreement will be null and void unless made by written amendment to this Agreement and signed by both parties hereto.

ACCESS TO RECORDS

     Provided the Company received prior notice, the Reinsurer or its designated representatives will have the right to inspect at any reasonable time, all records of the Company that pertain in any way to this Agreement.

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INSOLVENCY

(This Article will apply severally to each reinsured company referenced within the definition of "Company" in the Preamble to this Agreement. Further, this Article and the laws of the domiciliary state will apply in the event of the insolvency of any company intended to be covered hereunder. In the event of a conflict between any provision of this Article and the laws of the domiciliary state of any company intended to be covered hereunder, that domiciliary state's laws will prevail.)

     In the event of the Company's insolvency, the reinsurance afforded by this Agreement will be payable by the Reinsurer on the basis of the Company's liability under the policies reinsured without diminution because of the Company's insolvency or because its liquidator, receiver, conservator, or statutory successor has failed to pay all or a portion of any claims, subject however to the right of the Reinsurer to offset against such funds due hereunder, any sums that may be payable to them by said insolvent Company in accordance with applicable law. The reinsurance will be payable by the Reinsurer directly to the Company, or to its liquidator, receiver, conservator, or statutory successor except (a) where this Agreement specifically provides another payee of such reinsurance in the event of the Company's insolvency or (b) where the Reinsurer, with the consent of the direct insured or insureds, has assumed such policy obligations of the Company as direct obligations of itself to the payees under such policies in substitution for the Company's obligation to such payees.

     The Company's liquidator, receiver, conservator, or statutory successor will give written notice of the pendency of a claim against the Company under the policies reinsured within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of such claim, the Reinsurer may investigate said claim and interpose in the proceeding where the claim is to be adjudicated, at its own expense, any defense that it may deem available to the Company, or to its liquidator, receiver, conservator, or statutory successor. The expense thus incurred by the Reinsurer will be chargeable against the Company, subject to court approval, as part of the expense of conservation or liquidation to the extent that such proportionate share of the benefit will accrue to the Company solely as a result of the defense undertaken by the Reinsurer.

ARBITRATION

     As a condition precedent to any right of action under this Agreement, any dispute (whether during the currency of this Agreement or after expiration or termination of this Agreement) between the Company and any Reinsurer arising out of or in connection with this Agreement, including its formation or actual validity, will be submitted to the decision of a board of arbitration (hereinafter called the "board") composed of two arbitrators and an umpire meeting at a site in Montpelier, Vermont unless some other site is mutually agreed by the parties. Each member of the board will be disinterested in the outcome of the arbitration, and will be an active or former official or experienced

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individual who has operated in the United States life insurance or life reinsurance
industry.

To the extent not otherwise mutually agreed or provided for in this Article, the
procedures and rules applicable to arbitration under the laws of Vermont, as from time to
time set forth, will govern the procedures of the arbitration. All time limitations stated in
this Article may be amended by mutual consent of the parties, and will be amended
automatically to the extent made necessary by any circumstances beyond the control of
the parties.

All notices in connection with the arbitration will be in writing and sent certified
or registered mail, return receipt requested. The claimant's notice demanding arbitration
will reference this Article, will state in particulars all issues to be resolved in its view, and
will name the arbitrator appointed by it. Within 30 days of receipt of the claimant's
notice, the respondent will notify the claimant of any additional issues to be resolved in
the arbitration and of the name of its appointed arbitrator.

If the respondent fails to appoint its arbitrator within 30 days after having
received the claimant's notice demanding arbitration, the claimant is authorized to and
will appoint the second arbitrator and will notify the respondent of the name of the
arbitrator appointed for it. The two arbitrators will appoint an umpire before instituting
the hearing. If the two arbitrators fail to agree upon the appointment of an umpire within
30 days after notification of the appointment of the second arbitrator, within 10 days
thereafter the claimant will petition the United States District Court having geographical
jurisdiction over the site of arbitration to appoint the umpire (or if the federal court
declines to act, the state court having general jurisdiction in such area); the selection of
the umpire will be within the exercise of sound discretion by the court. The board will
notify the claimant and the respondent of the umpire's identity within 10 days of the
umpire's appointment.

The arbitration hearing will commence within 60 days of the appointment of the
umpire. Within 30 days of the date of notice of appointment of the umpire, the claimant
and respondent each will submit initial briefs to the board outlining the issues in dispute
and the basis and reasons for their respective positions. Within 10 days after filing of the
initial briefs the claimant and the respondent may submit reply briefs. Initial and reply
briefs may be amended by the submitting party at any time, but not later than 10 days
prior to the date of commencement of the arbitration hearing. Reasonable responses will
be allowed at the hearing to new material contained in any amendments filed to the briefs
but not addressed previously.

Subject to customary and recognized legal rules of privilege, each party will have
the obligation to produce as witnesses to the arbitration such of its employees or those of
its affiliates as the other party may request, and any documents that the other party may
request, providing always that those witnesses and documents be relevant to the issues
before the arbitration and provided further that the parties may mutually agree as to
further discovery prior to the arbitration. The board may, at its discretion, request and

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consider underwriting and placement information provided by the Company to the Reinsurer, as well as any correspondence exchanged by the parties that is related to this Agreement. The umpire will be the final judge of rules of privilege and relevancy of any witnesses and documents, if there is any disagreement by the parties.

     The board will conduct the hearing and make its award with regard to the terms expressed in this Agreement, the original intentions of the parties to the extent reasonably ascertainable, and the custom and usage of the life and accident and health insurance and reinsurance business. At the hearing, evidence will be allowed but the formal rules of evidence will not apply; cross examination and rebuttal will be allowed. Within 20 days of the close of the hearing, at their own election or at the request of the board, the claimant and the respondent may submit post-hearing briefs to be considered by the board before making its decision.

     The board will make its award within 30 days following the close of the hearing or the submission of post-hearing briefs, whichever is later. The decision by the majority of the members of the board will be in writing and will be final and binding upon the parties. The board is empowered to grant interim relief as it may deem appropriate. Either the claimant or the respondent may apply to any court having jurisdiction for an order confirming the award; a judgment of such court will thereupon be entered on the award.

     The claimant and the respondent will each bear the expense of the arbitrator appointed by or for it and will jointly and equally bear the expense of the umpire and any stenographer requested. The remaining costs of the arbitration proceedings will be allocated by the board.

CONFIDENTIALITY

A.	Company and Reinsurer agree that neither party will disclose nor use
	"Proprietary Information" or "Non-public Information" (collectively
	"Information") provided under this Agreement in any way except for the
	purposes for which the information was provided.
	1.	"Proprietary Information" means any tangible or intangible
		proprietary or confidential information, materials or trade secrets
		belonging to the disclosing party or its affiliates (whether disclosed
		orally, in writing, in electronic format or otherwise), including, but
		not limited to the disclosing party's: computer systems; processes,
		methods and techniques; equipment; data; reports; know-how;
		existing and proposed contracts with third parties; business plans,
		including information concerning the existence and scope of
		activities of any research, development, marketing or other projects
		of the disclosing party, which are furnished, disclosed, learned or
		otherwise acquired by the recipient during or in the course of

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discussions preceding the business relationship between the parties
memorialized by this Agreement.

2. "Non-public Information" means personally-identifiable financial
and/or health information (whether disclosed orally, in writing, in
electronic format or otherwise) that (i) is provided by a consumer
to either party or its affiliates, (ii) results from a transaction with or
service performed for the customer by either party or its affiliates,
or (iii) is otherwise obtained by either party or its affiliates from
sources other than those that are generally publicly available.

B. Security Measures. Company and Reinsurer also mutually agree that each
party will implement information security measures to ensure that it and
any third party used by it will protect the Information. Company and
Reinsurer further mutually agree that such security measures will meet or
exceed accepted industry standards for businesses of similar size within
the insurance and reinsurance industry.

C. Non-Public Information. Reinsurer acknowledges that it may be provided
with access to Non-public Information concerning the Company's
customers and, to the extent that such information (i) identifies the
individual customer as a customer of the Company, (ii) was obtained by
Reinsurer while acting in its capacity as reinsurer of the Company or (iii)
was obtained by Company during the administration or underwriting of
the customer's insurance policy and/or annuity contract, the Non-public
Information will be and remain the property of the Company. Further, the
Reinsurer will not disclose to any person outside its organization, Non-
Public Information of the disclosing party, unless such disclosure is
required in performance of any services, such as the disclosure to the
"MIB", retrocessionaires, auditors, etc., contemplated under the
Agreement or as otherwise required or permitted by applicable law.

D. Proprietary Information. Company and Reinsurer will hold Proprietary
Information in confidence and will not use or exploit such Information for
its own benefit or the benefit of another without the prior written consent
of the disclosing party. Recipient may, in the performance of services
under the Agreement, disclose Proprietary Information to either affiliated
or non-affiliated third parties who have a need to know the Proprietary
Information, provided such persons are informed of and agree in writing to
comply with the confidentiality obligations of this Agreement.

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Limitation on Obligations

The obligations of the recipient specified above will not apply to any
Proprietary Information to the extent that such Information:

1. is known by or in the possession of the recipient prior to disclosure
in accordance with this Agreement, provided that, the Information
is not known by the recipient to be subject to another
confidentiality agreement with the disclosing party or other
obligations of confidentiality to the disclosing party;

2. is generally known to the public at the time of disclosure or
becomes generally known through no wrongful act on the part of
the recipient or any of its representatives, including breach of this
Agreement;

3. becomes known to the recipient through disclosure by sources
other than the disclosing party having the legal right to disclose
such Information;

4. has been independently developed by the recipient without
reference to or use of the Information;

5. is required to be disclosed by the recipient to comply with a court
order or other legal or regulatory process, provided that the
recipient provides prior written notice of such disclosure to the
disclosing party and takes commercially reasonable and lawful
actions to avoid and/or minimize the extent of such disclosure.
Except as specifically set forth above, the receiving party's
obligation to protect the disclosing party's Information will
continue in perpetuity;

E. Violation of Law. Notwithstanding the foregoing, neither party will
disclose Information to any other party if such disclosure would violate
applicable Federal or State Privacy Regulations or Statutes.

F. Breach. If there is a breach of terms contained in this Article, either Party
will give notice to the other of the breach in writing and an opportunity to
cure such breach within fifteen (15) days of receipt of such notice.

DAC TAX

A.      The Company and the Reinsurer elect under Regulation 1.848-2(g) (8) to compute "specified policy acquisition expense", as defined in section 848(c) of the Internal Revenue Code, in the following manner:

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B. The party with net positive consideration as determined under Reg. 1.848-
2(f) and Reg. 1848-3 will compute specified policy acquisition expenses
without regard to the general deductions limitations of section 848(c)(1)
for each taxable year.

C. The parties will exchange information pertaining to the aggregate amount
of net consideration as determined under Reg 1.848-2(f) and 1.848-3, for
all reinsurance agreements in force between them, to insure consistency
for the purposes of computing specified policy acquisition expenses. The
Reinsurer will provide the Companies with the amount of such
consideration for each taxable year no later than May 1 following the end
of such year. Each of the Companies respectively, will advise the
Reinsurer if it disagrees with the amounts provided, and the parties agree
to amicably resolve any difference. The amounts provided by the
Reinsurer will be presumed to be correct if it does not receive a response
from each of the Companies by May 31.

D. The Reinsurer represents and warrants that it is subject to U.S. taxation
under Subchapter L of the Internal Revenue Code

GOVERNING LAW

     This Agreement will be governed by and construed according to the laws of Vermont, except as to rules regarding credit for reinsurance in which case the rules of all applicable states will pertain thereto.

TAXES

     The Company will pay all state taxes on direct insurance reported to the Reinsurer on this Agreement.

AGENCY

     For purposes of sending and receiving notices and payments required by this Agreement, the reinsured company that is set forth first in the definition of "Company" in the Preamble to this Agreement will be deemed the agent of all other reinsured companies referenced in the Preamble. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.

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OFFICE OF FOREIGN ASSETS CONTROL

The Company represents that it is, and will use its best efforts to continue to be, in
compliance with all laws, regulations, judicial and administrative orders applicable to the
business reinsured under this Agreement (collectively referred to herein as "laws"),
including, but not limited to, sanctions laws administered by the U.S. Treasury
Department's Office of Foreign Assets Control ("OFAC"), as such laws may be amended
from time to time. Neither the Company nor the Reinsurer will be required to take any
action under this Agreement that would result in either being in violation of said laws,
including, but not limited to, making any payments in violation of the law. Should either
party discover that a reinsurance payment has been made in violation of the law, it will
notify the other party and the parties will cooperate in order to take all necessary
corrective actions, including, but not limited to, the return of the payment to the
Reinsurer, unless prohibited by law.

COUNTERPARTS

This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, but all of which taken together constitute one and the same
instrument.

INTERMEDIARY

Aon Re Inc., an Illinois corporation, or one of its affiliated corporations duly
licensed as a reinsurance intermediary, is hereby recognized as the reinsurance
intermediary broker under this Agreement. All communications (including but not
limited to notices, statements, premiums, return premiums, commissions, taxes, Losses,
subrogations, and Loss settlements) relating to this Agreement will be transmitted to the
Company or the Reinsurer through the Intermediary. Payments by the Company to the
Intermediary will be deemed payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary will be deemed payment to the Company only to the extent that such
payments are actually received by the Company.

BROKERAGE

The Intermediary will be entitled to withhold brokerage in the amount of 10% of
the reinsurance premium paid by the Company to the Reinsurer under the term of this
Agreement. As an administrative convenience, the Reinsurer will allow Aon Re Inc. to
withhold the brokerage from amounts paid by the Company.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives.

NATIONAL LIFE INSURANCE COMPANY

Signature:

Title:

Date:________________________

LIFE INSURANCE COMPANY OF THE SOUTHWEST

Signature:

Title:

Date:________________________

XXXXXXXX XXX XXXX XXXXXXXXXX XXXXXX

Signature:

Title:

Date:________________________

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EX-2

xxxxxxxxxxxxxxx

Automatic YRT Reinsurance Agreement Effective December 1, 2008 With Facultative YRT Reinsurance Effective September 1, 2008

between

National Life Insurance Company Montpelier, Vermont

(hereinafter referred to as the “Ceding Company”)

and

xxxxxx

(hereinafter referred to as “XXXX”

Table of Contents
		Page
ARTICLE 1 - PREAMBLE			1
1.1	PARTIES TO THE AGREEMENT		1
1.2	COMPLIANCE		1
1.3	CONSTRUCTION		1
1.4	ENTIRE AGREEMENT		1
1.5	SEVERABILITY		1
ARTICLE 2 - AUTOMATIC REINSURANCE			2
2.1	GENERAL CONDITIONS		2
2.2	NEW BUSINESS		2
2.3	RETAINED AMOUNTS		2
2.4	UNDERWRITING STANDARDS		2
ARTICLE 3 - FACULTATIVE REINSURANCE			3
ARTICLE 4 - COMMENCEMENT OF LIABILITY			4
4.1	AUTOMATIC REINSURANCE		4
4.2	FACULTATIVE REINSURANCE		4
4.3	CONDITIONAL RECEIPT OR TEMPORARY INSURANCE		4
ARTICLE 5 - REINSURED RISK AMOUNT			5
5.1	LIFE		5
ARTICLE 6 - PREMIUM ACCOUNTING			6
6.1	PREMIUMS		6
6.2	PAYMENT OF PREMIUMS		6
6.3	DELAYED PAYMENT		6
6.4	FAILURE TO PAY PREMIUMS		6
6.5	PREMIUM RATE GUARANTEE		7
ARTICLE 7 - REDUCTIONS, TERMINATIONS AND CHANGES			8
7.1	REDUCTIONS AND TERMINATIONS		8
7.2	INCREASES		8
7.3	RISK CLASSIFICATION CHANGES		9
7.4	REINSTATEMENT		9
7.5	NONFORFEITURE BENEFITS		9
ARTICLE 8 - CONVERSIONS, EXCHANGES, AND REPLACEMENTS			10
8.1	CONVERSIONS		10
8.2	EXCHANGES AND REPLACEMENTS		10
ARTICLE 9 - CLAIMS			11
9.1	NOTICE		11
9.2	PROOFS		11
9.3	CLAIMS MANAGEMENT STANDARDS		11
9.4	AMOUNT AND PAYMENT OF REINSURANCE BENEFITS		11
9.5	CONTESTABLE CLAIMS		12

9.6	CLAIM EXPENSES	12
9.7	MISREPRESENTATION OR SUICIDE	12
9.8	MISSTATEMENT OF AGE OR SEX	13
9.9	EXTRA-CONTRACTUAL DAMAGES	13
ARTICLE 10 - CREDIT FOR RESERVES		14
10.1	RESERVE METHODOLOGY AND REPORTING	14
ARTICLE 11 - RETENTION LIMIT CHANGES		15
ARTICLE 12 - RECAPTURE		16
ARTICLE 13 - GENERAL PROVISIONS		17
13.1	CURRENCY	17
13.3	MINIMUM CESSION	17
13.4	INSPECTION OF RECORDS	17
13.5	FORMS, MANUALS & ISSUE RULES	17
13.6	INTEREST RATE	17
13.7	OTHER	17
ARTICLE 14 - DAC TAX		18
ARTICLE 15 - OFFSET		19
ARTICLE 16 - INSOLVENCY		20
16.1	INSOLVENCY OF A PARTY TO THIS AGREEMENT	20
16.2	INSOLVENCY OF THE CEDING COMPANY	20
16.3	INSOLVENCY OF XXXX	21
ARTICLE 17 - ERRORS AND OMISSIONS		22
ARTICLE 18 - DISPUTE RESOLUTION		23
ARTICLE 19 - ARBITRATION		24
ARTICLE 20 - CONFIDENTIALITY		26
ARTICLE 21 - DURATION OF AGREEMENT		29
ARTICLE 22 - EXECUTION		30

Exhibits

A	- Retention Limits of the Ceding Company
B	- Plans Covered and Binding Limits
C	- Forms, Manuals, and Issue Rules
D	- Allocation Rules for Placement of Facultative Cases
E	- Reinsurance Premiums
F	- Conversion Premiums
G	- Self-Administered Reporting
H	- List of Risks Reinsured
I	- List of Amendments
J	- In-Force Summary
K	- Application for Facultative Reinsurance Form

Article 1 - PREAMBLE

1.1 Parties to the Agreement
This is a YRT agreement for indemnity reinsurance (the “Agreement”) solely between
National Life Insurance Company of Montpelier, Vermont (the “Ceding Company”), and
xxxxxxxxx (“XXXX”), collectively referred to as the “parties”.

The acceptance of risks under this Agreement will create no right or legal relationship
between XXXX and the insured, owner or beneficiary of any insurance policy or other
contract of the Ceding Company.

The Agreement will be binding upon the Ceding Company and XXXX and their
respective successors and assigns.

1.2 Compliance
This Agreement applies only to the issuance of insurance by the Ceding Company in a
jurisdiction in which it is properly licensed.

The Ceding Company represents that, to the best of its knowledge, it is in compliance
with all state and federal laws applicable to the business reinsured under this
Agreement. In the event the Ceding Company is found to be in non-compliance with any
law material to this Agreement, the Agreement will remain in effect and the Ceding
Company will indemnify XXXX for any direct loss XXXX suffers as a result of the non-
compliance, and will seek to remedy the non-compliance.

1.3 Construction
This Agreement will be construed in accordance with the laws of the state of Vermont.

1.4 Entire Agreement
This Agreement constitutes the entire agreement between the parties with respect to the
business reinsured hereunder. There are no understandings between the parties other
than as expressed in this Agreement. Any change or modification to this Agreement will
be null and void unless made by amendment to this Agreement and signed by both
parties.

1.5 Severability
If any provision of this Agreement is determined to be invalid or unenforceable, such
determination will not impair or affect the validity or the enforceability of the remaining
provisions of this Agreement.

1

Article 2 - AUTOMATIC REINSURANCE

2.1 General Conditions
The Ceding Company will automatically cede to XXXX new business as defined in
Section 2.2 on the life insurance policies, supplementary benefits, and riders listed in
Exhibit B issued on and after the effective date of this Agreement. The basis for the
automatic reinsurance is shown in Exhibit B.

XXXX will automatically accept its share of the above-referenced policies up to the limits
shown in Exhibit B, provided that:
(a) The insured, at the time of the application, must be a permanent resident of the
United States or Canada,
(b) the Ceding Company keeps its full retention, as specified in Exhibit A, or otherwise
holds its full retention on a life under previously issued inforce policies and applies
the same underwriting standards it would have applied if the new policy had fallen
completely within its regular retention,
(c) the Ceding Company applies its normal underwriting guidelines in accordance with
Section 2.4 of this article and Section 13.5,
(d) the total of the new ultimate amount of reinsurance required including contractual
increases, and the amount already reinsured on that life under this Agreement and
all other agreements between XXXX and the Ceding Company, does not exceed
the Automatic Binding Limits set out in Exhibit B,
(e) the amount of life insurance in force in all companies, including any coverage to be
replaced plus the amount currently applied for on that life in all companies, does
not exceed the Jumbo Limit stated in Exhibit B, and
(f) the application is on a life that has not been submitted facultatively to XXXX or any
other reinsurer, unless the reason for any prior facultative submission was solely
for capacity that may now be accommodated within the terms of this Agreement or
unless the reason for any prior facultative submission no longer applies

2.2 New Business
New business as defined in this article and Article 8.2 are those policies on which (a) the
Ceding Company has obtained complete and current underwriting evidence on the full
amount issued, (b) the full normal commissions are paid by the Ceding Company for the
new plan, and (c) the suicide and contestable provisions apply from the effective date of
the new plan unless state regulations prohibit new suicide or contestable periods on
exchanged policies.

2.3 Retained Amounts
The Ceding Company may not reinsure on any basis any portion of the amount it has
retained on the business covered under this Agreement, without prior notification to
XXXX.

2.4 Underwriting Standards
The parties hereby declare and agree that all policies and benefits covered under this
Agreement shall be issued in accordance with the Ceding Company’s normal
underwriting standards and guidelines. Any subsequent material changes to the
underwriting standards and guidelines shall be subject to the approval of XXXX in writing
before being applied to policies and benefits to be covered by this Agreement.

2

Article 3 - FACULTATIVE REINSURANCE

3.1 The Ceding Company may submit any application on a plan or rider identified in Exhibit
B to XXXX for its consideration on a facultative basis as of September 1, 2008.

The Ceding Company will apply for reinsurance on a facultative basis by sending to
XXXX an Application for Facultative Reinsurance, providing the information outlined in
Exhibit K. Accompanying this Application will be copies of all underwriting evidence that
is available for risk assessment including, but not limited to, copies of the application for
insurance, medical examiners’ reports, attending physicians’ statements, inspection
reports, and any other information bearing on the insurability of the risk. The Ceding
Company also will notify XXXX of any outstanding underwriting requirements at the time
of the facultative submission. Any subsequent information received by the Ceding
Company that is pertinent to the risk assessment will be immediately transmitted to
XXXX.

After consideration of the Application for Facultative Reinsurance and related
information, XXXX will promptly inform the Ceding Company of its underwriting decision.
XXXX’s offer will expire at the end of 120 days, unless otherwise specified by XXXX.

If the underwriting decision is acceptable, the Ceding Company will notify XXXX in
writing of its acceptance of the offer during the lifetime of the insured.

Definitions:

Facultative Excess is typically used when cases are in excess of either the automatic or
jumbo limits and may be submitted to one reinsurer at a time to fill capacity.

Fac(ultative) shopped are those cases that are submitted to multiple reinsurers at once;
typically used with rated cases.

3

Article 4 - COMMENCEMENT OF LIABILITY

4.1 Automatic Reinsurance
For automatic reinsurance, XXXX’s liability for amounts ceded hereunder will commence
at the same time as the Ceding Company’s liability.

4.2 Facultative Reinsurance
For facultative reinsurance, XXXX’s liability will commence at the same time as the
Ceding Company’s liability, provided that XXXX has made a facultative offer and that
offer was accepted, during the lifetime of the insured, in accordance with the terms of
this Agreement.

4.3 Conditional Receipt or Temporary Insurance
Reinsurance coverage under a conditional receipt or temporary insurance provision is
limited to XXXX’s share of amounts within the Conditional Receipt or Temporary
Insurance Limits specified in Exhibit B less the Ceding Company’s standard retention on
the policy applied for. In no event, however, shall XXXX’s liability on any one life,
including previous reinsurances, exceed the automatic limits in Exhibit B. XXXX will
accept liability provided that the Ceding Company has followed its normal cash-with-
application procedures for such coverage.

4

Article 5 - REINSURED RISK AMOUNT

5.1 Life

The reinsured net amount at risk of the policy is defined below, and for automatic
policies, multiplied by XXXX’s share as stated in Exhibit B.

A. Traditional Whole Life

The reinsured net amount at risk will be the difference between the reinsured
face amount and the cash values applicable to the reinsured face amount.
Reinsured face amount is the initial amount reinsured under this Agreement or as
reset by subsequent scheduled or fully underwritten increases, and includes a
proportionate share of additional insurance purchased by dividends or annual
premium adds riders. Reinsured amounts for traditional whole life policies are
approximated using a ten year interpolation method with the exception of NL
Asset Builder, which uses a five year interpolation method.

B. UL, VUL, and IUL

The retained amount will be fixed at issue. The reinsured net amount at risk will
be the excess of the policy’s net amount at risk over the retained amount.

Fluctuations in the amount at risk caused by the normal workings of the cash
value fund will be reflected in the reinsured net amount at risk.

5

Article 6 - PREMIUM ACCOUNTING

6.1 Premiums
Reinsurance premium rates for life insurance and other benefits reinsured under this
Agreement are shown in Exhibit E. The rates will be applied to the reinsured net amount
at risk.

6.2 Payment of Premiums
Reinsurance premiums are payable annually and in advance. The Ceding Company will
calculate the amount of reinsurance premium due and, within ten (10) days after the end
of the month, will send XXXX a statement that contains the information shown in Exhibit
G, showing reinsurance premiums due for that period. If an amount is due XXXX, the
Ceding Company will remit that amount together with the statement. If an amount is due
the Ceding Company, XXXX will remit such amount within twenty (20) days of receipt of
the statement.

6.3 Delayed Payment
Premium balances that remain unpaid for more than thirty (30) days after the Remittance
Date will incur interest from the end of the reporting period. The Remittance Date is
defined as thirty (30) days after the end of the reporting period. Interest will be
calculated using the index specified in Article 13.7.

6.4 Failure to Pay Premiums
The payment of reinsurance premiums is a condition precedent to the liability of XXXX
for reinsurance covered by this Agreement. In the event that reinsurance premiums are
not paid within thirty (30) days of the Remittance Date, XXXX will have the right to
terminate the reinsurance under all policies having reinsurance premiums in arrears. If
XXXX elects to exercise its right of termination, it will give the Ceding Company thirty
(30) days written notice of its intention. Such notice will be sent by certified mail.

If all reinsurance premiums in arrears, including any that become in arrears during the
thirty (30) day notice period, are not paid before the expiration of the notice period,
XXXX will be relieved of all liability under those policies as of the last date to which
premiums have been paid for each policy. Reinsurance on policies on which
reinsurance premiums subsequently fall due will automatically terminate as of the last
date to which premiums have been paid for each policy, unless reinsurance premiums
on those policies are paid on or before their Remittance Dates.

Terminated reinsurance may be reinstated, subject to approval by XXXX, within thirty
(30) days of the date of termination, and upon payment of all reinsurance premiums in
arrears including any interest accrued thereon. XXXX will have no liability for any claims
incurred between the date of termination and the date of the reinstatement of the
reinsurance. The right to terminate reinsurance will not prejudice XXXX’s right to collect
premiums for the period during which reinsurance was in force prior to the expiration of
the thirty (30) days notice.

The Ceding Company will not force termination under the provisions of this Article solely
to avoid the provisions regarding recapture in Article 12, or to transfer the reinsured
policies to another reinsurer.

6

6.5 Premium Rate Guarantee
Although XXXX anticipates that the premium rates in Exhibit E will apply indefinitely, it
guarantees only that the premium rates applicable to the business reinsured under this
Agreement will not exceed the greater of:
(1) the reinsurance premium rates specified in Exhibit E, and
(2) YRT net premiums at the applicable statutory minimum valuation mortality table
and statutory maximum interest rate for the reinsured business.

If XXXX raises its reinsurance premium rates on any block of inforce business reinsured
under this Agreement on which the Ceding Company has not raised its retail premiums
or cost-of-insurance charges, the Ceding Company may recapture that block of business
as of the effective date of the increase in reinsurance premiums. The recapture will
become effective on individual policy anniversary dates beginning no sooner than 30
days after the Ceding Company has provided notice of its intent to recapture.

If the Ceding Company raises its retail premiums or cost-of-insurance charges on any
block of inforce business reinsured under this Agreement, XXXX may increase its
premium rates on that block of business by a corresponding amount. The Ceding
Company will provide XXXX with 30 days notice of any such increase. The increase in
reinsurance premiums will become effective on individual policy anniversary dates
beginning no sooner than 30 days after XXXX has provided notice of its intent to
increase premiums and no sooner than the increase in retail premiums or cost-of-
insurance charges becomes effective.

7

Article 7 - REDUCTIONS, TERMINATIONS AND CHANGES

Whenever a change is made in the status, plan, amount or other material feature of a policy
reinsured under this Agreement, XXXX will, upon receipt of notification of the change, provide
adjusted reinsurance coverage in accordance with the provisions of this Agreement. The Ceding
Company will notify XXXX of any such change within thirty (30) days of its effective date.

7.1 Reductions and Terminations
In the event of the reduction, lapse, or termination of a policy or policies reinsured under
this Agreement or any other agreement, the Ceding Company will, reduce or terminate
reinsurance on that life. The reinsured amount on the life with all reinsurers will be
reduced, effective on the same date, by the amount required such that the Ceding
Company maintains its retention as defined under this Agreement.

The reinsurance reduction will apply first to the policy or policies being reduced and then,
on a chronological basis, to other reinsured policies on the life, beginning with the oldest
policy. If a fully retained policy on a life that is reinsured under this Agreement is terminated
or reduced, the Ceding Company will reduce the existing reinsurance on that life by a
corresponding amount, with the reinsurance on the oldest policy being reduced first. If the
amount of reduction exceeds the risk amount reinsured, the reinsurance on the policy or
policies will be terminated.

XXXX will refund any unearned reinsurance premiums net of allowances. However, the
reinsured portion of any policy fee will be deemed earned for a policy year if the policy is
reinsured during any portion of that policy year.

7.2 Increases
(a) Noncontractual Increases
If the amount of insurance is increased as a result of a noncontractual change
and the increase will be underwritten by the Ceding Company in accordance with
its customary standards and procedures as set forth in Article 2.2, it will be
considered new reinsurance under this Agreement. Otherwise, the increase is
not reinsured under this Agreement. XXXX’s approval is required if the original
policy was reinsured on a facultative basis or if the new amount will cause the
reinsured amount on the life to exceed either the Automatic Binding Limits or the
Jumbo Limits shown in Exhibit B.

XXXX will assume its share of the entire amount in excess of the Ceding
Company’s applicable retention. Premiums for the additional reinsurance will be
at the new issue rate from the point of increase.

(b) Contractual Increases
For policies reinsured on an automatic basis, reinsurance of increases in amount
resulting from contractual policy provisions will be accepted only up to the
Automatic Binding Limits shown in Exhibit B.

For policies reinsured on a facultative basis, reinsurance will be limited to the
ultimate amount shown in XXXX’s facultative offer. Reinsurance premiums for

8

contractual increases will be on a point-in-scale basis from the original issue age
of the policy.

7.3 Risk Classification Changes
If the policyholder requests a Table Rating reduction or removal of a Flat Extra, such
change will be underwritten according to the Ceding Company’s normal underwriting
practices. Risk classification changes on facultative policies will be subject to XXXX’s
approval.

7.4 Reinstatement
If a policy reinsured on an automatic basis is reinstated in accordance with its terms and
in accordance with Ceding Company rules and procedures, XXXX will, upon notification
of reinstatement, reinstate the reinsurance coverage. If a policy reinsured on a
facultative basis is reinstated, approval by XXXX will be required prior to the
reinstatement of the reinsurance if the Ceding Company’s regular reinstatement rules
indicate that more evidence than a Statement of Good Health is required.

Upon reinstatement of the reinsurance coverage, the Ceding Company will pay the
contractual reinsurance premiums plus accrued interest for the period and at the interest
rate for which it receives premiums in arrears.

7.5 Nonforfeiture Benefits
(a) Extended Term
If the original policy lapses and extended term insurance is elected under the terms
of the policy, reinsurance will continue on the same basis as under the original
policy until the expiry of the extended term period.

(b) Reduced Paid-up
If the original policy lapses and reduced paid-up insurance is elected under the
terms of the policy, the amount reinsured will be reduced.

For policies reinsured on an excess basis, reinsurance will be reduced by the full
amount of the reduction. If the amount of reduction exceeds the risk amount
reinsured, the reinsurance on the policy will be terminated. For all other policies,
the reinsurance will be decreased on a proportional basis. The reinsurance
premiums will be calculated in the same manner as reinsurance premiums were
calculated on the original policy.

9

Article 8 - CONVERSIONS, EXCHANGES, AND REPLACEMENTS

If a policy reinsured under this Agreement is converted, exchanged or replaced, the Ceding
Company will promptly notify XXXX. Unless mutually agreed otherwise, policies that are not
reinsured with XXXX and that exchange or convert to a plan covered under this Agreement will not
be reinsured hereunder.

8.1 Conversions
XXXX will continue to reinsure policies resulting from the contractual conversion of any
policy reinsured under this Agreement, except as noted below*, in an amount not to exceed
the original amount reinsured hereunder. If the plan to which the original policy is
converting is reinsured by XXXX, either under this Agreement or under a different
Agreement, reinsurance premium rates for the resulting converted policy will be those
contained in the Agreement that covers the plan to which the original policy is converting.
However, if the new plan is not reinsured by XXXX, reinsurance premiums for a policy
resulting from a contractual conversion will be agreed upon between the parties.
Reinsurance premiums and any allowances for conversions will be on a point-in-scale
basis from the original issue age of the policy.

If the conversion results in an increase in the risk amount, the increase will be underwritten
by the Ceding Company in accordance with its customary standards and procedures.
XXXX will accept such increases, subject to the new business provisions of this
Agreement. Reinsurance premiums and any allowances for increased risk amounts will be
first-year premiums at the agreed-upon premium rate.

*The Ceding Company will recapture all non-facultative and non-table shaved term polices upon conversion. If
the converted amount is in excess of the Ceding Company’s stated retention, reinsurance will continue on such
policies at point-in-scale rates under this automatic excess reinsurance agreement as long as it does not
exceed XXXX’s portion of the Automatic Binding Limits (see Exhibit B).

8.2 Exchanges and Replacements
A policy resulting from an internal exchange or replacement will be underwritten by the
Ceding Company in accordance with its underwriting guidelines, standards and procedures
for exchanges and replacements. If the Ceding Company’s guidelines treat the policy as
new business, then the reinsurance will also be considered new business. For purposes of
this Article, new business is defined as those policies on which:
(a) the Ceding Company has obtained complete and current underwriting evidence on
the full amount; and
(b) the full normal commissions are paid by the Ceding Company for the new plan; and
(c) the Suicide and Contestable provisions apply from the effective date of the new
plan unless state regulations prohibit new Suicide or Contestable periods on
exchanged policies.

XXXX’s approval to exchange or replace the policy will be required if the original policy was
reinsured on a facultative basis.

If the Ceding Company’s guidelines do not treat the policy as new business, the
exchange or replacement will continue to be ceded to XXXX. The rates will be based on
the original issue age, underwriting class and duration since the issuance of the original
policy.

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Article 9 - CLAIMS

Claims covered under this Agreement include only death claims, which are those due to the
death of the insured on a policy reinsured under this Agreement, and any additional benefits
specified in Exhibit B, which are provided by the underlying policy and are reinsured under this
Agreement.

9.1 Notice
The Ceding Company will notify XXXX, as soon as reasonably possible, after it receives
a claim on a policy reinsured under this Agreement.

9.2 Proofs
The Ceding Company will promptly provide XXXX with proper claim proofs, including a
copy of the proof of payment by the Ceding Company, a copy of the claimant statement
and a copy of the insured's death certificate. In addition, for contestable claims, the
Ceding Company will send to XXXX a copy of all papers in connection with the claim,
including investigation papers and the underwriting file and underwriter’s notes.

9.3 Claims Management Standards
The Ceding Company’s adherence to their claims management guidelines is a condition
precedent to the continuation of payments of reinsured claims under this reinsurance
agreement. The Ceding Company shall submit to XXXX a copy of its claims
management guidelines in effect at the commencement of this Agreement. Any
contemplated changes in the claims management guidelines shall be discussed with
XXXX before implementation. Any material modifications are subject to XXXX’s written
approval prior to implementation. A copy of the current guidelines shall be provided to
XXXX upon request.

The Ceding Company will contact XXXX for XXXX’s opinion prior to paying a claim as a
business exception. A business exception is a claim that is paid outside of the ordinary
course of business and is not within the parameters of the claims management
guidelines provided by the Ceding Company at inception, or if modified, approved by
XXXX at the time the exception is requested.

9.4 Amount and Payment of Reinsurance Benefits
As soon as XXXX receives proper claim notice and proof of the claim, XXXX will
promptly examine the claim and pay the reinsurance benefits due the Ceding Company
as appropriate. The Ceding Company’s contractual liability for policies reinsured under
this Agreement is binding on XXXX. However, for claims incurred during the contestable
period if the total amount of reinsurance ceded to all Reinsurers on the policy is greater
than the amount retained by the Ceding Company, or if the Ceding Company retained
less than its usual retention on the policy, the Ceding Company will consult with XXXX
before conceding liability or making settlement to the claimant. The Ceding Company
will wait at least ten (10) business days for XXXX’s recommendation.

The total reinsurance recoverable from all companies will not exceed the Ceding
Company’s total contractual liability on the policy, less the amount retained. The
maximum reinsurance death benefit payable to the Ceding Company under this

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Agreement is the risk amount specifically reinsured with XXXX. XXXX will also pay its
proportionate share of the interest that the Ceding Company pays on the death proceeds
until the date of settlement.

Life benefit payments will be made in a single sum, regardless of the Ceding Company’s
settlement options.

9.5 Contestable Claims
The Ceding Company will promptly notify XXXX of its intention to contest, compromise,
or litigate a claim involving a reinsured policy. The Ceding Company will also promptly
and fully disclose all information relating to the claim. Once notified, XXXX will have
fifteen (15) business days to notify the Ceding Company in writing of its decision to
accept participation in the contest, compromise, or litigation. If XXXX has accepted
participation, the Ceding Company will promptly advise XXXX of all significant
developments in the claim investigation, including notification of any legal proceedings
against it in response to denial of the claim.

If XXXX does not accept participation, XXXX will then fulfill its obligation by paying the
Ceding Company its full share of the reinsurance amount, and will not share in any
subsequent reduction or increase in liability.

If XXXX accepts participation and the Ceding Company’s contest, compromise, or
litigation results in a reduction or increase in liability, XXXX will share in any such
reduction or increase in proportion to its share of the risk on the contested policy.

9.6 Claim Expenses
XXXX will pay its share of reasonable claim investigation and legal expenses connected
with the litigation or settlement of contractual liability claims unless XXXX has
discharged its liability pursuant to Section 9.5 above. If XXXX has so discharged its
liability, XXXX will not participate in any expenses incurred thereafter.

XXXX will not reimburse the Ceding Company for routine claim and administration
expenses, including but not limited to the Ceding Company’s home office expenses,
compensation of salaried officers and employees, and any legal expenses other than
third party expenses incurred by the Ceding Company. Claim investigation expenses do
not include expenses incurred by the Ceding Company as a result of a dispute or
contest arising out of conflicting claims of entitlement to policy proceeds or benefits.

Furthermore, XXXX will not reimburse the Ceding Company for any expenses if said
expense was not incurred by the Ceding Company while investigating, defending or
settling a claim.

9.7 Misrepresentation or Suicide
If the Ceding Company returns premium to the policyowner or beneficiary as a result of
misrepresentation or suicide of the insured, XXXX will refund its proportionate share of
the premium refund to the Ceding Company in lieu of any other form of reinsurance
benefit payable under this Agreement.

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9.8 Misstatement of Age or Sex
In the event of a change in the amount of the Ceding Company’s liability on a reinsured
policy due to a misstatement of age or sex, XXXX’s liability will change proportionately.
The face amount of the reinsured policy will be adjusted from the inception of the policy,
and any difference will be settled without interest.

9.9 Extra-Contractual Damages
XXXX will not participate in punitive or compensatory damages that are awarded against
the Ceding Company as a result of an act, omission, or course of conduct committed
solely by the Ceding Company, its agents, or representatives in connection with claims
covered under this Agreement. XXXX will, however, pay its share of statutory penalties
awarded against the Ceding Company in connection with claims covered under this
Agreement if XXXX elected in writing to join in the contest of the coverage in question.

The parties recognize that circumstances may arise in which equity would require XXXX,
to the extent permitted by law, to share proportionately in punitive and compensatory
damages. Such circumstances are difficult to define in advance, but would generally be
those situations in which XXXX was an active party and, in writing, recommended,
consented to, or ratified the act or course of conduct of the Ceding Company that
ultimately resulted in the assessment of the extra-contractual damages. In such
situations, XXXX and the Ceding Company will share such damages so assessed, in
equitable proportions.

For purposes of this Article, the following definitions will apply.

“Punitive Damages” are those damages awarded as a penalty, the amount of which is
neither governed nor fixed by statute.

“Compensatory Damages” are those amounts awarded to compensate for the actual
damages sustained, and are not awarded as a penalty, nor fixed in amount by statute.

“Statutory Penalties” are those amounts awarded as a penalty, but are fixed in amount
by statute.

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Article 10 - CREDIT FOR RESERVES

10.1 Reserve Methodology and Reporting
The parties intend that the Ceding Company will receive full statutory reserve credit in its
state of domicile for the insurance risks ceded to XXXX. The parties agree to make all
reasonable efforts to ensure that this is accomplished.

The Ceding Company will provide a reserve summary for business reinsured under this
agreement to XXXX on a quarterly basis, along with a detailed description of its
reserving assumptions and any changes in these assumptions applicable to each
calendar year.

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Article 11 - RETENTION LIMIT CHANGES

11.1 If the Ceding Company changes its maximum retention limits as shown in Exhibit A, it
will provide XXXX with written notice of the intended changes thirty (30) days in advance
of their effective date.

A change to the Ceding Company’s maximum retention limits will not affect the reinsured
policies in force except as specifically provided elsewhere in this Agreement.
Furthermore, unless agreed between the parties, an increase in the Ceding Company’s
retention schedule will not effect an increase in the total risk amount that it may
automatically cede to XXXX.

15

Article 12 - RECAPTURE

12.1 Whenever the Ceding Company increases its maximum retention limits over the
maximum retention limits set forth in Exhibit A, the Ceding Company has the option to
recapture certain risk amounts. If the Ceding Company has maintained its maximum
stated retention (not a special retention limit) for the plan and the insured’s issue age,
sex, and mortality classification, it may apply its increased retention limits to reduce the
amount of reinsurance in force as follows.
(a) The Ceding Company must give XXXX thirty (30) days written notice prior to the
commencement of recapture.
(b) The reduction of reinsurance on affected policies will become effective on the
policy anniversary date immediately following the notice of election to recapture;
however, no reduction will be made until a policy has been in force for at least 20
years.
(c) If any reinsured policy is recaptured, all reinsured policies eligible for recapture
under the provisions of this Article must be recaptured up to the Ceding
Company’s new maximum retention limits in a consistent manner and the Ceding
Company must increase its total amount of insurance on each reinsured life. The
Ceding Company may not revoke its election to recapture for policies becoming
eligible at future anniversaries.

If portions of the reinsured policy have been ceded to more than one reinsurer, the
Ceding Company must allocate the reduction in reinsurance so that the amount
reinsured by each reinsurer after the reduction is proportionately the same as if the new
maximum dollar retention limits had been in effect at the time of issue.

The amount of reinsurance eligible for recapture is based on the current amount at risk
as of the date of recapture. For a policy issued as a result of exchange, conversion, or
re-entry, the recapture terms of the reinsurance agreement covering the original policy
will apply, and the duration period for the purpose of recapture will be measured from the
effective date of the reinsurance on the original policy.

If there is a reinsured waiver of premium claim in effect when recapture takes place,
XXXX will continue to pay its share of the waiver claim until it terminates. XXXX will not
be liable for any other benefits, including the basic life risk, that are eligible for recapture.
All such eligible benefits will be recaptured as if there were no waiver claim in effect.

After the effective date of recapture, XXXX will not be liable for any reinsured policies or
portions of such reinsured policies eligible for recapture that the Ceding Company has
overlooked.

No recapture will be permitted if the Ceding Company has either obtained or increased
stop loss reinsurance coverage as justification for the increase in retention limits.

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Article 13 - GENERAL PROVISIONS

13.1 Currency
All payments and reporting by both parties under this Agreement will be made in United
States dollars.

13.2 Premium Tax
XXXX will not reimburse the Ceding Company for premium taxes.

13.3 Minimum Cession
The Ceding Company will not cede a policy to XXXX unless the amount to be reinsured
at issue exceeds the Initial Minimum Cession amount shown in Exhibit B.

Reinsurance will be cancelled on any policy when its reinsured net amount at risk falls
below the Trivial Amount limit shown in Exhibit B.

13.4 Inspection of Records
XXXX and the Ceding Company, or their duly authorized representatives, will have the
right to inspect original papers, records, and all documents relating to the business
reinsured under this Agreement including underwriting, claims processing, and
administration. Such access will be provided during regular business hours at the office
of the inspected party.

13.5 Forms, Manuals & Issue Rules
The Ceding Company affirms that its retention schedule, underwriting guidelines, issue
rules, premium rates, policy forms, claims management guidelines and normal standards
and guidelines relating to exchanges and replacements applicable to the Reinsured
Policies and in use as of the effective date, have been supplied to XXXX. The parties will
continue to disclose all matters material to this Agreement. Examples of such matters
include a material change in the Cedent’s underwriting, claims or issue practices or
philosophy, or a change in either party’s ownership or control.

It is the Ceding Company’s responsibility to ensure that its practice and applicable forms
are in compliance with current Medical Information Bureau (MIB) guidelines.

13.6 Interest Rate
If, under the terms of this Agreement, interest is accrued on amounts due either party,
such interest will be calculated using the 180 day treasury rate as reported in the Wall
Street Journal on the date the payment becomes due, except as it pertains to Article 9
and as outlined elsewhere in this Agreement.

13.7 Other
XXXX will not participate in gross annual premiums and policy fees paid by the
policyholder, expense charges, cash values, accumulation fund amounts, dividends, nor
any benefits not expressly referred to herein.

17

Article 14 - DAC TAX

14.1 The parties to this Agreement agree to the following provisions pursuant to Section
1.848-2(g)(8) of the Income Tax Regulations effective December 29, 1992, under
Section 848 of the Internal Revenue Code of 1986, as amended:

(a) The term ‘party’ refers to either the Ceding Company or XXXX, as appropriate.

(b) The terms used in this Article are defined by reference to Regulation Section
1.848-2, effective December 29, 1992.

(a) The party with the net positive consideration for this Agreement for each taxable
year will capitalize specified policy acquisition expenses with respect to this
Agreement without regard to the general deductions limitation of Section
848(c)(1).

(b) Both parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency, or as
otherwise required by the Internal Revenue Service.

(c) The Ceding Company will submit a schedule to XXXX by April 1 of each year
with its calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an officer
of the Ceding Company stating that the Ceding Company will report such net
consideration in its tax return for the preceding calendar year. XXXX may
contest such calculation by providing an alternative calculation to the Ceding
Company in writing within thirty (30) days of XXXX’s receipt of the Ceding
Company’s calculation. If XXXX does not so notify the Ceding Company within
the required timeframe, XXXX will report the net consideration as determined by
the Ceding Company in XXXX’s tax return for the previous calendar year.

(f) If XXXX contests the Ceding Company’s calculation of the net consideration, the
parties will act in good faith to reach an agreement as to the correct amount
within thirty (30) days of the date XXXX submits its alternative calculation. If the
Ceding Company and XXXX reach an agreement on an amount of net
consideration, each party will report the agreed upon amount in its tax return for
the previous calendar year.

(g) Both the Ceding Company and XXXX represent and warrant that they are subject
to United States taxation under either Subchapter L or Subpart F of Part III of
Subchapter N of the Internal Revenue Code of 1986, as amended.

18

Article 15 - OFFSET

15.1 Any debts or credits, in favor of or against either XXXX or the Ceding Company with
respect to this Agreement are deemed mutual debts or credits and may be offset and
only the balance will be allowed or paid.

The right of offset will not be affected or diminished because of the insolvency of either
party.

19

Article 16 - INSOLVENCY

16.1 Insolvency of a Party to this Agreement
A party to this Agreement will be deemed insolvent when it:

(a) applies for or consents to the appointment of a receiver, rehabilitator,
conservator, liquidator or statutory successor of its properties or assets; or

(b) is adjudicated as bankrupt or insolvent; or

(c) files or consents to the filing of a petition in bankruptcy, seeks reorganization to
avoid insolvency or makes formal application for any bankruptcy, dissolution,
liquidation or similar law or statute; or

(d) becomes the subject of an order to rehabilitate or an order to liquidate as defined
by the insurance code of the jurisdiction of the party’s domicile.

16.2 Insolvency of the Ceding Company
In the event of the insolvency of the Ceding Company, all reinsurance payments due
under this Agreement will be payable directly to the liquidator, rehabilitator, receiver, or
statutory successor of the Ceding Company, without diminution because of the
insolvency, for those claims allowed against the Ceding Company by any court of
competent jurisdiction or by the liquidator, rehabilitator, receiver or statutory successor
having authority to allow such claims.

In the event of insolvency of the Ceding Company, the liquidator, rehabilitator, receiver,
or statutory successor will give written notice to XXXX of all pending claims against the
Ceding Company on any policies reinsured within a reasonable time after such claim is
filed in the insolvency proceeding. While a claim is pending, XXXX may investigate and
interpose, at its own expense, in the proceeding where the claim is adjudicated, any
defense or defenses that it may deem available to the Ceding Company or its liquidator,
rehabilitator, receiver, or statutory successor.

The expense incurred by XXXX will be chargeable, subject to court approval, against the
Ceding Company as part of the expense of liquidation to the extent of a proportionate
share of the benefit that may accrue to the Ceding Company solely as a result of the
defense undertaken by XXXX. Where two or more reinsurers are participating in the
same claim and a majority in interest elect to interpose a defense or defenses to any
such claim, the expense will be apportioned in accordance with the terms of this
Agreement as though such expense had been incurred by the Ceding Company.

XXXX will be liable only for the amounts reinsured and will not be or become liable for
any amounts or reserves to be held by the Ceding Company on policies reinsured under
this Agreement.

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16.3 Insolvency of XXXX
In the event of XXXX's insolvency, the Ceding Company may cancel the Agreement for
future new business and will notify XXXX in writing of its intent. The parties agree to
waive the notification period for this cancellation, and the effective date will be no earlier
than the effective date of XXXX's insolvency.

Upon giving written notice to XXXX, the Ceding Company may also recapture all of the
inforce business reinsured by XXXX under this Agreement. In the event the Ceding
Company exercises this recapture option, XXXX will refund any unearned premium.

21

Article 17 - ERRORS AND OMISSIONS

17.1 If through unintentional error, oversight, omission, or misunderstanding (collectively
referred to as “errors”), XXXX or the Ceding Company fails to comply with the terms of
this Agreement and if, upon discovery of the error by either party, the other is promptly
notified, each thereupon will be restored to the position it would have occupied if the
error had not occurred, including interest, except as provided for in Article 3.

If it is not possible to restore each party to the position it would have occupied but for the
error, the parties will endeavor in good faith to promptly resolve the situation in a manner
that is fair and reasonable, and most closely approximates the intent of the parties as
evidenced by this Agreement.

However, XXXX will not provide reinsurance for policies that do not satisfy the
parameters of this Agreement, nor will XXXX be responsible for negligent or deliberate
acts or for repetitive errors in administration by the Ceding Company that have not been
corrected in a reasonable period of time. If either party discovers that the Ceding
Company has failed to cede reinsurance as provided in this Agreement, or failed to
comply with its reporting requirements, XXXX may require the Ceding Company to audit
its records for similar errors and to take the actions necessary to avoid similar errors in
the future. If XXXX has received no evidence that the Ceding Company has taken
action to remedy such a situation, XXXX’s liability is limited to correctly reported policies
only.

This article will not apply to any facultative submission until the Ceding Company has
notified XXXX of its acceptance of XXXX’s offer in accordance with Article 3.

22

Article 18 - DISPUTE RESOLUTION

18.1 In the event of a dispute arising out of or relating to this agreement, the parties agree to
the following process of dispute resolution. Within thirty (30) days after XXXX or the
Ceding Company has first given the other party written notification of a specific dispute,
each party will appoint a designated company officer to attempt to resolve the dispute.
The officers will meet at a mutually agreeable location as soon as possible and as often
as necessary, in order to gather and furnish the other with all appropriate and relevant
information concerning the dispute. The officers will discuss the problem and will
negotiate in good faith without the necessity of any formal arbitration proceedings.
During the negotiation process, all reasonable requests made by one officer to the other
for information will be honored. The designated officers will decide the specific format
for such discussions.

If the officers cannot resolve the dispute within thirty (30) days of their first meeting, the
dispute will be submitted to formal arbitration, unless the parties agree in writing to
extend the negotiation period for an additional thirty (30) days.

23

Article 19 - ARBITRATION

19.1 It is the intention of XXXX and the Ceding Company that the customs and practices of
the life insurance and reinsurance industry will be given full effect in the operation and
interpretation of this Agreement. The parties agree to act in all matters with the highest
good faith. If XXXX and the Ceding Company cannot mutually resolve a dispute that
arises out of or relates to this Agreement, and the dispute cannot be resolved through
the dispute resolution process described in Article 18, the dispute will be decided
through arbitration.

To initiate arbitration, either the Ceding Company or XXXX will notify the other party in
writing of its desire to arbitrate, stating the nature of its dispute and the remedy sought.
The party to which the notice is sent will acknowledge to the notification in writing within
fifteen (15) days of its receipt.

There will be three arbitrators who will be current or former officers of life insurance or
life reinsurance companies other than the parties to this Agreement, their affiliates or
subsidiaries. Each of the parties will appoint one of the arbitrators and these two
arbitrators will select the third. If either party refuses or neglects to appoint an arbitrator
within sixty (60) days of the initiation of the arbitration, the other party may appoint the
second arbitrator. If the two arbitrators do not agree on a third arbitrator within sixty (60)
days of the appointment of the second arbitrator, then each arbitrator shall nominate
three candidates [within ten (10) days thereafter], two of whom the other shall decline,
and the decision shall be made by drawing lots for the final selection.

Once chosen, the arbitrators are empowered to select the site of the arbitration and
decide all substantive and procedural issues by a majority of votes. As soon as
possible, the arbitrators will establish arbitration procedures as warranted by the facts
and issues of the particular case. The arbitrators will have the power to determine all
procedural rules of the arbitration including but not limited to inspection of documents,
examination of witnesses and any other matter relating to the conduct of the arbitration.
The arbitrators may consider any relevant evidence; they will weigh the evidence and
consider any objections. Each party may examine any witnesses who testify at the
arbitration hearing.

The arbitrators will base their decision on the terms and conditions of this Agreement
and the customs and practices of the life insurance and reinsurance industries rather
than on strict interpretation of the law. The decision of the arbitrators will be made by
majority rule and will be submitted in writing. The decision will be final and binding on
both parties and there will be no appeal from the decision. Either party to the arbitration
may petition any court having jurisdiction over the parties to reduce the decision to
judgment. The arbitrators may not award any exemplary or punitive damages.

24

Unless the arbitrators decide otherwise, each party will bear the expense of its own
arbitration activities, including its appointed arbitrator and any outside attorney and
witness fees. The parties will jointly and equally bear the expense of the third arbitrator
and other costs of the arbitration.

This Article will survive termination of this Agreement.

25

Article 20 - CONFIDENTIALITY

20.1 During the course of performance under this agreement, a party or its representatives
(the "Discloser") may make available to the other party or its representatives (the
"Recipient"), Confidential Information. "Confidential Information" includes, but is not
limited to, Customer Information, Proprietary Information, and any other information that
a discloser deems confidential, whether specifically identified or not, in whatever
medium, oral, paper or electronic.

"Customer Information" includes any Personal Information about the Discloser's
applicants, policyholders, certificateholders, beneficiaries or claimants. Personal
Information includes, but is not limited to, name, address, social security number, date
of birth, policy or account number, bank account number, account passwords, account
balances, driver’s license number, state identification number, passport number,
medical information, employee identification number and maiden name of the
individual's mother.

"Proprietary Information" includes, but is not limited to, all information or material that
has or could have commercial value or other utility. Proprietary Information does not
include information that:
a. is in the Recipient's possession if it was received on a nonconfidential basis from a
source not prohibited from disclosing such Proprietary Information by a duty or
obligation of confidentiality owed to the Discloser;

b. is now, or hereafter becomes generally known to the public other than as a result of
a disclosure by the Recipient; or

c. is independently developed by the Recipient without use of or reference to the
Proprietary Information.

20.2 SAFEGUARDS OF CONFIDENTIAL INFORMATION
The Recipient agrees to hold Confidential Information in confidence and to use or
disclose such Confidential Information solely for the purposes of evaluation or
performance of this Agreement or as otherwise required by law.

The Recipient shall maintain commercially reasonable administrative, physical and
technical safeguards not less than the Recipient uses to protect its own Confidential
Information against unauthorized access to or disclosure. The Recipient shall:

a. Restrict disclosure of Confidential Information to its officers, directors,
employees, affiliates, agents and advisors (“Representatives”) with a need to know
and to inform such Representatives of its obligations under this Article;

b. Not disclose Confidential Information to third parties without the consent of the
Discloser except as required by external auditors, regulators, the Medical
Information Bureau (MIB), or pursuant to Section 20.3 or Section 20.7; and

26

c. Use commercially reasonable secure methods in the transmission, maintenance
and disposal of such Confidential Information.

Notwithstanding any other provisions of this Agreement, pursuant to Section 6011 of
the United States Internal Revenue Code and the regulations thereunder, each Party
and its Representatives may consult any tax advisor regarding the U.S. federal
income tax treatment or tax structure of this transaction (the "Tax Treatment"), and
disclose to any and all persons, without limitation of any kind, the Tax Treatment and
all materials of any kind (including opinions or other tax analyses) that are provided to
such Party relating to the Tax Treatment.

20.3 SHARING OF CONFIDENTIAL INFORMATION WITH RETROCESSIONAIRES

Notwithstanding Section 20.2, the Ceding Company acknowledges that the Reinsurer
may, in the normal course of its business, share Confidential Information with
retrocessionaires to the extent necessary to retrocede risks covered by this
Agreement, so long as the retrocessionaires have agreed to maintain the
confidentiality of the Confidential Information on terms substantially similar to this
Article.

20.4 UNAUTHORIZED DISCLOSURE
The Recipient agrees to report to the Discloser any unauthorized access to or release
of Confidential Information as soon as possible, but in no event later than three
business days following the identification of such event. The Recipient agrees to
cooperate fully with the Discloser in the investigation and handling of any
unauthorized access to or release of Confidential Information.

20.5 TREATMENT OF CONFIDENTIAL INFORMATION UPON TERMINATION
Upon request following termination of this Agreement, the Recipient shall immediately
destroy or return intact to the Discloser any and all Proprietary Information received
and any and all copies or records of any Proprietary Information in its or its
Representatives' possession or control to the extent such Proprietary Information is no
longer required by the Recipient in order to perform its obligations hereunder. The
Recipient shall not be obligated to destroy any Proprietary Information that is retained
for back-up or archiving purposes in accordance with a document retention policy or
that the Recipient, in the opinion of counsel, is legally compelled to keep and store.
Any such Proprietary Information that is retained by the Recipient may only be used
by the Recipient in order to perform or verify its performance of its obligations
hereunder.

20.6 NOTICE OF ORDER OF DISCLOSURE AND REMEDIES
In the event that the Recipient is required by court order or other legislative, judicial, or
administrative process to disclose Confidential Information, the Recipient agrees to
provide the Discloser with prompt notice of the order or process.

The Recipient agrees and acknowledges that any use and/or disclosure of the

27

Confidential Information not specifically authorized or permitted by this Article may
cause irreparable damage to the Discloser for which monetary damages would not
provide adequate relief. Therefore, in addition to all other available remedies, the
Discloser shall be entitled to seek injunctive relief to remedy a threatened or actual
unauthorized disclosure of Confidential Information.

20.7 CONSENT TO RELEASE INFORMATION

The Parties will not disclose Confidential Information, including but not limited to
information regarding the terms of this Agreement ,to any other entities unless agreed
to in writing, except as necessary for retrocession, as necessary for prudent risk
management purposes, as requested by external auditors, as required by court order,
or as allowed by law or regulation.

28

Article 21 - DURATION OF AGREEMENT

21.1 This Agreement is indefinite as to its duration. The Ceding Company or XXXX may
terminate this Agreement with respect to the reinsurance of new business by giving thirty
(30) days written notice of termination to the other party, sent by certified mail. The first
day of the notice period is deemed to be the date the document is postmarked.

During the notification period, the Ceding Company will continue to cede and XXXX will
continue to accept policies covered under the terms of this Agreement. Reinsurance
coverage on all reinsured policies will remain in force until the termination or expiry of
the policies or until the contractual termination of reinsurance under the terms of this
Agreement, whichever occurs first.

29

Article 22 - EXECUTION

22.1 This Agreement is effective as of December 1, 2008* and applies to all eligible policies
with issue dates on or after such date and to eligible policies applied for on and after
such date that were backdated for up to six (6) months to save age. This Agreement
has been made in duplicate and is hereby executed by both parties.
*Facultative submissions allowed effective September 1, 2008.

National Life Insurance Company	xxxxxxxxxxx
By:	By:
(signature)	(signature)
(print or type name)	(print or type name)
Title:	Title:
Date:	Date:
Location:	Location:
Attest:	Attest:
(signature)	(signature)
Title:	Title:

30

Exhibit A

CORPORATE RETENTION LIMITS OF THE CEDING COMPANY

A.1 (a) Life Insurance – Maximum Limits of Retention

Issue Ages Standard – Table 16

All Ages $2,000,000

The Company will retain the above amount on any one life except as noted
below:

1. For second-to-die policies, the maximum retention per policy is $2 million less
the greater amount inforce on either life.
2. In addition to the basic retention, the Company will retain the full amounts of
additional insurance provided in the following situations:
a. Accidental Death Benefit (ADB) rider
b. The Company’s employee term insurance
c. Additional Insurance Option (AIO) rider
d. Guaranteed issue / simplified issue underwriting
e. Waiver of Premium (WP) rider
f. Waiver of Monthly Deductions (WMD) rider
3. The amount of Estate Preservation Rider is included in the initial retention
calculation. However at the time the Estate Preservation Rider cancels in
four (4) years, the Company will not recapture up to the full retention
amount. The Company will continue to reinsure the same percent at time
of issue.
4. On all plans other than universal life, the Company will retain, in addition to its
basic retention, a share proportional to its basic retention of the additional
insurance provided in the following situations:
a. Purchased by dividends
b. Issued under the terms of its Annual Premium Adds Rider (APAR)

A.2 Waiver of Premium Disability Benefits: Not applicable

A.3 Accidental Death Benefits: Not applicable

Exhibit B

PLANS COVERED AND BINDING LIMITS

The business automatically reinsured under this Agreement is defined as follows.

B.1 Plans, Riders and Benefits
Commencement Date for all plans indicated below: December 1, 2008
However, XXXX will not reinsure the No Lapse Guarantee (NLG) Rider (second
guarantee).

Plan Identification Form No.
Single Life products:
a) Traditional Life (including Joint Life e.g. SWL)–Life Builder, Cornerstone series, NL
Asset Builder, etc.
b) Universal Life(UL) –AssurePlus Protector (original name NaviStar)
c) Indexed UL – Ultra and Ultra Select
d) Variable UL – Investor Select
Joint Life products:
e) Survivorship UL – Estate Protector

Single Life riders
a) Accelerated Benefit Rider – Terminal Illness.
b) Accelerated Benefit Rider – Critical Illness.
c) Accelerated Benefit Rider – Chronic Illness - Current Version.
d) Accelerated Benefit Rider – Chronic Illness - New York Version.
e) Accelerated Care Rider (XXXX reserves its right to revisit the reinsurance terms on these riders
when the rider utilization rate changes.)
f) Beneficiary Insurability Option
g) Fully Underwritten Other Insured Rider.
h) Fully Underwritten Additional Protection Rider.
i) Annual Premium Adds Rider: (i.e. Annual paid-up addition).
j) Fully Underwritten Single Premium Adds rider (i.e. this is a one-time purchase on
paid-up insurance).
k) 10, 15 and 20 years Term Riders.
l) Flex Term Rider: Dividend purchase One Year Term rider;
m) Fully Underwritten Exchange to New Insured Rider (i.e. allows a one-time exchange
of insured)
n) Term Protection Privilege (i.e. allows addition of a flex term rider on a paid-up policy).
o) Qualified Plan Exchange Privilege (QPEP).
Joint Life riders
p) Policy Split Option Rider
q) Estate Preservation Rider
r) Additional Protection Benefit Rider: New underwriting required.
s) Enhanced Death Benefit rider
t) Automatic Increase Rider: Only available at issue; increase in death benefit 5-10% a
year.
u) Individual Term Rider: New underwriting required.
v) Continuing Coverage Rider

B.2 Basis

XXXX’s share will be xx% of the excess over the Ceding Company’s retention specified
in Exhibit A.. This amount will not exceed XXXX’s share of the maximum Automatic
Binding Limits specified in Exhibit B.3.

B.3 Automatic Binding Limits
(a) Life

		Pool
	Issue	Maximum
	Ages
	0-75 Standard-T3	$30,000,000
	76-80 Standard	$15,000,000
·	76-80 Substandard	Facultative
·	Ages over 80	Only
·	All ratings over T3

The pool maximum autobind amounts above include the Ceding Company’s
retention.

(b) Beneficiary Insurability Option (BIO) Rider:

The Reinsurer agrees to accept xx% of the following amount on any BIO Rider
Face Amount less the Ceding Company’s available retention.

The automatic binding limits (including the Ceding Company’s $2M retention
limit) for the BIO Rider is $9,000,000. Thus, XXXX’s maximum autobind for the
BIO Rider is $xxx ($9M-$2M*xx%). Once the Ceding Company reaches its
maximum dollar retention on an individual life then XXXX’s maximum autobind
for the BIO Rider is $xxxx ($9M*xx%).

The total amount of insurance in force on the life applying for a BIO Rider, plus
the amount of BIO Rider being applied for, cannot exceed the above Automatic
Binding Limits in (a).

Exhibit B
(continued)

(c) Express Standard Program:
Table 1 –3 may be issued at Standard NT or Standard TB. A flat multiple of xxxx
will apply to the corresponding Standard NT or Standard TB rates as indicated in
Exhibit E either under section E.1.a or section E.1.b.. The maximum age is 70.

(d) Waiver of Premium Disability Benefits: Not Reinsured Hereunder

(e) Accidental Death Benefits: Not Reinsured Hereunder

(f) Accelerated Care Rider(ACR):

XXXX will pay its proportionate share of the discounted elected benefits from the
Accelerated Benefit Riders and the Accelerated Care Rider. No reinsurance
premiums will be paid for the riders and the maximum benefit will be $1,000,000
($2,000,000 for the NY version of the Chronic Illness Accelerated Benefit Rider).
The same calculation methodology will be used to determine the benefits to be
paid from the Accelerated Care or Accelerated Benefit Riders by XXXX. The
insured may accelerate benefits under the ACR after 60 days. There is no wait
period for the NY version of the Chronic Illness Accelerated Benefit Rider. For
the other ABRs, the insured may accelerate benefits after the first two policy
years, although some states require shorter wait periods.

B.4 Jumbo Limits
(a) Life: $50,000,000

(b) Waiver of Premium Disability Benefits: Not Applicable

(c) Accidental Death Benefits: Not Applicable

B.5 Conditional Receipt or Temporary Insurance Agreement
The amount of such coverage provided by XXXX will be limited to its share of the
following amounts provided by the Ceding Company’s Conditional Receipt or Temporary
Insurance Agreement.

Exhibit B
(continued)

Age	Maximum Amount
All Ages	$1,000,000

B.6	Cession Limits
	(a)	Minimum Initial Cession:	xx (Fac shopped cessions only)
	(b)	Trivial Amount:	None

Exhibit C

FORMS, MANUALS, AND ISSUE RULES

Exhibit D

ALLOCATION RULES FOR PLACEMENT OF FACULTATIVE CASES

First-in, Best Offer

Exhibit E

REINSURANCE PREMIUMS

Life
Plans covered under this Agreement will be reinsured on a YRT basis. Reinsurance
premiums will be based on the annual SOA 90-95 Age Nearest Birthday rate scale shown
in this Exhibit E, multiplied by the following percentages:

E.1.a Rates on automatic cases:

Both 2001CSO and 80CSO products – Single Life with policy issued
under ANB basis

Gender	Class	Level all years
M	Elite Preferred NS	xx
M	Preferred NS	xx
M	Standard NS	xx
M	Preferred SM	xx
M	Standard SM	xx
F	Elite Preferred NS	xx
F	Preferred NS	xx
F	Standard NS	xx
F	Preferred SM	xx
F	Standard SM	xx

Both 2001CSO and 80CSO products – Joint Life with policy issued under
ANB basis

Gender	Class	Level all years
M	Preferred NS	xx
M	Standard NS	xx
M	Preferred SM	xx
M	Standard SM	xx
F	Preferred NS	xx
F	Standard NS	xx
F	Preferred SM	xx
F	Standard SM	xx

Survivorship premiums will be calculated by applying the above rates for each life
to the appropriate table, frasierizing, and applying a $xx/1000 minimum.

In the event one life is determined to be uninsurable:

· The policy will be automatically reinsured only if the insurable life falls within
the Automatic Binding Limits for the appropriate age and underwriting class.

· The reinsurance premium shall be computed on the age and premium rates
applicable to the insured risk.

For both single life and joint life, reinsurance premium and coverage will continue
as long as the policy is still in force.

E.1.b. Rates on facultative cases:

a. For face amounts of $2M and up or Facultative Excess cases*, rates will be
same as automatic rates with a 25% surcharge per table rating when applicable.
*See Article 3 for definitions.

b. For face amounts above our facultative minimum cession and less than $2M, the
rates below are applicable. There is a 25% surcharge per table rating when
applicable;

Both 2001CSO and 80CSO products – Single Life with policy issued under ANB
basis

Gender	Class	Level all years
M	Elite Preferred NS	xx
M	Preferred NS	xx
M	Standard NS	xx
M	Preferred SM	xx
M	Standard SM	xx
F	Elite Preferred NS	xx
F	Preferred NS	xx
F	Standard NS	xx
F	Preferred SM	xx
F	Standard SM	xx

Both 2001CSO and 80CSO products – Joint Life with policy issued under ANB
basis

Gender	Class	Level all years
M	Preferred NS	xx
M	Standard NS	xx
M	Preferred SM	xx
M	Standard SM	xx
F	Preferred NS	xx
F	Standard NS	xx
F	Preferred SM	xx
F	Standard SM	xx

Survivorship premiums will be calculated by applying the above rates for each life to the appropriate table, frasierizing, and applying a $xx/1000 minimum.

E.2 Age Basis
Age Nearest

E.3 Policy Fees
XXXX will not participate in any policy fees.

E.4 Recapture Period
Recapture is not available until the end of the 20^th policy year, and then must be in
conjunction with an increase in the Ceding Company’s maximum schedule of retention.
The amount eligible for recapture will be the difference between the amount originally
retained and the amount the Ceding Company would have retained on the same quota
share basis had the new retention schedule been in effect at the time of issue.

E.5 Substandard Ratings
Premiums will be based on the standard rate increased by an extra 25% per table of
assessed rating.

E.6 Flat Extras
The total premium remitted to XXXX will include the flat extra premium minus the
allowances shown below.

Type of Flat Extra Premium First Year Renewal

Temporary (1-5 years) xxx xxx
Permanent (6 years & greater) xxx xxx

Exhibit E
(continued)
E.7 Riders and Benefits

All riders will be reinsured using the same rates as the base policy unless otherwise
noted.

Single Life riders
a) Accelerated Benefit Rider – Terminal Illness. No charge for this rider.
b) Accelerated Benefit Rider – Critical Illness. No charge for this rider.
c) Accelerated Benefit Rider – Chronic Illness - Current Version. No charge for this
rider.
d) Accelerated Benefit Rider – Chronic Illness - New York Version. No charge for this
rider.
e) Accelerated Care Rider: Ceding Company pays no reinsurance premium and the
reinsurer pays proportional share of discounted death benefit, essentially treated like
an Accelerated Benefit Rider.
f) Beneficiary Insurability Option – Prior to exercising the rider by the policyholder,
Reinsurer will receive the BIO premium; offers a xx% first year and xx% renewal
allowances. Reinsurance premium will become point-in-scale YRT rates when the
rider is exercised;
g) Fully underwritten Other Insured Rider.
h) Fully underwritten Additional Protection Rider.
i) Annual Premium Adds Rider: Annual paid-up addition.
j) Fully underwritten Single Premium Adds rider. This is a one-time purchase on paid-
up insurance.
k) 10, 15 and 20 years Term Riders. Reinsurance premium is the same as base YRT
rate in the level term period and xx% of the base YRT rate past the level term period;
l) Flex Term Rider: Dividend and rider premium - purchase One Year Term &
additions;
m) Fully Underwritten Exchange to New Insured Rider: Allow a one-time exchange of
insured;
n) Term Protection Privilege: Allow addition of a flex term rider on a paid-up policy.
Reinsurance premium is paid at point-in-scale rates.
o) Qualified Plan Exchange Privilege (QPEP): Original coverage at point-in-scale rates.

Joint Life riders
p) Policy Split Option Rider: New policy will be reinsured using point-in-scale single life
rates from the issue date of the joint policy.
q) Estate Preservation Rider: Base policy point-in-scale reinsurance rates for additional
insurance.
r) Additional Protection Benefit Rider: New underwriting required. Reinsurance rates
will be point-in-scale from the issue date of the rider.
s) Enhanced Death Benefit rider: Base policy point-in-scale reinsurance rates for
additional insurance.
t) Automatic Increase Rider: Only available at issue; increase death benefit 5-10% a
year. Base policy point-in-scale reinsurance rates for additional insurance.
u) Individual Term Rider: New underwriting required. Reinsurance premium is the same
as base rate.

v) Continuing Coverage Rider: Reinsurer will receive a share of $xx per 1000 a month
($xx per 1000 annually) less an allowance of xx%. The reinsurance premium is paid
between age 90 and 100.

E.8 Term Conversions
The Ceding Company will recapture all non-facultative and non-table shaved term polices
upon conversion. If the converted amount is in excess of the Ceding Company’s stated
retention, reinsurance will continue on such policies at point-in-scale rates under this
automatic excess reinsurance agreement as long as it does not exceed XXXX’s portion of
the Automatic Binding Limits (see Exhibit B).

Exhibit F

CONVERSION PREMIUMS

The rates in this agreement will be used for conversions on a point-in-scale basis.

Exhibit G

SELF-ADMINISTERED REPORTING

G.1 The Ceding Company will self-administer all reinsurance reporting. The Ceding
Company will send XXXX the reports listed below.

Transaction Reports, Monthly
1. New Business
2. First Year – Other than New Business
3. Renewal Year
4. Changes and Terminations
5. Accounting Information
Periodic Reports
6. Statutory Reserve Information, Quarterly
7. Policy Exhibit Information, Monthly
8. Inforce, Monthly

A brief description of the data requirements follows below.

Transaction Reports
Select:
The Ceding Company agrees to provide the following policy data in each report as
outlined in Exhibits H, I and J, and as referenced below:

1. New Business
This report will include new issues only, the first time the policy is reported to
XXXX. Automatic and Facultative business will be identified separately.

2. First Year – Other than New Business
This report will include policies previously reported on the new business detail
and still in their first duration, or policies involved in first year premium
adjustments.

3. Renewal Year
All policies with renewal dates within the Accounting Period will be listed.

Exhibit G
(continued)

4. Changes and Terminations
Policies affected by a change during the current reporting period will be included
in this report. Type of change or termination activity must be clearly identified for
each policy.

The Ceding Company will identify the following transactions either by separate
listing or unique transaction codes: Terminations, Reinstatements, Changes,
Conversions, and Replacements. For Conversions and Replacements, the
Ceding Company will report the original policy date, as well as the current policy
date.

5. Accounting Information
Premiums and allowances will be summarized for Life coverages, Benefits, and
Riders by the following categories: Automatic and Facultative, First Year and
Renewals.

Periodic Reports
6. Statutory Reserve Information
Statutory reserves will be summarized for Life coverages, Benefits and Riders.
The Ceding Company will specify the reserve basis used.

7. Policy Exhibit Information
This is a summary of transactions during the current period and on a year-to-date
basis, reporting the number of policies and reinsured amount.

8. Inforce
This is a detailed report of each policy in force.

Exhibit H

LIST OF RISKS REINSURED

The "List of Risks Reinsured," showing all renewing policies, should be prepared and submitted
monthly, quarterly, or annually according to the terms of the Agreement. At least once a year at
the end of each year, a list must be submitted by the Ceding Company to XXXX including ALL
risks reinsured under this Agreement. Premiums due should be included only for the period
being reported. The information required to be shown on such lists is set out below.

A. Policy number
B. Name of insured (minimum is surname and first initial; prefer to have first name and middle
initial as well.)
C. Sex
D. Date of birth (month, day, year)
E. Issue age
* F. Attained age
G. Policy date (month, day, year) or date of increase/decrease in specified amount
H. Transaction code (in force)
1. First year, newly reported (i.e., new business)
2. First year, previously reported (i.e., renewal business in first policy year)
3. Renewal
I. Substandard rating (table, mortality percentage, flat extra amount and duration. Show
multiple of standard for ADB or WPD.)
J. Plan or plan code (if more than one plan is covered by the Agreement)
K. Underwriting class (smoker, nonsmoker, preferred, etc.)
L. Specified amount issued (life, ADB, WPD)
M. Death benefit option (i.e., cash value included in or in addition to the specified amount)
* N. Current death benefit (under original policy)
O. Proportion reinsured this policy (where applicable)
P. Amount reinsured
Q. Current reinsurance amount at risk
R. Reinsurance premium (life, ADB, WPD)
* S. Net cash amount due XXXX (life, ADB, WPD)
* T. Automatic or facultative
* U. Currency code if not U.S. currency

* Desirable but not required

Exhibit H
(continued)

There should be separate subtotals for all items listed below. Each subtotal should include:

Policy count Reinsurance amount at risk Reinsurance premium Reinsurance commission Net amount due XXXX (life—separately for new business, renewals, and combined) (separately for new business, renewals, and combined) (separately for new business, renewals, and combined) (separately for new business, renewals, and combined) (separately for new business, renewals, and combined)

The various policy details including reinsurance amount at risk and proportion reinsured shown
on the "List of Risks Reinsured" should correspond to the in force after any changes reported
concurrently on the "List of Amendments." We need a grand total each reporting period for
policy count in force and reinsurance amount at risk in force (separately for new business,
renewals, and combined). A separate total of ADB in force is needed. This need not be
separated into new business and renewals.

A grand total of reinsurance premium and net amount due XXXX, including all in force and
amendments, should be shown (separately for first year, renewals, and combined categories).
Separate totals should be provided for life, ADB, and WPD. This may be shown on the "List of
Risks Reinsured" or may be included in a separate summary.

Where premiums for more than one period are being reported on a single list, the basic
identification (policy number, name of insured, sex, date of birth, age, and policy date) need be
shown only one time on the first line for the policy. Subsequent lines should each relate to a
different period and the period involved should be indicated.

Although an increase or decrease in the specified amount will not, as a rule, result in the
issuance of a new policy, the amount of such increase or decrease should be reported
separately from the base specified amount so that differences in premium rates can be
reflected. For example, the amount of increase in specified amount might involve a
substandard rating that differs from the rating for the base specified amount. In any such case,
it might be a good idea to assign a separate policy number suffix.

Any significant deviations from these reporting guidelines must be agreed to by XXXX.

Exhibit I

LIST OF AMENDMENTS

Each "List of Amendments" (monthly, quarterly, or annual) should show details for each policy
for which any transaction (see codes 4–12 below) occurred which has an effect on either the
reinsurance amount at risk or reinsurance premium. The basic policy details to be shown
include the following:

a. Policy number
b. Name of insured
* c. Date of birth
d. Transaction code (changes to in force)
4. Termination without value
5. Policy not placed (NTO)
6. Surrender (full or partial)
7. Reinstatement
8. Increase in specified amount
9. Decrease in specified amount
10. Conversion or change of plan (e.g., Option A to Option B)
11. Death
12. Other (Please describe.)
Under item 12, we would like you to describe any other amendments such as partial
recapture, full recapture, table rating reduction, etc,
e. Effective date of transaction
f. Net increase or decrease in reinsurance amount at risk from the reinsurance amount at risk
last reported to XXXX before the change
g. Reinsurance premium adjustment (separately for first year/renewal)
h. Net adjustment due XXXX (separately for first year/renewal)
i. Currency code if not U.S. currency

Subtotals of policy count and reinsurance amount at risk should be provided for each
transaction code where the transaction is such that the life policy count in force is altered by the
transaction. For items g and h only grand totals are required (separately for first
year/renewal/combined).

The premium adjustments should include adjustments up to the current reporting period (e.g.,
month, quarter). Premiums for the current reporting period should appear on the "List of Risks
Reinsured."

It is not necessary to adhere strictly to the set of transaction codes shown above as long as the
amendments are clearly identified and appropriate subtotals and totals can be provided.

*Desirable but not required

EX-3

AUTOMATIC & FACULTATIVE YRT REINSURANCE AGREEMENT

(hereinafter referred to as the “Agreement”)

between

NATIONAL LIFE INSURANCE COMPANY

of

Montpelier, Vermont

(hereinafter referred to as the “Company,” “you,” and “your”)

and

xxxxxxxxxxxxxxxxxxxxx

of

xxxxxxxx

(hereinafter referred to as the “Reinsurer,” “we,” “our,” and “us”)

1

TABLE OF CONTENTS
ARTICLE I - PREAMBLE		5
1.	PARTIES TO THIS AGREEMENT	5
2.	EFFECTIVE DATE	5
3.	REGULATORY COMPLIANCE	5
4.	CONSTRUCTION	5
5.	ENTIRE AGREEMENT	6
6.	SEVERABILITY	6
7.	SURVIVAL	6
ARTICLE II - REINSURANCE COVERAGE		7
1.	SCOPE OF COVERAGE	7
2.	AUTOMATIC REINSURANCE	7
3.	FOREIGN RISKS	8
4.	FACULTATIVE REINSURANCE	8
5.	BASIS OF REINSURANCE	9
ARTICLE III - PROCEDURES		10
1.	AUTOMATIC REINSURANCE	10
2.	FACULTATIVE REINSURANCE	10
3.	POLICY EXPENSES	10
4.	REFERENCE MATERIALS	10
ARTICLE IV - LIABILITY		11
1.	LIABILITY	11
2.	COMMENCEMENT OF AUTOMATIC LIABILITY	11
3.	COMMENCEMENT OF FACULTATIVE LIABILITY	11
4.	CONDITIONAL RECEIPT LIABILITY	11
5.	CONTINUATION OF LIABILITY	12
6.	SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE	12
ARTICLE V - REINSURANCE RATES AND PAYMENTS		13
1.	REINSURANCE RATES	13
2.	CURRENCY	13
3.	PAYMENTS	13
4.	PREMIUM TAX	14
5.	DAC TAX ELECTION	14
6.	EXPERIENCE REFUND	15
ARTICLE VI - CHANGES TO THE REINSURANCE		16
1.	CHANGES TO THE UNDERLYING POLICY	16
2.	INCREASES	16
3.	EXTENDED TERM AND REDUCED PAID-UP INSURANCE	16
4.	REDUCTIONS AND TERMINATIONS	16
5.	REINSTATEMENTS	17
6.	CONVERSIONS, EXCHANGES, AND REPLACEMENTS	18
7.	LAST SURVIVOR	18
ARTICLE VII - RECAPTURE		20
1.	RETENTION LIMIT INCREASES	20
2.	BASIS OF RECAPTURE	20
3.	METHOD OF RECAPTURE	20

2

ARTICLE VIII - CLAIMS		22
1.	NOTICE OF CLAIM	22
2.	SETTLEMENT OF CLAIMS	22
3.	CONTESTED CLAIMS	23
4.	CLAIM EXPENSES	23
5.	OTHER NON-CLAIM LITIGATION EXPENSES	24
6.	MISSTATEMENT OF AGE OR SEX	24
7.	EXTRA-CONTRACTUAL DAMAGES	24
ARTICLE IX - OFFSET		26
ARTICLE X - ERRORS AND OMISSIONS		27
ARTICLE XI - DISPUTE RESOLUTION AND ARBITRATION		29
1.	DISPUTE RESOLUTION	29
2.	BASIS FOR ARBITRATION	29
3.	ARBITRATION PROCEEDINGS	29
ARTICLE XII - INSOLVENCY		31
ARTICLE XIII - INSPECTION OF RECORDS		32
ARTICLE XIV - LETTER OF CREDIT		33
1.	RESERVE CREDIT	33
2.	LETTER OF CREDIT DRAW	33
ARTICLE XV - CONFIDENTIALITY		34
ARTICLE XVI - DURATION OF AGREEMENT		35
ARTICLE XVII - EXECUTION OF THE AGREEMENT		36
EXHIBIT A – REINSURANCE COVERAGE		37
I.	EFFECTIVE DATE	37
II.	CEDING COMPANY’S STATE OF DOMICILE	37
III.	BUSINESS COVERED	37
IV.	BASIS OF REINSURANCE	37
V.	PLANS, RIDERS, AND OTHER BENEFITS	37
VI.	RETENTION LIMITS	39
VII.	AUTOMATIC LIMITS	41
VIII. JUMBO RISK		43
IX.	FACULTATIVE SUBMISSIONS	43
EXHIBIT A-1 – FORMS, MANUALS, AND ISSUE RULES		44
EXHIBIT B – REINSURANCE ADMINISTRATION		45
I.	MONTHLY IN FORCE DETAIL REPORT	45
II.	MONTHLY BILLING INFORMATION	46
III.	MONTHLY PREMIUM SUMMARY REPORT	46
IV.	QUARTERLY VALUATION REPORT	47
V.	QUARTERLY POLICY EXHIBIT	47
VI.	ANNUAL OPINIONS	48
EXHIBIT B-1 – CONDITIONAL RECEIPT OR TEMPORARY INSURANCE AGREEMENT		49
EXHIBIT C – REINSURANCE RATES AND ALLOWANCES		50

3

I.	AGE BASIS		50
II.	NET AMOUNT AT RISK		50
III.	REINSURANCE PREMIUMS		50
IV.	RATES FOR LIFE REINSURANCE		51
V.	POLICY FEE		51
VI.	RATES FOR SUBSTANDARD TABLE RATINGS		51
VII.	RATES FOR FLAT EXTRA RATINGS		51
VIII. RATES FOR WAIVER OF PREMIUM DISABILITY BENEFIT			51
IX.	RATES FOR ACCIDENTAL DEATH BENEFIT		52
X.	RATES FOR ACCELERATED CARE RIDER AND ACCELERATED BENEFIT RIDERS		52
XI.	RATES FOR BENEFICIARY INSURANCE OPTION		52
XII.	RATES FOR AUTOMATIC INCREASE RIDER		52
XIII. RATES FOR CONTINUING COVERAGE RIDER			52
XIV. RATES FOR QUALIFIED PENSION EXCHANGE PRIVILEGE RIDER			53
XV.	RATES FOR EXCHANGE TO NEW INSURED RIDER		53
XVI. RATES FOR POLICY SPLIT OPTION RIDER			53
XVII.RATES FOR OTHER INSURED RIDER & INDIVIDUAL TERM RIDER			53
XVIII.		PREMIUM TAXES	53
XIX. RECAPTURE PERIOD			53
XX.	CONVERSION RATES		53
XXI. EXPERIENCE REFUND			53
EXHIBIT C-1 – REINSURANCE RATE TABLE			54
EXHIBIT D – CONDITIONAL RECEIPT LIABILITY			55
I.	AUTOMATIC REINSURANCE		55
II.	FACULTATIVE REINSURANCE		55
EXHIBIT D-1 – INTERNAL CONDITIONAL RECEIPT PROCEDURES			56

4

ARTICLE I - PREAMBLE

1. PARTIES TO THIS AGREEMENT

This Agreement is for indemnity reinsurance and is solely between the Company and the
Reinsurer (hereinafter referred to collectively as the “parties”). The acceptance of risks
under this Agreement will create no right or legal relationship whatsoever between the
Reinsurer and the insured, owner, beneficiary, or any other person having an interest of
any kind in any insurance policy or other contract reinsured under this Agreement.

This Agreement will be binding upon the parties and their respective successors and
assigns.

2. EFFECTIVE DATE

This Agreement is effective at 12:01 A.M. on the Effective Date shown in Exhibit A.I
and covers policies issued on and after that date. You may backdate policy issue dates
for no more than six months prior to the Effective Date.

3. REGULATORY COMPLIANCE

Each party warrants that, to the best of its knowledge, it has secured all necessary federal
and state licenses and approvals and that it is operating in compliance with federal and
state insurance laws and regulations.

The parties intend that the Company will receive full statutory reserve credit in its state
of domicile for the business reinsured hereunder. The parties agree to make all
reasonable efforts to ensure that this is accomplished.

The Company represents that to the best of its knowledge and belief it is, and shall use
its best efforts to continue to be, in substantial compliance in all material respects with
all laws, regulations, and judicial and administrative orders applicable to the business
reinsured under this Agreement, including but not limited to the maintenance of an
effective anti-money laundering policy (hereinafter referred to collectively as the
"Law"). Neither party shall be required to take any action that would result in it being in
violation of the Law, which for purposes of companies subject to U.S. regulation shall
include requirements enforced by the U.S. Treasury Department Office of Foreign Asset
Control. The parties acknowledge and agree that a claim under this Agreement is not
payable if payment would cause the Reinsurer to be in violation of the Law. Should
either party discover that a reinsurance payment has been made in violation of the Law,
it shall notify the other party and the parties shall cooperate in order to take all necessary
and appropriate corrective actions, including but not limited to the return of payment to
the Reinsurer.

4. CONSTRUCTION

The rights and obligations under this Agreement will be construed and administered in
accordance with the laws of your state of domicile stated in Exhibit A.II.

5

5.	ENTIRE AGREEMENT
	This Agreement constitutes the entire agreement between the parties with respect to the
	business reinsured hereunder. There are no other understandings or agreements between
	the parties regarding the terms of reinsurance other than as expressed herein.
	Any change or modification to this Agreement will be null and void unless made by
	written amendment, attached to this Agreement and signed by both parties.
6.	SEVERABILITY
	If any provision of this Agreement is determined to be invalid or unenforceable, such
	determination will not impair or affect the validity or the enforceability of the remaining
	provisions of this Agreement.
7.	SURVIVAL
	All provisions of this Agreement will survive its termination to the extent necessary to
	carry out its purposes or to ascertain and enforce both parties’ rights or obligations
	hereunder existing at the time of termination

6

ARTICLE II - REINSURANCE COVERAGE

1. SCOPE OF COVERAGE

This Agreement applies to the individually underwritten ordinary life insurance policies
and supplementary benefits and riders attached thereto (hereinafter referred to
collectively as “policies”) listed in Exhibit A.III, Business Covered. You must have
directly issued such policies in accordance with your normal new business underwriting
guidelines, including a statement of good health, as shown in Exhibit A-1, Forms,
Manuals, & Issue Rules, in accordance with your normal conditional receipt guidelines
as shown in Exhibit D-1, Internal Conditional Receipt Procedures, and in accordance
with the premium rates and policy forms as provided to us.

This Agreement does not cover the following unless specified elsewhere in this
Agreement:

1.1 Non-contractual conversions, rollovers, exchanges, or group conversions as
provided in Article VI.6, Conversions, Exchanges, and Replacements;

1.2 Business issued under any special program that you offer, including but not
limited to experimental underwriting or limited retention programs (e.g. cancer,
diabetes, aviation, or coronary risks) or under a program where full current
evidence of insurability, consistent with the amount of insurance, is not
obtained, or where conventional selection criteria are not applied in
underwriting the risk (e.g. simplified issue, guaranteed issue, COLI-type
products, etc.);

1.3 Any conversion of a previously issued policy that had been reinsured with
another reinsurer; and

1.4 Any business issued to an insured who is not a citizen or permanent resident of
the United States, its possessions, or Canada.

2. AUTOMATIC REINSURANCE

On or after the Effective Date of this Agreement, you will automatically cede to us our
share of the policies covered under this Agreement. We will automatically accept such
reinsurance provided that:

2.1 You have retained the amount stipulated under Retention Limits shown in
Exhibit A.VI according to the age and mortality rating of the insured at the
time of underwriting;

2.2 The total of the new reinsurance required, and the amount already reinsured on
that life under this Agreement and all other life agreements between the
parties, does not exceed the Automatic Acceptance Limits shown in
Exhibit A.VII;

2.3 The risk is not characterized as a jumbo risk as defined in Exhibit A.VIII,
Jumbo Risk;

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2.4 The application is on a life for which you have not submitted an application on
a facultative basis (excluding facultative applications you submitted for excess
of your automatic binding capacity) to us or any other reinsurer within the last
three years unless the original reason for submitting the application
facultatively no longer applies; and

2.5 The policy has been issued using your normal new business underwriting
guidelines. A policy which has been issued as a “business decision” is not
eligible for automatic reinsurance unless the parties have agreed in advance to
the basis for making such business decisions. A “business decision” is any
situation where a policy is issued outside of your normal new business
underwriting guidelines and includes, but is not limited to:
a. Issuing a policy at a rating or risk class that is lower than would be
justified by your normal new business underwriting guidelines;
b. Issuing a policy for an amount of insurance that is higher than would be
justified by your normal new business underwriting guidelines and cash
with application procedures;
c. Issuing a policy that would be a decline or postpone according to your
normal new business underwriting guidelines.

You may submit policies not meeting the above criteria to us for our consideration on a
facultative basis.

You will notify us in writing if you modify your Retention Limits shown in Exhibit
A.VI. We reserve the right to amend the Automatic Acceptance Limits shown in Exhibit
A.VII if this occurs, or if you participate in other arrangements to secure additional
automatic binding capacity. You may not reinsure the amount you retain on business
covered by this Agreement, on any basis, without prior notification to us.

This Agreement is based on information which you have provided to us. You agree to
give us prior written notice of changes in your issue limits, underwriting guidelines and
other information that directly affects reinsurance hereunder. We reserve the right to
modify our reinsurance terms as a result of such changes, as specified in Exhibit A-1,
Forms, Manuals, & Issue Rules.

3. FOREIGN RISKS

Foreign risks (insureds who are not permanent residents of the United States, its
possessions, or Canada) will be reinsured on a facultative basis.

4. FACULTATIVE REINSURANCE

If you receive an application for a policy covered under this Agreement that does not
meet the automatic coverage criteria listed in Articles II.2, Automatic Reinsurance, and
II.3, Foreign Risks, above, you may submit the application to us facultatively for our
consideration. Such facultative applications will be limited to the plans listed in Exhibit
A.IX, Facultative Submissions.

8

Other relevant terms and conditions of this Agreement will apply to those facultative offers we make which are accepted by you.

5. BASIS OF REINSURANCE

Life reinsurance will be ceded on the Yearly Renewable Term plan for the net amount at
risk on the portion of the original policy that is reinsured with us. The policies we accept
either automatically or facultatively will hereinafter be referred to as the “reinsured
policies.” The net amount at risk for any policy period will be calculated as shown in
Exhibit C.II, Net Amount at Risk.

Any differences in the basis of reinsurance or calculation of the net amount at risk for
riders or supplementary benefits ceded with life benefits will be shown in Exhibit C.II,
Net Amount at Risk.

You will not require us to participate in policy loans, dividends or cash values on any
policies reinsured under this Agreement.

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ARTICLE III - PROCEDURES

1. AUTOMATIC REINSURANCE

New reinsurance ceded, or changes to existing reinsurance, will be shown on your
periodic billing report(s), subject to Article V, Reinsurance Rates and Payments and
Exhibit B, Reinsurance Administration, and therefore, no individual cession notification
will be necessary for placing automatic reinsurance.

Upon our request, you will send to us copies of the application, underwriting papers and
other papers on a life reinsured automatically under this Agreement.

2. FACULTATIVE REINSURANCE

To submit a risk for facultative consideration, you must send us a copy of your
reinsurance application form. Unless specified elsewhere in this Agreement, you must
also send us copies of all underwriting evidence that is available for risk assessment
including, but not limited to, copies of the application for insurance, medical examiners’
reports, attending physicians’ statements, inspection reports, and any other papers having
a bearing on the insurability of the risk. You will also notify us of any outstanding
underwriting requirements at the time of the facultative submission. Any subsequent
information you receive that is pertinent to the risk assessment will be transmitted to us
immediately.

After considering the reinsurance application and related papers, we will promptly
inform you of our underwriting decision. If we give you an unconditional offer to
reinsure a risk, you must notify our underwriting department of your acceptance of our
offer during the lifetime of the insured and before the expiration date of our offer,
followed by documentation of such placement on your periodic billing report. Our offer
will remain open until the expiry date shown in our offer. All offers of reinsurance made
by us will terminate one hundred and twenty (120) days from the date on which the offer
was made, unless otherwise specified by us in the facultative offer or if we have
extended the offer in writing for a further period. You may request an extension of the
expiry date, but a decision to extend will be made at our sole discretion.

If you submit any risk to more than one reinsurer for consideration, facultative placement
will be based on the order of the responses received from the reinsurers to whom the risk
is submitted, first and best offer in.

3. POLICY EXPENSES

You will bear the expenses of all medical examinations, inspection fees and other
charges incurred in connection with policy issues, reinstatements or reentries.

4. REFERENCE MATERIALS

Upon request, you will provide us with any reference materials, which we may require
for proper administration of reinsurance ceded under this Agreement, as specified in
Exhibit A-1, Forms, Manuals, and Issue Rules.

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ARTICLE IV - LIABILITY

1. LIABILITY

Unless specified elsewhere in this Agreement, our liability for reinsured policies is
restricted to our share of your liability as limited by the terms and conditions of the
particular policy under which you are liable.

Our liability to you on a reinsured policy will be based on the total net amount at risk at
the time of the insured’s death. Our liability shall be equal to our share of the reinsured
net amount at risk as defined in Exhibit C.II, Net Amount at Risk.

We may terminate our liability for any policies for which reinsurance premium payments
are in arrears, according to the terms set out in Article V, Reinsurance Rates and
Payments.

2. COMMENCEMENT OF AUTOMATIC LIABILITY

Our liability for reinsurance placed automatically with us will begin and end
simultaneously with your liability for the underlying policy on which reinsurance is
based, subject to the provisions of Article VI, Changes to the Reinsurance and Article
VII, Recapture.

3. COMMENCEMENT OF FACULTATIVE LIABILITY

If you have submitted a facultative application to us, our liability will begin
simultaneously with yours if (i) our underwriting department has received notice from
you, during the lifetime of the insured and before the expiry date of our offer, that our
offer has been accepted, and (ii) you have placed the policy with the insured/owner in
accordance with your normal new business placement practices and guidelines before the
expiry date of our offer. You will have until the expiry date shown in our final offer to
place the policy with the insured/owner, after which time our offer will expire unless we
explicitly state in writing that the offer is extended for some further period.

If our offer depends on your approval of further information about the risk, we will have
no liability unless you have requested and approved the information and documented
your policy file accordingly.

4. CONDITIONAL RECEIPT LIABILITY

Reinsurance coverage under a Conditional Receipt or a Temporary Insurance Agreement
will be limited to amounts you accept which are within your usual cash-with-application
procedures. A copy of your Conditional Receipt or Temporary Insurance Agreement
form is included as Exhibit B-1.

Our liability for losses under the terms of any Conditional Receipt or Temporary
Insurance Agreement is subject to the limits shown in Exhibit D, Conditional Receipt
Liability.

11

We will have no liability for Conditional Receipts or Temporary Insurance Agreements which are issued or administered outside of your normal guidelines and procedures as specified in Exhibit D-1, Internal Conditional Receipt Procedures

5. CONTINUATION OF LIABILITY

Notwithstanding any other provision in this Agreement, continuation of our liability is conditioned on your payment of reinsurance rates as shown in Article V, Reinsurance Rates and Payments and is subject to Article VI, Changes to the Reinsurance and Article VII, Recapture.

6. SALE, ASSIGNMENT, OR TRANSFER OF COVERAGE

You may sell, assign or transfer policies reinsured under this Agreement to another insurer. Should the sale, assignment or transfer occur, you agree to require that the other insurer assume all of your rights and obligations under this Agreement. We may object to any such transfer, assumption or sale that would result in a material adverse economic impact to us. If we so object, then the parties agree to mutually calculate a termination charge that shall be paid upon the sale, assignment or transfer, and this Agreement shall be terminated with respect to all policies so sold, assigned, or transferred.

If we sell, assign, or transfer reinsurance under this Agreement to another reinsurer, we agree to require that the other reinsurer assume all of our rights and obligations under this Agreement. You may object to any such transfer, assumption, or sale that would result in a material adverse economic impact to you. If you so object, then you may recapture all reinsurance on policies sold, assigned, or transferred without penalty to you. The parties agree to mutually calculate an amount to transfer at recapture. The provisions of this section are not intended to preclude us from retroceding the reinsurance on an indemnity basis.

12

ARTICLE V - REINSURANCE RATES AND PAYMENTS

1. REINSURANCE RATES

Reinsurance premium rates for life insurance and other benefits reinsured under this
Agreement are shown in Exhibit C, Reinsurance Rates & Allowances. The reinsurance
premium payable for any cession for any accounting period will be calculated on the
basis of the net amount at risk reinsured as of that period. The calculation of net amount
at risk is described in Exhibit C.II.

For reasons relating to deficiency reserve requirements, the reinsurance rates shown in
Exhibit C, Reinsurance Rates & Allowances cannot be guaranteed for more than one
year. Although we anticipate that reinsurance rates shown in Exhibit C will apply
indefinitely, we reserve the right to increase them after the first year, but not above the
statutory net premium based on the applicable minimum valuation mortality table and
maximum valuation interest rate. Any such increase in the reinsurance rates will be
based solely on a change in anticipated mortality and will be applied on a consistent
basis among all in force business being reinsured on a yearly renewable term basis,
where permitted by the terms of the individual agreements.

If we increase the reinsurance rates on inforce business as described above, and you have
not increased your retail premiums or cost of insurance charges on these policies or
contracts and you have not changed statutory reserving assumptions (e.g. a change in the
“X” factors used to calculate deficiency reserves) on these policies or contracts, you may
recapture the business to which the rate increase applies as of the effective date of the
rate increase, regardless of the duration of the reinsured policies.

If the original policy is issued with interim insurance, you will pay us a reinsurance rate
for the interim period that is the same percentage of the first year premium that the
interim period bears to twelve months. The rate that you pay us for the first policy year
after the interim period will be calculated on the basis of the full annual reinsurance rate.

2. CURRENCY

All transactions under this Agreement will be in United States dollars, unless the parties
mutually agree otherwise.

3. PAYMENTS

You will self-administer the reporting of your statements of account and the payment of
balances due to us as shown in Exhibit B, Reinsurance Administration.

Your timely payment of reinsurance premiums is a condition precedent to our continued
liability for reinsurance covered under this Agreement. Your statements of account and
reinsurance premium payments are due within thirty (30) days of the close of each
reporting period. If the balance is due you, we will pay you within thirty (30) days of our
receipt of the statement.

13

We have the right to terminate reinsurance coverage for all policies having reinsurance
premiums in arrears. If we elect to exercise this right of termination, we will give you
thirty (30) days written notice of our intent to terminate. Such notice will be sent by
certified mail. If all reinsurance premiums in arrears, including any that become in
arrears during the thirty (30) day notice period, are not paid before the expiration of the
notice period, we will be relieved of all liability under those policies as of the last date
for which premiums have been paid for each policy. You will continue to be liable for
the payment of premiums for the period during which reinsurance was in force prior to
the expiration of the thirty (30) day notice period with interest calculated from the due
date to the date of payment. The interest rate will be the same rate that you charge for
delinquent premiums on your individual life insurance policies.

You may reinstate coverage on terminated policies at any time within sixty (60) days of
the termination date by paying us all balances due with interest, as specified above.
Reinstatement will be effective on the date that we receive payment. However, we will
have no liability for claims incurred between the termination date and the reinstatement
date.

You will not force termination under the provisions of this Article solely to avoid the
provisions regarding recapture in Article VII, Recapture, or for the purpose of
transferring the reinsured policies to another reinsurer.

4. PREMIUM TAX

Details of any reimbursement that we will pay to you for our share of premium taxes that
you are required to pay on business reinsured under this Agreement, if applicable, are
shown in Exhibit C.XVIII.

5. DAC TAX ELECTION

The parties agree to the DAC Tax Election pursuant to Section 1.848-2(g)(8) of the
Income Tax Regulations effective December 29, 1992 under Section 848 of the Internal
Revenue Code of 1986, as amended. This election will be effective at the inception of
this Agreement and for all subsequent taxable years for which this Agreement remains in
effect.

The terms used in this Section are defined in Regulation Section 1.848-2. The term "net
consideration" will refer to either net consideration as defined in Section 1.848-2(f) or
"gross premium and other consideration" as defined in Section 1.848-3(b), as
appropriate. The following provisions will apply:

5.1 The party with the net positive consideration for this Agreement for each
taxable year will capitalize specified policy acquisition expenses with respect
to this Agreement without regard to the general deductions limitation of
Section 848(c)(1);

5.2 The parties agree to exchange information pertaining to the amount of net
consideration under this Agreement each year to ensure consistency. The
parties also agree to exchange information otherwise required by the Internal
Revenue Service;

14

5.3 Each year you will submit a schedule to us by May 1 with your calculation of
the net consideration for the preceding calendar year. This schedule will be
accompanied by a statement signed by an officer of the Company stating that
you will report such net consideration in your tax return for the preceding
calendar year;

5.4 We may contest such calculations by providing an alternative calculation to
you by May 31. If we do not so notify you, you will report the net
consideration as determined by you in your tax return for the previous calendar
year; and

5.5 If we contest your calculation of the net consideration, the parties will act in
good faith to reach an agreement as to the correct amount within thirty (30)
days of the date we submit our alternative calculation. If the parties reach
agreement on the amount of the net consideration, each party shall report such
amount in its respective tax return for the previous calendar year.

Each party represents and warrants that it is subject to United States taxation under either the provisions of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of Chapter 1 of the Internal Revenue Code of 1986, as amended.

6. EXPERIENCE REFUND

Details of any experience refund payable to you, if applicable, are shown in Exhibit
C.XXI.

15

ARTICLE VI - CHANGES TO THE REINSURANCE

1. CHANGES TO THE UNDERLYING POLICY

You will give us prompt written notification of any policy changes which affect the
reinsurance provided under this Agreement. Our approval is required if the underwriting
classification of a risk reinsured on a facultative basis is changed. Our approval is also
required for any other changes that are not specifically covered under this Agreement

2. INCREASES

If the amount of insurance on a policy reinsured under this Agreement is increased as a
result of a noncontractual change and you underwrite the increase in accordance with
your customary standards and procedures, the increase will be considered new
reinsurance under this Agreement. Our approval is required if the original policy was
reinsured on a facultative basis or if the new amount will cause the reinsured amount on
the life to exceed either the Automatic Acceptance Limits or the Jumbo Limit shown in
Exhibit A, Reinsurance Coverage.

For policies reinsured on an automatic basis, increases in amount resulting from
contractual policy provisions will be reinsured only up to the Automatic Acceptance
Limits shown in Exhibit A.VII.

For policies reinsured on a facultative basis, increases in amount resulting from
contractual policy provisions will be reinsured only up to the ultimate amount shown in
our facultative offer.

Reinsurance premiums for contractual increases will be on a point-in-scale basis from
the original issue date and issue age of the policy.

3. EXTENDED TERM AND REDUCED PAID-UP INSURANCE

If any policy reinsured under this Agreement lapses and either extended term insurance
or reduced paid-up insurance is elected under the terms of the policy, reinsurance will be
continued in accordance with the provisions of the underlying policy. Reinsurance
payments for the adjusted policy will be calculated on the basis of the original issue age
of the insured and the duration of the original policy at the time the adjustment became
effective.

4. REDUCTIONS AND TERMINATIONS

If the amount of insurance on a reinsured policy is reduced and

4.1 Reinsurance is on an excess of retention basis, the amount of reinsurance on
that life will be reduced, effective on the same date, by the full amount of the
reduction under the original policy. If the amount of the insurance terminated
equals or exceeds the amount of reinsurance, the full amount of reinsurance
will be terminated; or

16

4.2      Reinsurance is on a first-dollar quota share basis, the amount of reinsurance on that life will be reduced, effective on the same date, by the same proportion as the reduction under the original policy.

The reduction will first apply to any reinsurance on the policy being reduced and then, if applicable, in chronological order starting with the earliest policy date to any reinsurance on the other policies in force on the life. However, you will not be required to assume a risk for an amount in excess of your regular retention for the age at issue and the mortality rating of the policy under which reinsurance is being terminated.

If reinsurance is in force with more than one reinsurer, the reduction will be applied to all reinsurers on a pro rata basis according to the amounts of reinsurance originally ceded.

If a reinsured policy is lapsed or terminated, the reinsurance will also terminate effective on the same date. If any in force policy is lapsed or terminated and the lapse or termination results in your maintaining less than your full retention, then the procedures specified above for reductions will apply.

We will refund, without interest, all unearned reinsurance premiums resulting from reductions, terminations or changes.

5. REINSTATEMENTS

If a policy reinsured automatically is reinstated in accordance with its terms and in
accordance with your rules and procedures, reinsurance will be reinstated automatically
under the terms of this Agreement. You will notify us of the reinstatement on your
periodic statement of account. You will send us copies of your reinstatement papers only
upon request.

You will need our prior review and approval for reinstatement of any facultative
reinsurance unless all of the following apply:

5.1 You have kept your full retention as shown in Exhibit A.VI, Retention Limits
on the policy;

5.2 The reinsured amount falls within the Automatic Acceptance Limits shown in
Exhibit A.VII; and

5.3 The reinstatement occurs within ninety (90) days of the lapse date.

To request our approval, you must send us prompt written notice of your intention to
reinstate the policy along with copies of the reinstatement papers required by your
standard rules and procedures. The reinsurance will be reinstated at the same time as the
policy, subject to our written approval of the reinstatement.

17

You will notify us of all reinstatements on your periodic statement of account, and you
will pay all reinsurance rates due from the date of reinstatement to the date of the current
statement of account, including a proportionate share of any interest collected.
Thereafter, payment of reinsurance rates will be in accordance with Article V,
Reinsurance Rates and Payments.

6. CONVERSIONS, EXCHANGES, AND REPLACEMENTS

You will promptly notify us if a reinsured policy is converted, exchanged, or internally
replaced. If the conversion, exchange, or replacement is not considered to be new
business, as defined below, we will continue to reinsure the new policy (hereinafter
referred to as a “continuation”) in an amount determined on the same basis as, but not to
exceed, the amount reinsured on the original policy as of the date of conversion,
exchange, or replacement, unless mutually agreed otherwise. If we reinsure the plan to
which the original policy is converting, either under this Agreement or under a different
agreement, reinsurance premium rates for the continuation will be those contained in the
agreement that covers the plan to which the original policy is converting. However, if
we do not reinsure the new plan, reinsurance will be on a YRT basis using the YRT
conversion rates shown in Exhibit C.XX, Conversion Rates. Reinsurance premiums and
any expense allowances for continuations will be based on the issue date of the original
policy and the original issue age of the insured, i.e. on a point-in-scale basis.

A conversion, exchange, or replacement will be considered to be new business provided
all of the following criteria are met:

6.1 The new policy is underwritten in accordance with your normal new business
guidelines and procedures;

6.2 A full first-year commission is paid on the new policy; and

6.3 The new policy provides for the maximum normal periods of suicide and
contestability protection permitted in the state in which the new policy is
issued.

Unless mutually agreed otherwise, any policies that had been reinsured with another
reinsurer and which convert to a plan covered under this Agreement will not be reinsured
with us.

7. LAST SURVIVOR

With respect to any joint and last survivor policy covered hereunder, your retention shall
be equal to the lowest amount which you could have retained according to the retention
limits shown in Exhibit A.VI, Retention Limits and taking into account amounts issued
and retained on either of the lives insured under the joint and last survivor policy.

You may reinsure the policy automatically if both insureds fall within the appropriate
age limits and underwriting classes as specified in Exhibit A.

18

In the event the joint and last survivor policy permits the insureds to split the joint and last survivor policy into separate policies on the life of each insured, the new policies shall be considered continuations as described in Section 6 above. The reinsured premiums for the individual policies shall be in accordance with the terms specified in Exhibit C, Reinsurance Rates & Allowances.

In the event one life is determined to be uninsurable, as described in the guidelines shown in Exhibit A-1, Forms, Manuals, and Issue Rules, the provisions of this Article will continue to apply with the following exceptions:

7.1 You may reinsure the policy automatically only if the insurable life falls within
the Automatic Acceptance Limits for the appropriate age and underwriting
class as specified in Exhibit A.VII, Automatic Limits.

7.2 You need only apply your standard underwriting rules and practices to the
insurable life.

The reinsurance premium shall be computed on the age and premium rates applicable to the insured risk.

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ARTICLE VII - RECAPTURE

1. RETENTION LIMIT INCREASES

If you change your retention limits as shown in Exhibit A.VI, you will provide us with
written notice of the new retention limits and the effective date.

A change in your retention limits will not affect the reinsured policies in force at the time
of the change except as specifically provided elsewhere in this Agreement. Furthermore,
such a change will not affect the Automatic Acceptance Limits shown in Exhibit A.VII,
unless agreed between the parties.

2. BASIS OF RECAPTURE

If you increase your Dollar Retention Limit as shown in Exhibit A.VI, you may reduce
the amount of reinsurance in force through recapture. Reinsured policies are eligible for
recapture if:

2.1 You give us written notice of your intention to recapture within ninety (90)
days of the effective date of the retention increase;

2.2 You have maintained your full retention for the age and mortality rating of the
insured from the time that the policy was issued. No recapture shall be
allowed for polices for which you established special or reduced retention
limits unless you have retained your full retention on existing or concurrent
polices on the insured life;

2.3 You retain all business that is recaptured under the terms of this Article; and

2.4 The policy has been in force under this Agreement for the Recapture Period
shown in Exhibit C.XIX. The recapture period will always be measured from
the original policy issue date. For converted policies the recapture period will
be the greater of the recapture period in the original reinsurance agreement, or
the recapture period in the agreement to which the policy has converted,
measured from the effective date of the original policy.

3. METHOD OF RECAPTURE

If you have given us written notice of your intent to recapture, and the date when
recapture will begin, you may reduce the amount of reinsurance on eligible policies on
the next following policy anniversary date, subject to the following:

3.1 All eligible policies must be recaptured;

3.2 The amount eligible for recapture is equal to the difference between (i) the
amount you originally retained, and (ii) the amount you would have retained,
based on the Percentage Retention Limit in effect at the time of issue, had the
new Dollar Retention Limit been in effect at the time of issue;
3.3 If you increase the Percentage Retention Limit shown in Exhibit A.VI, but not
the Dollar Retention Limit, recapture will not be allowed;

20

3.4	If portions of a reinsured policy eligible for recapture were placed with more than one reinsurer, you must allocate the amount recaptured on a pro rata basis to the total outstanding reinsurance; and
3.5	If at the time of recapture the insured is disabled and premiums are being waived under any type of Disability Benefit Rider, only the life benefit will be recaptured. The reinsured portion of the Disability Benefit Rider will remain in force until the policy is returned to premium-paying status, at which time it will be eligible for recapture.

If you omit or overlook the recapture of any eligible policy or policies, our acceptance of
your reinsurance premium payments after the date the recapture should have taken place
will not cause us to be liable under this Agreement for the amount of the risk that should
have been recaptured. We will be liable only for a refund of those payments received,
without interest.

If your retention increase is due to your acquisition of, or by another company, or your
merger or other organizational affiliation with another company, no immediate recapture
will be allowed. However, you may recapture eligible policies once the Recapture
Period set out in Exhibit C.XIX has expired.

21

ARTICLE VIII - CLAIMS

1. NOTICE OF CLAIM

When you receive notice that a claim has been incurred on a policy reinsured under this
Agreement, you must promptly notify us. You will also forward copies of the death
certificate, proof of payment, and the claimant's statement when the amount reinsured
with us exceeds $250,000. For a claim incurred during the contestable period of the
policy, you will forward copies of the application, underwriting papers, and any
investigative reports. You will provide copies of other claim documents upon our
request.

For joint and last survivor business, if you are notified of first death under a reinsured
policy, you must in turn notify us immediately.

We will have no liability for claims on policies not meeting the coverage requirements of
the applicable sections of Article II, Reinsurance Coverage.

2. SETTLEMENT OF CLAIMS

For us to have any liability, reinsured claims must meet the following conditions.

2.1 The total reinsurance recoverable will not exceed your total contractual
liability under the terms of the policy less the amount you have retained;

2.2 The claim will be adjudicated according to the standard procedures you
apply to all claims, whether reinsured or not, and on all foreign risk claims
whether contestable or not;

2.3 You will conduct a routine investigation on all contestable claims and you
will promptly advise us if there are any exceptions; and

2.4 You have not made a business decision to pay a claim that normal claim
adjudication practices would indicate is not payable.

For the settlement of Waiver of Premium Disability or other Disability Rider benefits,
we will pay you our proportional share of the gross premium waived annually. Refunds
of unearned reinsurance premiums less applicable expense allowances or discounts will
be reflected on your billing statement.

We will accept your good faith decision on any non-contestable claim. We reserve the
right to request copies of the application, underwriting files, and any investigative reports
for any non-contestable claim.

You will consult with us on all contestable claims where the amount reinsured with us
exceeds the amount you have retained for the risk. We will notify you promptly of our
decision.

22

3. CONTESTED CLAIMS

You will notify us within fifteen (15) days of your decision if you intend to contest,
compromise, or litigate a claim involving reinsurance under this Agreement. You will
also provide us with all information relating to the claim. We will notify you within
fifteen (15) days of our receipt of all documents requested whether we will participate or
not in the contest. If we decline to participate in the contest, we will immediately pay
you the full amount of reinsurance due. Once we have paid our reinsurance liability, we
will not be liable for legal and/or investigative expenses associated with the contest,
compromise, or litigation, nor will we share in any refund that you may receive due to
the contesting of the claim.

If we agree to participate in a contest, compromise, or litigation involving reinsurance,
you will give us prompt notice of the commencement of any legal proceedings involving
the contested policy and you will promptly furnish us with copies of all documents
pertaining to a lawsuit or notice of intent to file a lawsuit by any of the claimants or
parties to the policy. We will share in the payment of legal or investigative expenses
relating to a contested claim in the same proportion as our liability bears to your liability.
We will not reimburse expenses associated with non-reinsured policies.

If we participate and your contest, compromise, or litigation results in a reduction in the
liability of the contested policy, we will share in the reduction in the same proportion
that the amount of reinsurance bore to the amount payable under the terms of the policy
on the date of death of the insured. If we participate and your contest, compromise, or
litigation results in a dismissal of the claim and a return of the premiums, we will refund
all reinsurance premiums that you have paid to us.

4. CLAIM EXPENSES

We will pay our proportionate share of the following expenses arising out of the
settlement or litigation of a claim, providing that the expenses are reasonable:

4.1 Investigative expenses;

4.2 Attorneys' fees;

4.3 Penalties and interest imposed automatically against you by statute and rising
solely out of a judgment rendered against you in a suit for policy benefits; and

4.4 Interest paid to the claimant on death benefit proceeds according to your
practices.

Our share of claim expenses will be in the same proportion that our liability bears to your
liability.

You will be solely responsible for payment of the following claim expenses, which are
not considered items of net reinsurance liability:

4.5 Routine administrative expenses for the home office or elsewhere, including
your employees' salaries; and

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4.6 Expenses incurred in connection with any dispute or contest arising out of a
conflict in claims of entitlement to policy proceeds or benefits which you
admit are payable.

5. OTHER NON-CLAIM LITIGATION EXPENSES

This Agreement does not provide for reimbursement of legal expenses other than as
specified in Article VIII.4. It is recognized that non-claim related legal actions involving
reinsured policies may occur. These may include, but are not limited to, live rescissions,
market/agent conduct, or class action suits. No reimbursement will be made for these
actions without our prior written consent.

6. MISSTATEMENT OF AGE OR SEX

If the amount of insurance on any policy reinsured under this Agreement is adjusted due
to a misstatement of age or sex being established after the death of an insured life, the
parties will share in such adjustment in proportion to their respective net amounts at risk
under the policy.

7. EXTRA-CONTRACTUAL DAMAGES

We will not be liable for nor will we pay any extra-contractual damages, including but
not limited to compensatory or punitive damages which are awarded against you, or
which you pay voluntarily, in settlement of a dispute or claim where damages were
awarded as the result of any direct or indirect act, omission, or course of conduct
undertaken by you or your agents or representatives, in connection with any aspect of the
policies reinsured under this Agreement.

We will, however, pay our share of statutory penalties awarded against you in connection
with claims covered under this Agreement if we elected to join in any contest of the
coverage in question.

We recognize that special circumstances may arise in which we should participate to the
extent permitted by law in certain assessed damages. These circumstances are difficult
to describe or define in advance but could include those situations in which we were an
active party in the act, omission, or course of conduct of the original issuing company,
which ultimately resulted in the assessment of the damages. The extent of our
participation in these circumstances is dependent upon a good-faith assessment of the
relative culpability in each case; but all factors being equal, the parties would generally
share in the same proportion as their relative net liabilities in the division of any such
assessment. For the purposes of this provision, the following definitions shall apply:

“Compensatory Damages” are those amounts which are awarded to compensate for
actual damages sustained, and are not awarded as a penalty, nor fixed in amount by
statute.

“Punitive Damages” are those damages which are awarded as a penalty, the amount of
which is not governed, nor fixed, by statute.

24

“Statutory Penalties” are those amounts which are awarded as a penalty, but fixed in amount by statute.

25

ARTICLE IX - OFFSET

The parties agree to offset any balance(s), whether on account of premiums, claims,
allowances, expenses, or any other amount(s) due from one party to the other party under
this Agreement or any other reinsurance agreement between them. It is agreed that
claims will not be offset until the claim procedures outlined in the Article VIII, Claims
have been followed.

The right of offset will not be affected or diminished because of the insolvency of either
party.

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ARTICLE X - ERRORS AND OMISSIONS

An error or omission occurs when either party fails to comply with any of the terms of
this Agreement. If such failure to comply results from an unintentional
misunderstanding, oversight, or clerical error, and if upon discovery of the error or
omission by either party the other is promptly notified, then this Agreement will not be
deemed to be abrogated thereby. If such failure to comply results from any other type of
act or if the other party is not promptly notified when the error or omission occurs, this
Agreement in its entirety may be subject to termination unless both parties reach an
agreement to the contrary.

When an act is determined to be an error or omission, the party whose act caused the
error or omission will take the remedial actions or steps necessary to restore both parties
to the position they would have held or occupied if no such error or omission had
occurred. If that is not possible, the parties will endeavor in good faith to promptly
resolve the situation in a manner that is fair and reasonable and most closely
approximates the intent of the parties as evidenced by this Agreement. However, in no
event will our liability be extended to cover policies that do not satisfy the parameters of
this Agreement or to exceed the limits provided herein.

If either party discovers that you did not cede reinsurance on a policy that should have
been reinsured under this Agreement, you shall take the necessary actions or steps in a
reasonable and timely manner to prevent such oversights from recurring in the future. If
you fail to take the necessary actions or steps to remedy such a situation, we reserve the
right to limit our liability to the amounts reported.

For greater clarity, acts or circumstances which are not considered to be errors or
omissions for the purpose of this Article will include, but not be limited to:

10.1 Unresolved, repetitive reporting errors resulting from your neglect or
mismanagement. In this situation you will conduct an audit to identify and
report all policies requiring correction within ninety (90) days, or a time period
mutually agreed upon by the parties. You will pay any premiums due under
Article V, Reinsurance Rates and Payments. In the event you fail to make the
necessary correction within the time period specified above, we reserve the
right to limit our liability. In the event premium refunds are due you, we will
pay them without interest;

10.2 Any act, error, omission, or oversight, whether intentional or unintentional,
which is the result of your not adhering to your regular requirements in the
underwriting, approval, issuance, or administration of the insurance or the
associated reinsurance by you, or by your agents or representatives;

10.3 Any failure to arrange for reinsurance under this Agreement due to your
practice of conducting a limited search of your records for other prior in force
insurance on the same life;

10.4 Facultatively submitted business where you have either not notified us of your
acceptance of our unconditional offer within the time period specified in the
offer or have incorrectly advised us to close our file; and

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10.5      Any error or omission discovered more than seven (7) years following the termination or expiry of the last cession remaining in force under this Agreement.

28

ARTICLE XI - DISPUTE RESOLUTION AND ARBITRATION

1. DISPUTE RESOLUTION

In the event of a dispute arising out of or relating to this Agreement, the parties agree to
the following process of dispute resolution.

Within ten (10) business days after one of the parties has given the other the first written
notification of the specific dispute, each of the parties will appoint a designated officer to
attempt to resolve the dispute. The officers will meet at a mutually agreeable location as
early as possible and as often as necessary, in order to gather and furnish the other with
all appropriate and relevant information concerning the dispute. The officers will
discuss the problem and will negotiate in good faith without the necessity of any formal
arbitration proceedings. During the negotiation process, all reasonable requests made by
one officer to the other for information will be honored. The designated officers will
decide the specific format for such discussions.

If the officers cannot resolve the dispute within thirty (30) days of their first meeting, the
parties agree that they will submit the dispute to formal arbitration. However, the parties
may agree in writing to extend the negotiation period for an additional thirty (30) days.

2. BASIS FOR ARBITRATION

The parties understand and agree that the wording and interpretation of this Agreement is
based on the usual customs and practices of the insurance and reinsurance industries.
While the parties agree to act in good faith in their dealings with each other, it is
understood and recognized that situations could arise in which they will not be able to
reach an agreement.

3. ARBITRATION PROCEEDINGS

To initiate arbitration, either party will notify the other in writing of its intent to arbitrate,
stating the nature of the dispute and the remedies sought. The party to which the notice
is sent will have fifteen (15) days from receipt to respond confirming its receipt and
readiness to arbitrate.

The arbitration panel, consisting of three past or present officers of life insurance or life
reinsurance companies not affiliated with either of the parties in any way, will settle the
dispute. Each of the parties will appoint one arbiter within thirty (30) days following the
date of the response to the initial arbitration notice. The two appointed arbiters will
select a third arbiter within thirty (30) days following the selection of the second arbiter.
If the two arbiters cannot agree on a third arbiter, the selection will be made by the
Chairman of the American Arbitration Association. Once chosen, the arbiters will
decide all substantive and procedural issues by a majority of votes.

The arbitration proceedings will be conducted according to the Commercial Arbitration
Rules of the American Arbitration Association which are in effect at the time the
arbitration begins.

The arbitration will take place in xxxxx unless the parties mutually agree otherwise.

29

Within sixty (60) days after the beginning of the arbitration proceedings the arbitrators
will issue a written decision on the dispute and a statement of any award to be paid as a
result. The decision will be based on the terms and conditions of this Agreement as well
as the usual customs and practices of the insurance and reinsurance industries, rather
than on strict interpretation of the law.

The parties may agree to extend any of the negotiation or arbitration periods shown in
this Article.

Unless otherwise decided by the arbitrators, the parties will share equally in all expenses
resulting from the arbitration, including the fees and expenses of the arbitrators, except
that each of the parties will be responsible for its respective attorneys' fees.

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ARTICLE XII - INSOLVENCY

A party to this Agreement will be deemed "insolvent" when it:

1.1 Applies for or consents to the appointment of a receiver, rehabilitator,
conservator, liquidator or statutory successor of its properties or assets; or

1.2 Is adjudicated as bankrupt or insolvent; or

1.3 Files or consents to the filing of a formal application for dissolution,
liquidation, or similar action under state law or statute; or

1.4 Becomes the subject of an order to rehabilitate or an order to liquidate as
defined by the insurance code of the jurisdiction of the party’s domicile.

If you are judged insolvent, we will pay all reinsurance under this Agreement directly to
you, your liquidator, receiver, or statutory successor on the basis of your liability under
the policy or policies reinsured without diminution because of your insolvency. It is
understood, however, that in the event of your insolvency, the liquidator, receiver, or
statutory successor will give us written notice of a pending claim on a policy reinsured
within a reasonable time after the claim is filed in the insolvency proceedings. While the
claim is pending, we may investigate and interpose, at our own expense, in the
proceedings, where the claim is to be adjudicated, any defense that we may deem
available to you, your liquidator, receiver, or statutory successor. It is further understood
that the expense we incur will be chargeable, subject to court approval, against you as
part of the expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to you solely as a result of the defense we have undertaken. Where
two or more reinsurers are involved in the same claim, and a majority in interest elects to
interpose defense to the claim, the expenses will be apportioned in accordance with the
terms of the reinsurance agreement as though you had incurred the expense. We will be
liable only for the amounts reinsured and will not be or become liable for any amounts or
reserves to be held by you on reinsured policies.

If we are judged insolvent, we will be considered in default under this Agreement and
you may terminate this Agreement immediately for new business. The notification
period required under Article XVI, Duration of Agreement shall be waived under such
circumstances. Amounts due us will be paid directly to our liquidator, receiver or
statutory successor without diminution because of our insolvency.

In the event of insolvency, the right of Offset afforded under Article IX will remain in
full force and effect to the extent permitted by applicable law.

31

ARTICLE XIII - INSPECTION OF RECORDS

We, or our duly appointed representatives, will have access to your original papers,
records, books, files, and other documents relating directly or indirectly to the
reinsurance coverage under this Agreement for the purpose of inspecting, auditing, and
photocopying those records. You will provide such access at the office(s) where such
records are kept during reasonable business hours.

Provided there is business in force under this Agreement, our right of access will survive
the termination of this Agreement.

32

ARTICLE XIV - LETTER OF CREDIT

1. RESERVE CREDIT

For those states in which we are not licensed, admitted, or authorized and you are
consequently not permitted to take reserve credit on your Annual Statement for all or a
part of the reinsurance ceded to us, we will furnish a clean, unconditional, evergreen and
irrevocable Letter of Credit. The Letter of Credit will be issued by a bank which is
neither a parent, subsidiary, nor an affiliate of the parties (hereinafter referred to as the
“designated bank”) in an amount equal to the reserves ceded to us. The designated bank
must be organized or licensed in the United States and must appear on the list of
approved banks published by the Securities Valuation Office of the National Association
of Insurance Commissioners.

We will bear the cost of the Letter of Credit.

2. LETTER OF CREDIT DRAW

It is understood that you may draw on the Letter of Credit at any time, notwithstanding
any other provisions herein. You undertake to use and apply any amount, which you
may draw upon the Letter of Credit, pursuant to the terms of this Agreement under which
the Letter of Credit is held, and only for the following purposes:

2.1 To reimburse you for our share of any net obligations currently due and
payable under this Agreement;

2.2 To the extent required by law, to fund an account representing our net
obligations currently due and payable under this Agreement; or

2.3 To pay other amounts due you under this Agreement.

You agree to return to us any amounts drawn on Letters of Credit which are in excess of
the actual amounts required for 2.1 or 2.2 above, or in the case of 2.3 above, any amounts
that are subsequently determined not to be due.

The amounts drawn under any Letter of Credit will be applied without diminution
because of the insolvency of either party. The designated bank shall have no
responsibility whatsoever in connection with the propriety of withdrawals made by you
or the disposition of funds withdrawn, except to see that withdrawals are made only upon
the order of your properly authorized representatives.

33

ARTICLE XV - CONFIDENTIALITY

The parties agree to treat all customer and proprietary information as confidential.
Customer information includes, but is not limited to, medical, financial, and other
personal information about proposed, current, and former policyowners, insureds,
applicants, and beneficiaries of policies you issue. Proprietary information includes, but
is not limited to, business plans and trade secrets, mortality and lapse studies,
underwriting manuals and guidelines, applications and contract forms, and the specific
terms and conditions of this Agreement.

The parties mutually recognize the need to share certain information with auditors,
regulators, and retrocessionaires in the normal course of conducting business.

34

ARTICLE XVI - DURATION OF AGREEMENT

This Agreement is unlimited as to its duration. Either of the parties may terminate this
Agreement for new reinsurance at any time by giving at least ninety (90) days written
notice of termination to the other party, unless mutually agreed otherwise.

During the notification period, you will continue to cede and we will continue to accept
policies covered under the terms of this Agreement.

Our liability for reinsured policies, which are in force as of the effective date of the
termination, will continue as long as you continue to pay reinsurance premiums as
specified in Article V, Reinsurance Rates and Payments.

35

ARTICLE XVII - EXECUTION OF THE AGREEMENT

This Agreement has been made in duplicate and is hereby executed by both parties.

NATIONAL LIFE INSURANCE COMPANY Montpelier, Vermont

Signature	Signature
Title	Title
Date	Date

Signature	Signature
Title	Title
Date	Date

36

EXHIBIT A – REINSURANCE COVERAGE

(Effective December 1, 2008)

I.	EFFECTIVE DATE
	December 1, 2008
II.	CEDING COMPANY’S STATE OF DOMICILE
	Vermont
III.	BUSINESS COVERED
	Policies on plans shown in Section V below, which have policy issue dates that fall
	in the period that begins with the Commencement Date and ends with the
	Termination Date, and that qualify for automatic reinsurance are covered under this
	Agreement, according to the basis specified in Section IV below.
	The Reinsurer will provide reinsurance coverage under the Agreement for policies
	resulting from a term conversion of a policy not previously reinsured by the
	Reinsurer if the converted policy exceeds the Company’s retention limit at the time
	of conversion.
IV.	BASIS OF REINSURANCE
	Our share will be xx% of the total ceded amount on each policy in excess of your
	retention limit shown in Section VI below. This amount will not exceed the
	maximum Automatic Acceptance Limit shown in Section VII below.
V.	PLANS, RIDERS, AND OTHER BENEFITS

	Exhibit
	Reference	Commencement	Termination
Plan Identification	for Rates	Date	Date
NaviTrak	C-1	12/1/08
NLG120
Estate Provider
NL AssurePlus Protector
Investor Select
VariTrak
Sentinel Estate Provider
Asset Builder
Summit
Valuguard
LifeBuilder
Ultra
Ultra Select
Miscellaneous Traditional Whole Life Products
Policy Split Option Rider

37

EXHIBIT A (Continued)

(Effective December 1, 2008)

PLANS, RIDERS, AND OTHER BENEFITS (continued)
	Exhibit
	Reference	Commencement Termination
Plan Identification	for Rates	Date	Date
Continuing Coverage Rider	C-1	12/1/08
Estate Preservation Rider
Enhanced Death Benefit Rider
Additional Protection Benefit Rider
Automatic Increase Rider
Individual Term Rider
Accelerated Benefit Rider – Terminal Illness, Chronic Illness, NY Chronic Illness,
Critical Illness
Qualified Plan Exchange Privilege
Other Insured Rider
Additional Protection Benefit
Accelerated Care Rider
Beneficiary Insurability Option
Annual Premium Adds Rider
Single Premium Adds Rider
Flex Term Rider
Exchange to New Insured
Term Purchase Provision Rider
Reinsurance coverage will provide neither loan nor cash surrender values.

38

EXHIBIT A (Continued)

(Effective December 1, 2008)

VI.	RETENTION LIMITS
	A. LIFE INSURANCE BENEFITS

You will retain the following amounts:

Dollar Retention Limit, No Aviation or Foreign Risks:

Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-70	$2,000,000	$2,000,000	$2,000,000
71-80	$2,000,000	$2,000,000	$2,000,000
81-85	$2,000,000	$2,000,000	$2,000,000
86-90	$2,000,000	$2,000,000	$2,000,000
Dollar Retention Limit, Aviation Risks Included:
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-70	$2,000,000	$2,000,000	$2,000,000
71-80	$2,000,000	$2,000,000	$2,000,000
81-85	$2,000,000	$2,000,000	$2,000,000
86-90	$2,000,000	$2,000,000	$2,000,000

Each limit specified in the schedule represents the total for the Company and its
subsidiary companies combined.

Except as noted below, the Company will retain the above amounts on any one
life.

1. For second-to-die policies, the maximum retention per policy is $2
million less the greater amount inforce on either life.
2. In addition to the basic retention, the Company will retain the full
amounts of additional insurance provided in the following situations:
a. Accidental Death Benefit (ADB) rider
b. The Company’s employee term insurance
c. Additional Insurance Option (AIO) rider
d. Guaranteed issue / simplified issue underwriting
e. Waiver of Premium (WP) rider
f. Waiver of Monthly Deductions (WMD) rider
3. The amount of Estate Preservation Rider is included in the initial
retention calculation. However at the time the Estate Preservation Rider
cancels in four (4) years, the Company will not recapture up to the full
retention amount. The Company will continue to reinsure the same
percent at time of issue.

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EXHIBIT A (Continued)

(Effective December 1, 2008)

4. On all plans other than universal life, the Company will retain, in
addition to its basic retention, a share proportional to its basic retention
of the additional insurance provided in the following situations:
a. Purchased by dividends
b. Issued under the terms of its Annual Premium Adds Rider
(APAR)

B. WAIVER OF PREMIUM DISABILITY BENEFITS

Not Reinsured

C. ACCIDENTAL DEATH BENEFITS

Not Reinsured

D. MINIMUM INITIAL CESSION

The minimum cession is $100,000 for facultative cessions. No minimum
initial cession amount shall apply for automatic cessions.

E. TRIVIAL AMOUNTS

Reinsurance on any policy will be canceled as of the policy anniversary that our
net amount at risk falls below $0.

40

EXHIBIT A (Continued)

(Effective December 1, 2008)

VII. AUTOMATIC LIMITS

A. Automatic Binding Limits - All Reinsurers (Inclusive of Your Retention)

Amounts you may reinsure automatically with all reinsurers, inclusive of your
retention, are shown below.

i. SINGLE LIFE

No Aviation or Foreign Risks
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-75	$30,000,000	$30,000,000	$30,000,000
76-80	15,000,000	15,000,000	15,000,000
Aviation Risks
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-75	$30,000,000	$30,000,000	$30,000,000
76-80	15,000,000	15,000,000	15,000,000
Foreign Risks
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-75	$30,000,000	$30,000,000	$30,000,000
76-80	15,000,000	15,000,000	15,000,000
ii. JOINT LIFE
Both insureds – ages up to 75, standard rating			$30,000,000
One or both insureds – ages 76-80, standard rating			$15,000,000
One or both insureds – ages 76-80, substandard rating			Facultative
One or both insureds – ages over 80
One or both insureds – substandard rating
iii. WAIVER OF PREMIUM
Not Reinsured

41

EXHIBIT A (Continued)

(Effective December 1, 2008)

iv. ACCIDENTAL DEATH BENEFIT

Not Reinsured

v. AUTOMATIC INCREASE RIDER

The dollar limits specified above are inclusive of any scheduled increases, for policies issued with the Automatic Increase Rider.

B.	Automatic Acceptance Limits
	We	will accept automatically our xx% quota share, not to exceed the amounts
	shown	below:
	i.	LIFE

No Aviation or Foreign Risks
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-75	$2,800,000	$2,800,000	$2,800,000
76-80	$1,300,000	$1,300,000	$1,300,000
Aviation Risks
Issue Age	Standard – Table 4	Table 5 – Table 8	Table 9 – Table 16
0-75	$2,800,000	$2,800,000	$2,800,000
76-80	$1,300,000	$1,300,000	$1,300,000
BIO Rider:

The Reinsurer agrees to accept xx% of the following amount on any BIO Rider:

BIO Rider Face Amount less the Company’s available retention.

The Company’s total automatic coverage for the BIO Rider, including the Company’s retention, $9,000,000, subject to the Automatic Binding Limits in Exhibit A, Section VII.A.i. The total amount of insurance in force on the life applying for a BIO Rider, plus the amount of BIO Rider being applied for, cannot exceed the limits shown in Exhibit A, Section VII.A.i.

ii. WAIVER OF PREMIUM

Not Reinsured

42

EXHIBIT A (Continued)

(Effective December 1, 2008)

iii. ACCIDENTAL DEATH BENEFIT

Not Reinsured

iv. AUTOMATIC INCREASE RIDER

The dollar limits specified above are inclusive of any scheduled increases,
for policies issued with the Automatic Increase Rider.

VIII. JUMBO RISK

A “Jumbo Risk” is any risk where your underwriting papers indicate that (i) the total
life insurance in force, including any amounts to be replaced as stated on a signed
Part 1 of any application or signed amendment, plus (ii) the total new ultimate
amount applied for on the insured's life in all companies exceeds $50,000,000. Joint
last-to-die or joint first-to-die policies will be considered Jumbo Risks when such
total amount of insurance in force and applied for on either life exceeds $50,000,000.
Amounts to be replaced cannot be deducted from the total amount in force. If the
policy is issued with an Automatic Increase Rider, all scheduled increases will be
assumed to take effect in determining if the risk qualifies as a jumbo risk.

IX. FACULTATIVE SUBMISSIONS

You may submit to us, on a facultative basis, any application for a policy on a plan
or rider listed in Section V above which qualifies for automatic reinsurance.

You must submit to us, on a facultative basis, any application for a policy on a plan
or rider listed in Section V above which does not qualify for automatic reinsurance,
as well as any application for a policy on a plan or rider not listed in Section V above
provided it meets the criteria outlined in Article II.1, Scope of Coverage.

Facultative cessions will be accepted at the automatic rates.

The minimum facultative cession size is $100,000.

43

EXHIBIT A-1 – FORMS, MANUALS, AND ISSUE RULES

(Effective December 1, 2008)

The Ceding Company affirms that its retention schedule, underwriting guidelines, issue rules, premium rates and policy forms applicable to the policies reinsured under this Agreement and in use as of the effective date of this Agreement have been supplied to the Reinsurer. This includes:

1.	Policy Application Form(s)		Supplied
2.	Conditional Receipt or Temporary Insurance Agreement Form(s)						Supplied
3.	Primary Underwriting Manual used will be: Swiss Re
4.	Statement of Good Health
5.	Policy Delivery Rules and Reinstatement Rules					Supplied
6.	Non-medical and Medical Requirements:				Submitted
7.	Preferred Underwriting Guidelines:			Submitted
8.	Premium Rates:	Submitted
9.	Retention Schedule:	See Exhibit A, VI
10.	Allocation Rules for Facultative Cases Among Reinsurers
11.	Underwriting guidelines for uninsurables under Joint and Last Survivor policies
12.	Internal Underwriting Audit Control Procedures

You will promptly notify us of any proposed changes to the above underwriting guidelines, issue rules, premium rates, retention schedule and policy forms. We shall be entitled to thirty (30) calendar days following the receipt of such notice in which to review such revisions. If we fail to provide written notice within the thirty (30) calendar day review period that the revisions are not acceptable to us, the revisions shall be deemed acceptable. This Agreement will not extend to policies issued pursuant to such changes unless we have consented in writing to accept reinsurance on policies subject to such changes.

It is your responsibility to ensure that your practices and the applicable forms are in compliance with current Medical Information Bureau (M.I.B.) guidelines.

44

EXHIBIT B – REINSURANCE ADMINISTRATION

(Effective December 1, 2008)

Reinsurance administration and reinsurance accounting will be on a self-administered basis.
Annual reinsurance premiums will be paid in advance at the end of each month for all reinsured
policies having an anniversary in that month. Valuation and policy exhibit reports will be
submitted quarterly. For each reporting period you will submit to us a statement containing
information in general compliance with the following:
I.	MONTHLY IN FORCE DETAIL REPORT
	Policy Number
	Name of Insured
	Date of Birth
	Sex
	Risk Classification Code (Preferred NT, Standard NT, etc.)
	Automatic/Facultative/Facultative Obligatory Code
	YRT/Coinsurance Code
	Foreign Risk Indicator
	Original Issue Date
	Issue Date
	Flat Extra Rate
	Flat Extra Duration
	Flat Extra Reinsurance Rate
	Flat Extra Allowances
	Age Nearest/Last Indicator
	Treaty Code
	Substandard Percentage
	Plan Name (Your Product Name)
	Plan Type (Whole Life, Term, UL, Variable UL, etc.)
	Joint Policy Indicator*
	Original Amount of Insurance You Issued
	Original Amount Reinsured With Us
	Current Net Amount at Risk Reinsured
	*For Joint Policies, include also the following:
	For All Insureds Covered Under the Policy:
	Names of Insureds
	Dates of Birth
	Sex of Insureds
	Smoker/Non Smoker Codes
	Substandard Percentages

45

EXHIBIT B (Continued)

(Effective December 1, 2008)

II.	MONTHLY BILLING INFORMATION
	Policy Number
	Billing Date
	Transaction Code (New Business, Lapse, Amendment, etc.)
	Transaction Date
	Current Net Amount at Risk
	Billed Reinsurance Rate (Life, WP, ADB, Flat Extra, etc.)
Billed Allowances (Life, WP, ADB, Flat Extra, etc.)
III.	MONTHLY PREMIUM SUMMARY REPORT

(Information should be summarized)

FY RY

TOTAL

Life 

WP 

ADB 

Flat Extra 

Total 

Policy Fees 

Life Allowances 

WP Allowances 

ADB Allowances 

Flat Extra Allowances 

Total Allowances 

Premium Taxes (if applicable) 

Total Amount Due = (Total + Policy Fees) - (Total Allowances + Premium Taxes) 

The summary should balance to the Monthly Detail Report. 

46

	EXHIBIT B (Continued)
	(Effective December 1, 2008)
IV.	QUARTERLY VALUATION REPORT
	Statutory	Tax Reserves
	Reserves	(annual only)
	Basic
	Waiver
	Active Lives
	Disabled Lives
	ADB
	Deficiency
	Other
	Total
V.	QUARTERLY POLICY EXHIBIT
	From	Reporting Period:
	Activity For Period
	Case
	Count	Volume
	Beginning In Force
	New Business
	Reinstatements
	Other Increases
	Conversions On
	Conversions Off
	Not Takens
	Deaths
	Lapses
	Cancellations
	Surrenders
	Recaptures
	Other Decreases
	Ending In Force

47

EXHIBIT B (Continued)

(Effective December 1, 2008)

NOTES:

1. Any activity resulting from the insured having exercised a conversion privilege or
similar option granted under policy provisions should be reflected in the
"Conversion Off" or "Conversion On" categories, rather than being reflected in the
"New Business or "Lapse" categories. For the purposes of this Agreement, any such
change will be considered a continuation of the original policy.

"Conversion Off" denotes policies terminated as a result of a conversion;
"Conversion On" denotes new policies resulting from such conversions.

The combination of "Conversion Off" and "Conversion On" will normally net to
zero for both policy count and volume in the Policy Exhibit totals.

2. A separate Policy Exhibit should be prepared for each Premium Summary Report.

VI. ANNUAL OPINIONS

In addition to the quarterly valuation report listed in Section IV above, you will
provide to us on an annual basis a copy of any Actuarial Report in support of any X
factor certification you are required to prepare for any business reinsured hereunder.

48

EXHIBIT B-1 – CONDITIONAL RECEIPT OR TEMPORARY INSURANCE AGREEMENT

(Effective December 1, 2008)

Conditional Receipt Form

or

Temporary Life Insurance Agreement Form

(Attach a copy of Company’s CR or TIA form)

49

EXHIBIT C – REINSURANCE RATES AND ALLOWANCES

(Effective December 1, 2008)

I.	AGE BASIS
	Age Nearest Birthday
II.	NET AMOUNT AT RISK
	The reinsured net amount at risk as defined below is the total ceded to all reinsurers.
	Our liability will be limited to our share of the reinsured net amount at risk as defined in
	Exhibit A.IV.
	A.	Traditional Whole Life
		The reinsured net amount at risk will be the difference between the reinsured
		face amount and the cash values applicable to the reinsured face amount.
		Reinsured face amount is the initial amount reinsured under this Agreement or as
		reset by subsequent scheduled or fully underwritten increases, and includes a
		proportionate share of additional insurance purchased by dividends or annual
		premium adds riders. Reinsured amounts for traditional whole life policies are
		approximated using a ten year interpolation method with the exception of NL
		Asset Builder, which uses a five year interpolation method.
	B.	UL, VUL, and IUL
		The retained amount will be fixed at issue. The reinsured net amount at risk will
		be the excess of the policy’s net amount at risk over the retained amount.
		Fluctuations in the amount at risk caused by the normal workings of the cash
		value fund will be reflected in the reinsured net amount at risk.
III.	REINSURANCE PREMIUMS
	You will pay us a basic premium calculated by multiplying the net amount at risk by the
	appropriate rate shown in Section IV below. You will continue to pay the appropriate
	premium as long as the reinsured policy remains in force and continues to require
	reinsurance.

50

EXHIBIT C (Continued)

(Effective December 1, 2008)

IV. RATES FOR LIFE REINSURANCE

The YRT Rates shown in this Exhibit are annual rates for standard risks and are per
$1,000 of life benefit reinsured. The pay percentages are to be applied to the 1990-95
Basic Select and Ultimate Mortality ANB Table and are level in all years, including the
first year. These rates apply to both automatic and facultative cessions.

NOTES:
1. Unisex rates will be based on an 80% male, 20% female blend of the mortality table
referenced above.

2. For UL and VUL Joint Life products, the rates charged are the above percentages of
the 1990-95 table, adjusted for ratings and then Frasierized. The minimum annual
premium after Frasierization is $xx/1000.

3. For Traditional Joint Whole Life, the YRT rates are xx% of the Traditional Joint
Life Rate table attached as Exhibit C-1 and are per $1,000 of the life benefit
reinsured. These pay percentages are level in all years, including the first year.

4. Maximum premium for joint life policies is $xxx per $1,000.

5. Standard Nonsmoker rates shall be used for juveniles ages 0-19.

6. Unless specified below, reinsurance rates applied to additional insurance purchased
by riders shall be those applicable to the base policy.

V. POLICY FEE

We will not participate in any policy fee.

EXHIBIT C (Continued)

(Effective December 1, 2008)

VI. RATES FOR SUBSTANDARD TABLE RATINGS

For substandard risks issued with a table rating, the standard rate will be multiplied by
25% per table of assessed rating.

VII. RATES FOR FLAT EXTRA RATINGS

Substandard risks issued with a flat extra rating will be coinsured. You will pay us the
appropriate portion of the flat extra premium charged the insured, less the following
allowances:
VIII. RATES FOR WAIVER OF PREMIUM DISABILITY BENEFIT

51

Not Reinsured

IX. RATES FOR ACCIDENTAL DEATH BENEFIT

Not Reinsured

X. RATES FOR ACCELERATED CARE RIDER AND ACCELERATED BENEFIT
RIDERS

You pay no premium for the benefit and we pay you the discounted death benefit.

XI. RATES FOR BENEFICIARY INSURANCE OPTION

The Rider for Beneficiary Insurance Option will be reinsured on a coinsurance basis with
a xx% first year allowance and xx% renewal allowances. Point-in-scale YRT rates will
be charged on the new policy when it is issued.

XII. RATES FOR AUTOMATIC INCREASE RIDER

The rates for the increases will be point-in-scale rates for the base policy.

XIII. RATES FOR CONTINUING COVERAGE RIDER

The Continuing Coverage Rider will be reinsured on a coinsurance basis with a xx%
allowance in all years.

52

EXHIBIT C (Continued)

(Effective December 1, 2008)

XIV. RATES FOR QUALIFIED PENSION EXCHANGE PRIVILEGE RIDER

The rates will be point-in-scale based on the issue date of the original policy.

XV. RATES FOR EXCHANGE TO NEW INSURED RIDER

The rates will be based on issue date of the new policy.

XVI. RATES FOR POLICY SPLIT OPTION RIDER

If the rider is exercised, point-in-scale single life rates will be paid.

XVII. RATES FOR OTHER INSURED RIDER & INDIVIDUAL TERM RIDER

The rates will be based on the issue date of the rider and will be the YRT rates applicable
to the insured being covered under the rider.

XVIII. PREMIUM TAXES

We will not reimburse you for premium taxes any for reinsurance ceded hereunder.

XIX. RECAPTURE PERIOD

Recapture will be allowed after 20 years, as provided in Article VII.

XX. CONVERSION RATES

The YRT rates in Exhibit C.IV shall be applicable to conversions, exchanges, and
replacements. If non-underwritten, the rates will be point-in-scale measured from the
date of issue of the original policy. If underwritten at the time the new policy is issued,
new issue rates will apply.

XXI. EXPERIENCE REFUND

Reinsurance under this Agreement is not eligible for an experience refund.

53

EXHIBIT C-1 – REINSURANCE RATE TABLE

54

EXHIBIT D – CONDITIONAL RECEIPT LIABILITY

(Effective December 1, 2008)

I. AUTOMATIC REINSURANCE

We will be liable for losses under the terms of a Conditional Receipt or Temporary
Insurance Agreement only when the following qualifications are met:

a) We have reviewed your Conditional Receipt or Temporary Insurance Agreement
Form and have given you our written acceptance of the terms and procedures
contained in the Form;

b) The risk would have qualified for automatic coverage under this Agreement;

c) You have kept your full retention or maximum quota share percentage for the age
and table rating of the insured;

d) The amount ceded to us does not exceed the Automatic Acceptance Limits shown in
Exhibit A. Your retention will include any amounts retained under any in force
policy on the life; and

e) The receipt was issued within your usual cash-with-application procedures.

Continuation of our liability for Conditional Receipt or Temporary Insurance Agreement
coverage is subject to your notifying us of changes to your application, receipt forms or
procedures and practices for issuing life insurance covered under this Agreement.

II. FACULTATIVE REINSURANCE

We will not be liable for a claim incurred under the terms of a Conditional Receipt or
Temporary Insurance Agreement for a risk that has been submitted to us on a facultative
basis until you have accepted our final offer and our underwriting department has
received notification of such acceptance of our offer during the lifetime of the insured
and before the expiration date of our offer.

55

EXHIBIT D-1 – INTERNAL CONDITIONAL RECEIPT PROCEDURES

(Effective December 1, 2008)

Refer to Conditional Receipt Form and/or Temporary Insurance Agreement Form attached as Exhibit B-1.

56

EX-4

c)

Reinsurance Agreement # I01189US-06

This Automatic Self Administered VRT Reinsurance Agreement Effective July 1. 2006

lhereinafter referred to as the "Agreement'"

is made between

National Life Insurance Company a Vermont insurance company (hereinafter referred to as "the Company")

and

d)
	Table of Contents
Article 1
1.1	General
1.2	Scope of Coverage
Article 2
2.1	Automatic Reinsurance
2.2	Facultative Reinsurance
Article 3
3.1	Automatic Submissions
3.2	Facultative Submissions
Article 4
4.1	Liability
4.2	Commencement of Automatic Reinsurance Liability
4.3	Commencement of Facultative Reinsurance Liability
4.4	Conditional Receipt or Temporary Insurance Agreement liability
Article 5
5.1	Premium Accounting
5.2	Currency
5.3	Non·Payment of Premiums
Article 6
6.1	Right of Offset
Article 7
7.1	Conversions
7.2	Policy Changes
7.3	Reductions
7.4	Lapses
7.5	Reinstatements
7.6	Reinsurance Limits
Article 8
S.l	Retention Umit Change
8.2	Recapture
Article 9
9.1	Claims Notice and Consultation
9.2	Claims Payment
9.3	Contested Claims
9.4	Claims Expenses
9.5	Extra Contractual Obligations
9.6	Misstatement of Age or Sex

e) Article 10
10.1 Errors and Omissions in Administration of Reinsurance
10.2 Dispute Resolution
10.3 Arbitration
10.4 Expedited Dispute Resolution Process
Article 11
11. 1 Insolvency
Article 12
12.1 DAC Tax Election
12.2 Taxes and Expenses
Article 13
13.1 Entire Agreement
13.2 Inspection of Records
13.3 Utmost Good Faith
13.4 Confidentiality
Article 14
14.1 Representations and Warranties
Article 15
15.1 Business Continuity
Article 16
16.1 Duration of Agreement
16.2 Severabilitv
16.3 Construction
16.4 Credit tor Reinsurance
16.5 Non~Waiver; Retrocession
16.6 Survival; Governing Law
Execution
Exhibits
A	Business Covered
A-1	Business Guidelines
A-2	Facultative Submissions
B	Reinsurance Application
B-1	Fac Easy Application
C	General Terms
C-l	Rates and Terms for Specific Plans
D	The Company's Retention Limits
E	Automatic Issue and Acceptance Limits
F	Reinsurance Reports

Article 1

1.1 General

This Agreement is an indemnity reinsurance agreement solely between the Company and the Reinsurer.
The Company's liability to its insureds is separate and apart from the Reinsurer's liability to the
Company. The acceptance of risks under this Agreement by the Reinsurer will create no right or legal
relation between the Reinsurer and the insured, owner, beneficiary, or assignee of any insurance policy of
the Company.

This Agreement will be binding upon the parties hereto and their respective successors and assigns
including any rehabilitator, conservator, liquidator or statutory successor of either party.

1.2 Scope of Coverage

This Agreement applies to all directly issued insurance policies and supplemental benefits and riders
listed in Exhibit A (hereinafter referred to as "policies" or "policy"). On and after the effective date of
this Agreement, the Company will cede and the Reinsurer will accept its share of the benefits specified
in Exhibit A in accordance with the terms of this Agreement. The policies accepted by the Reinsurer will
be hereinafter referred to as “Reinsured Policies”

The Company may not reinsure the retained amounts specified in Exhibit 0 on any basis without
the Reinsurer's prior written consent,

This Agreement does not cover the following unless specified elsewhere:

a) Noncontractual conversions, replacements, exchanges or group conversions; or

b) Policies issued under a program where full current evidence of insurability consistent
with the amount of insurance is not obtained, or where conventional selection criteria
are not applied in underwriting the risk; or

c) Corporate, bank or other entity owned Hfe insurance programs that are not fully
underwritten.

Each Reinsured Policy must provide for the maximum periods of suicide and contestability
protection permitted by applicable law.

f)

Article 2

2.1 Automatic Reinsurance

The Company will automatically cede and the Reinsurer will automatically accept its share of the
Company's policies provided that:

a) The Company has retained on each Reinsured Policy the amount set out in Exhibit 0 according
to the age and mortality rating at the time of underwriting; and
b) The total of the new face amount of reinsurance required, and the amo< /FONT>unt already
reinsured on that life under this Agreement and all other life agreements between the
Reinsurer and the Company, does not exceed the Automatic Acceptance limits set out in
Exhibit E; and

c) The total new face amount of insurance, and the face amount on that life in force with all
companies, including the Company, does not exceed the In Force limits set out in Exhibit E;
and

d) The application is on a life for which the current or any previous application had not been
submitted by the Company on a facultative basis to the Reinsurer or any other reinsurer within
the last three years, unless the reason for the previous facultative subm< FONT color="#0c1018">ission was for
exceeding Automatic Acceptance limits or exceeding In Force Limits and no longer applies, or
the reason for the prior facultative submission no longer exists; and

e) Other than as agreed to by the Reinsurer in writing, the Policy is not purchased, to the
knowledge of the Company, as part of a third party investment program where such third
party lacks an insurable interest (as defined by the state of issue) in the insured or where such
third party is engaging in insurance arbitrage.

If the Company is already on the risk for its retention under previously issued policies, the Reinsurer
will automatically accept reinsurance for newly issued policies according to the limits set out in Exhibit
E, provided the Company has complied with the business guidelines specif< /FONT>ied in Exhibit A-l
(hereinafter the “Business Guidelines”) that would have applied if the new policy had fallen completely
within the Company's retention.

2.2 Facultative Reinsurance

Policies that do not qualify for automatic reinsurance may be submitted to the Reinsurer on a
facultative basis. Additionally, policies that qualify for automatic reinsurance may be submitted to the
Reinsurer for facultative consideration. It a policy that qualifies for au< FONT color="#0c1018">tomatic reinsurance is submitted
to the Reinsurer or other reinsurers for consideration, the policy will be treated as if proposed on a
facultative basis.

f)

Article 3

3.1 Automatic Submissions

The Company will report Reinsured Policies ceded automatically to the Reinsurer according to the terms
specified in Exhibit F.

Upon request, the Company will provide the Reinsurer copies of the application, underwriting papers and
other information pertaining to any automatic cession under this Agreement.

3.2 Facultative Submissions

Applications for reinsurance on a facultative basis will be made in accordance with
Exhibit A-2. Unless the Reinsurer provides written consent to an extension, the Company will have the< /FONT>
number of days specified in Exhibit A-2 from the date of the Reinsurer's final offer in which to place the
policy with the insured/owner, after which the Reinsurer's offer will expire without further notice or
obligation.

The terms of this Agreement will apply to each accepted facultative offer, unless the offer specifies
different terms.

g)

Article 4

4.1 Liability

The Reinsurer's liability to the Company will be based upon the terms of this Agreement and not the
Reinsured Policy. Unless specified elsewhere in this Agreement:

a) The Reinsurer will not participate in any ex gratia payments made by the Company (i,e.,
payments the Company is not required to make under the policy terms); and

b) The Reinsurer will not share in any Extra Contractual Obligations (except as set
forth in Article 9.5); and

c) The Reinsurer's liability is limited to its share of the Company's contractual benefits
owed under the express terms of the Reinsured Policies. Damages or other payments
resulting from insolvency and attributable to the termination or restructure of the
Reinsured Policies are not covered by this Agreement; and

d) The Reinsurer will not be liable unless the policy was issued and delivered in
accordance with applicable law nor wilt the Reinsurer be liable for any payment prohibited by
law.

4.2 Commencement of Automatic Reinsurance liability

The Reinsurer's liability for any Reinsured Policy accepted automatically will begin
simultaneously with the Company's contractual liability for that policy.

4.3 Commencement of Facultative Reinsurance Liability

The Reinsurer's liability for facultative reinsurance will begin simultaneously with the Company's
contractual liability if the Company has accepted, during the lifetime of the insured, the Reinsurer's
offer of coverage. The Reinsurer will be bound to facultative policies that are placed by the Company in
accordance with the Company's reasonably documented facultative acceptance procedures.

The Reinsurer will have no liability for any application submitted for facultative consideration if the
Reinsurer declined facultative coverage or made an offer of coverage that was not accepted by the
Company as required by the terms of this Agreement.

4.4 Conditional Receipt or Temporary Insurance Agreement liability

Automatic reinsurance coverage for the Company's conditional receipt or temporary insurance agreement
will be limited to amounts accepted within the Company's usual cash-with-application procedures for
temporary coverage, up to the limits shown in Exhibit E.

h)
However, for facultative applications submitted to the Reinsurer, the Reinsurer's liability under a
conditional receipt or a temporary insurance agreement will commence when the Reinsurer has received
notice from the Company, during the lifetime of the insured and in accordance with the terms specified in
Article 4.3 and Exhibit F, that the Reinsurer's offer has been accepted, and then is limited to the Company's
usual cash-with-application procedures for temporary coverage, up to the limits shown in Exhibit E.

Article 5

5.1 Premium Accounting

The Company will pay the Reinsurer premiums in accordance with the terms specified in Exhibit C-l .

The method and requirements for reporting and remitting premiums are specified in Exhibit F.

The Reinsurer reserves the right to charge interest on overdue premiums. If applicable, interest will be
calculated according to the terms specified in Exhibit C.

5.2 Currency

All payments due under this Agreement will be made in U.S. Dollars.

5.3 Non-Payment of Premiums

The payment of reinsurance premiums is a condition to the liability of the Reinsurer for reinsurance provided
by this Agreement. If reinsurance premiums are not paid within 60 days of the due date. the Reinsurer may
terminate reinsurance for all Reinsured Policies having reinsurance premiums in arrears. If the Reinsurer
elects to terminate any Reinsured Policies after such 60 day period, it will then give the Company at least 15
days' prior written notice of its intention to terminate such reinsurance. If all reinsurance premiums in arrears,
including any which may become in arrears during such 15 day notice period, are not paid before the end of
the notice period, the Reinsurer's obligations for those Reinsured Policies will be limited to obligations
relating to events arising on or before the last date for which reinsurance premiums have been paid in full for
each Reinsured Policy.

If reinsurance is terminated according to this Article, a termination settlement will be made according to the
terms specified in the Business Transfer Events provision of Exhibit C-1.

The Reinsurer's right to terminate reinsurance will not prejudice its right to collect premiums and interest
for the period reinsurance was in force, through and including the 15 day notice period.

The Company may not force termination through the non-payment of reinsurance premiums to avoid the
Agreement's requirements or to transfer the Reinsured Policies to another party.

Article 6

6.1 Right of Offset

The Company and the Reinsurer will have the right to offset any balances, whether on account of
premiums, allowances, credits. claims or otherwise due from one party to the other under this Agreement
or under any other reinsurance agreement between the Company and the Reinsurer.

The rights provided under this Article are in addition to any rights of offset that may exist at common law.
The parties' offset rights may be enforced notwithstanding any other provision of this Agreement
including, without limitation. the provisions of Article 11.

Article 7

7.1 Conversions

If a Reinsured Policy is converted according to its terms and the applicable provisions of the Business
Guidelines. the Company will notify the Reinsurer as specified in Exhibit F. The amount to be reinsured
will be determined on the same basis as used for the original Reinsured Policy (excess of retention or
quota share) but will not exceed the amount reinsured as of the date of conversion unless mutually agreed
otherwise.

If the policy arising from a conversion is on a plan that is:

al Reinsured on a coinsurance basis with the Reinsurer either under this Agreement or
another agreement, the rates wit! be those in the agreement covering the plan to which the
original policy is convening, based on the attained age of the insured and allowances based on the
duration of the original Reinsured Policy; or

b) Reinsured on a YRT basis with the Reinsurer either under this Agreement or another agreement, the
VRT rates, with percentage reductions if applicable, will be those in the agreement covering the
plan to which the original policy is converting, based on the attained age of the insured and duration
of the original Reinsured Policy; or

c) Not covered by any reinsurance agreement with the Reinsurer, reinsurance will be on a YRT
basis using the YRT Rates for Conversions to Non-Reinsured Plans specified in Exhibit C-1 , at
the attained age and duration of the original Reinsured Policy.

The above terms will apply unless specified otherwise in the Conversions provision in Exhibit C-l.

7.2 Policy Changes

"Policy changes" refers to the variety of actions that may be made to a policy after issue. Th< FONT color="#212834">ese actions
include, but are not limited to, replacements, changes in plans or a change in the face amount of the policy. If
there is a change to the reinsurance on a Reinsured Policy, the Company will inform the Reinsurer in the
subsequent Changes and Terminations Report specified in Exhibit F.

Except as provided in this Article, whenever a Reinsured Policy is changed and the Company's un derwriting
guidelines do not require that full evidence of insurability be obtained, the reinsurance will remain in effect
with the Reinsurer, whether the change is made before or after any cancellation of this Agreement for new
business. The suicide and contestability periods applicable to the original Reinsured Policy will apply to the
reissued Reinsured Policy and the duration will be measured from the effective date of the original Reinsured
Policy.

Whenever a Reinsured Policy is changed and the Company's underwriting guidelines require that full
evidence of insurability be obtained, and the suicide and contestability periods are based on the reissued
policy date, the reinsurance will remain in effect with the Reinsurer, if the change is made before any
cancellation of this Agreement for new business. If the change is made after any termination of this
Agreement for new business, the reinsurance will be as specified in the termination document.

i)
Policy changes to Reinsured Policies will be subject to the Reinsurer's prior written approval,
if:

al The new amount of the policy would be in excess of the Automatic Acceptance
Limit in effect at the time of the change, as set Out in Exhibit E; or

b) The new amount of the policy and the amount already in force on the same life exceeds
the In Force Limits stated in Exhibit E; or

c) The policy was reinsured on a facultative basis: or

d) Evidence of insurability is not obtained, unless such evidence is not required in the
Company's underwriting guidelines.

First year premium rates and allowances as specified in Exhibit C-l will apply to the amount
underwritten far a non-contractual increase.

7.3 Reductions

Unless specified otherwise in this Agreement, if the amount of a policy issued by the Company
is reduced and:

a) The amount of reinsurance is on excess basis, then the amount of reinsurance on that life will
be reduced effective the same date by the full amount of the reduction under the original
policy. If the amount of insurance terminated equals or exceeds the amount of reinsurance . the
full amount of reinsurance will be terminated; or

b) The amount of reinsurance is on a quota share basis, then the amount of
reinsurance on that policy will be reduced effective the same date by the same proportion
as the reduction under the original policy.

The reduction will first apply to any reinsurance on the Reinsured Policy being reduced and then, if
applicable, in chronological order according to policy date (“first in, first out”) to any reinsurance on
other policies in force on the life. However, the Company will not be required to assume a risk for an
amount in excess of its regular retention for the age at issue and the mortality rating of the policy under
which reinsurance is being terminated.

If the reinsurance for a Reinsured Policy has been placed with more tl1an one reinsurer, the reduction
will be applied to all reinsurers pro rata to the amounts originally reinsured with each reinsu rer.

A reduction to one of the Company's policies not reinsured hereunder will require that the Company's
retention be increased to its full retention.

j)

7.4 Lapses

When a policy issued by tile Company lapses, the corresponding reinsurance on the Reinsured Policy will
be terminated effective the same date. Unless specified otherwise in this Agreement, if a policy full< /FONT>y retained
by the Company lapses, the terms of Article 7.3 will apply.

If a policy issued by the Company lapses and extended term insurance is elected under the terms of that
policy, the corresponding reinsurance on the Reinsured Policy will continue on the same basis as the original
Reinsured Policy until the expiry of the extended term period.

If a policy issued by the Company lapses and reduced paid-up insurance is elected under the terms of that
policy, the amount 01 the corresponding reinsurance on the Reinsured Policy will be reduced according
to the terms of Article 7.3.

If the Company allows the policy to remain in force under its automatic premium Joan regulations, the
corresponding reinsurance on the Reinsured Policy will continue unchanged and in force as long as such
regulations remain in effect, except as otherwise provided in this Agreement.

7.5 Reinstatements

If a Policy reinsured on an automatic basis is reinstated according to it s terms and the Company's
reinstatement rules, the Reinsurer will, upon notification, reinst ate the reinsurance. The Reinsurer's approval
is required for the reinstatement of a facultative policy if the Company's regular reinstatement rules indicate
that evidence of insurability, in addition to a statement of good health, is required,

The Company will pay all premiums in arrears on reinstated policies and such premiums will be subject
to Article 5.1 and Exhibit F.

7.6 Reinsurance Limits

The Company will not submit a policy to the Reinsurer unless the amount of reinsurance on the policy equals
or exceeds the Minimum Initial Reinsurance Limit specified in Exhibit C.
A Reinsured Policy will no longer be reinsured when its reinsured Net Amount at Risk (as defined in
Exhibit C-1) is less than the Minimum Final Reinsurance limit specified in Exhibit C.

k)

Article 8

8.1 Retention Limit Change

If the Company changes its retention limit (hereinafter "Retention limit), it will provide the Reinsurer with
written notice 01 the new Retention limit at least 90 days prior to the effective date, Changes to the
Company's Retention limits in Exhibit D will not affect the Reinsured Policies in force at the time of such a
change except as specifically provided for elsewhere in this Agreement, a nd will not affect the Automatic
Acceptance limits in Exhibit E unless mutually agreed in writing by the Company and the Reinsurer.

If the Company decreases its Retention limit, no reinsurance may be ceded on an automatic basis until the
parties have reviewed and either expressly affirmed or revised the Automatic Acceptance Limits set out in
Exhibit E.

8.2 Recapture

The Company may apply an increase in its Retention Limit to reduce the ceded amount of inforc8
reinsurance provided that:

a) The Company gives the Reinsurer irrevocable written notice of its intention to
recapture within one year after the effective date of the increase in its Retention Limit; and

b) Recapture will be effected on the next anniversary of each Reinsured Policy eligible for recapture
unless agreed otherwise by both parties and with no recapture being made until the Reinsured Policy
has been in force for the period specified in Exhibit C·l. For a conversion or fe-entry, the recapture
terms of the original policy will apply and the duration for the recaptur e period will be measured
from the effective date of the original policy; and

c) The Company has maintained, from the time the policy was issued, its full retention as set out in
Exhibit 0, and has applied its increased Retention Limit to all categories set out in Exhibit 0; and

d) Other than as respects catastrophe or financial reinsurance arrangements, the
Company will retain all recaptured risks.

No recapture will occur if the Company has either obtained or increased stop loss reinsurance
coverage as justification for the increase in retention.

In applying its increased Retention Limit to Reinsured Policies, the age and mortality rating at the time of
issue will be used to determine the amount of the Company's increased retention. The amount of reinsurance
eligible for recapture will be the difference between the amount originally retained and the amount the
Company would have retained had the new retention been in effect at the < /FONT>time of issue. The amount of
reinsurance eligible for recapture will be determined based on the reinsurance net amount at risk as of the
date of recapture. If there is reinsurance with other reinsurers on risks eligible for recapture, the reduction
will be applied pro rata. to the total outstanding reinsurance.

l)
Recapture is optional, but if any reinsured business is recaptured, all eligible reinsured business must
be recaptured. In addition, all life risks reinsured under any other reinsurance agreement between the
Reinsurer and the Company which are eligible for recapture must be simila rly recaptured.

Any successor of the Company will have the option to recapture reinsurance In accordance with this Article,
provided that the successor company has or adopts a higher Retention Limit than previously used by the
Company.

If the Company elects to terminate reinsurance under this Article, a term ination settlement will be made
according to the terms specified in the Business Transfer Events provision of Exhibit C-l, but will not
include amounts specified in 12(dl of that provision.

Effective as of the recapture date, the Reinsurer will not be liable tor any eligible busjnes5 which was
overlooked. The parties' obligations for any recaptured business will be limited to those relating to events or
circumstances arising or occurring before the recapture date, including < /FONT>payment of the termination
settlement amount.

Upon payment of the termination settlement amount, each party will be deemed to be fully and finally
released from all obligations under this Agreement with respect to the recaptured business.

m)

Article 9

9.1 Claims Notice and Consultation

The Company is responsible for the settlement of claims in accordance with applicable law and policy terms.
For purposes of this Article, Reinsured Policies include conditional receipts and temporary insurance
agreements covered under the terms of this Agreement. It is a condition to the Reinsurer's obligation to pay a
claim that the Company notify the Reinsurer in writing as soon as possible, but in any event not later than 12
months, after the Company receives notice of a claim on a Reinsured Policy. The Company will promptly
provide the Reinsurer with copies of all claims documents.

As a condition to the Reinsurer's obligation to pay a claim, before making a claim decision or settlement offer.
the Company will seek the Reinsurer's recommendation on such matters to the extent specified in Exhibit C·1.
The Reinsurer will promptly make a recommendation; failing such, the Company may settle the claim without
further consultation. The terms of Exhibit C-1 notwithstanding, the Company may request a recommendation
from the Reinsurer on any claim on a Reinsured Policy. The Company will provide the Reinsurer all
information, including underwriting files, requested by the Reinsurer for consideration of any claim on a
Reinsured Policy.

The Company, if notified, will notify the Reinsurer of deaths that do not trigger policy benefits.

9.2 Claims Payment

The Reinsurer will be liable to the Company for its share of the benefits reinsured under this Agreement. The
payment 01 death benefits by the Reinsurer will be made in one lump sum, with the exception of claims on
Accelerated Benefit riders. The benefits payable under Accelerated Benefit riders will be paid by the
Reinsurer on a frequency commensurate with the Company's payment to the beneficiary and upon receipt of
the Company's statement and any proofs that may be required by the Reinsurer. The Reinsurer's share of any
interest payable under the terms of a Reinsured Policy or applicable law which is based on the death benefits
paid by the Company, will be payable provided that the Reinsurer will not be liable for interest accruing on or
after the date of the Company's payment of benefits,

The Reinsurer will make payment to the Company for each such claim.

For claims on Accelerated Benefit riders reinsured under this Agreement, the benefit amount payable by the
Reinsurer will be calculated by multiplying the total accelerated death benefit rider payout by the ratio 01
the reinsured Net Amount at Risk, as defined in Exhibit C-1, to the face amount of the Reinsured Policy.

9.3 Contested Claims

The Company will notify the Reinsurer promptly 01 its intention to investigate, contest, compromise, or
litigate any claim involving a Reinsured Policy (hereinafter a "Contested Claim"). The Company will
provide the Reinsurer all relevant information and documents.

n)
as such become available, pertaining to Contested Claims and will promptly report any
developments during the Reinsurer's review. If the Reinsurer:

a) Does not support the contest of the Claim, the Reinsurer will pay the Company its
full share of the reinsurance benefit, and will not share in any subsequent reduction or increase
in liability or in any subsequent expenses incurred by the Company; or

b) Supports the Company's decision to contest the claim and the Contested Claim
results in a reduction or increase in liability, the Reinsurer will share in any reduction or increase
in proportion to its share of the risk on the Contested Claim.

If the Reinsurer supports the decision to contest the claim, the Company will promptly advise the
Reinsurer of all significant developments, including notice of legal proceedings {including, but not
limited to, consumer complaints or actions by governmental authorities} initiated in connection with the
Contested Claim.

If the Company returns premiums to the policy owner or beneficiary as a result of
misrepresentation, the Reinsurer will refund net reinsurance premiums received on that policy to
the Company, without interest.

9.4 Claims Expenses

The Reinsurer will pay its share of reasonable investigation and legal expenses incurred in investigating,
adjudicating or litigating a claim, except as otherwise provided in this Agreement. The Reinsurer will
not be liable for any routine investigative or administrative claim expenses (such as compensation of
salaried employees) or for any expenses incurred in connection with conflicting claims of entitlement to
Reinsured Policy benefits that the Company admits are payable.

9.5 Extra Contractual Obligations

For purposes of this Agreement, "'Extra Contractual Obligations" are any obligations or expenses
other than contractual obligations incurred by the Company, its affiliates, directors, officers,
employees, agents or other representatives and arising under the express written terms and
conditions of a policy, including but not limited to, punitive damages, bad faith damages,
compensatory damages, and other damages or fines or penalties which may arise from the acts,
errors or omissions of the Company or its affiliates, directors, officers, employees, agents or other
representatives.

The Reinsurer is not liable for Extra Contractual Obligations associated with a Contested Claim unless
it concurred in writing and in advance with the claim actions which were the basis for the Extra
Contractual Obligations. In these situations, the Company and the Reinsurer will share in Extra
Contractual Obligations, in equitable proportions, but all factors being equal, the Reinsurer's
assessments would be in proportion to the risk accepted for the Reinsured Policy involved.

The Reinsurer will not be liable for any Extra Contractual Obligations incurred as a result of actions
taken by the Company, its affiliates, directors, officers, employees, agents or other representatives in
carrying out any claims action agreed upon by the Company and the Reinsurer.

9.6 Misstatement of Age or Sex

In the event of a change in the amount payable under a Reinsured Policy due to a misstatement in age or sex, the Reinsurer's liability will change proportionately. The Reinsured Policy wilt be rewritten from commencement on the basis of t he adjusted amounts using premiums and amounts at risk for the correct ages and sex, and the proper adjustment for the diffe rence in reinsurance premiums, without interest, will be made,

o)

Article 10

10.1 Errors and Omissions In Administration of Reinsurance

Any unintentional or accidental failure to comply with the terms of this Agreement which can be shown to
be the result of an oversight or clerical error relating to the administration of reinsurance by either
party will not constitute a breach of this Agreement. Upon discovery. the error will be promptly corrected so
that both parties are restored to the position they would have occupied had the oversight or clerical error not
occurred. In the event a payment is corrected, the party receiving the payment may charge interest
calculated according to the terms specified in Exhibit C. Should it not be possible to restore both parties to
this position, the party responsible for the oversight or clerical error will be responsible for any resulting
liabilities and expenses. The Reinsurer will not be responsible for negligent or deliberate acts of t< /FONT>he Company
or for recurring errors by the
Company. .

This provision will not apply to the administration of the insurance provided by the Company to its
insureds.

If the Company has failed to cede reinsurance as provided under this Agreement or has failed to comply with
reporting requirements with respect to business ceded hereunder, the Reinsurer may require the Company to
audit its records for similar errors and take reasonable actions necessary to correct errors and avoid similar
errors. Failing prompt correction, the Reinsurer may limit its liability to the correctly reported Reinsured
Policies.

10.2 Dispute Resolution

As a condition to the parties' right to arbitration under this Agreement, either the Company or the Reinsurer
will give written notification to the other party of any dispute relating to or arising from this Agreement,
including, but not limited to, the formation or breach thereof. Within 15 days of notification, both parties
must designate an officer of their respective companies to attempt to resolve the dispute. The officers will
meet at a mutually agreeable location as soon as possible and as 01ten as necessary to attempt to negotiate a
resolution of the dispute. During the negotiation process, all reasonable requests made for information
concerning the dispute will be promptly honored. The format 10r discussions will be determined mutually by
the officers.

If these officers are unable to resolve the dispute within 30 days of the ir first meeting, the parties may agree
in writing to extend the negotiation period for an additional 30 days. If the matter is not resolved within 30
days of the first meeting or the additional 30 day period, if any, then either party may demand arbitration
pursuant to Article 10.3. The discussions and all information exchanged f or the purposes of such discussions
will be confidential and without prejudice.

10.3 Arbitration

Except with respect to disputes subject to the Expedited Dispute Resolution Process in Article 10.4, if the
Company and Reinsurer are unable to resolve any dispute arising from this Agreement, including but not
limited to the formation or breach thereof, pursuant to Article 10.2, the matter will be referred to
arbitration,

p)
The arbitration will be conducted in accordance with the Procedures for Resolution of U,S. Insurance
and Reinsurance Disputes, Neutral Panel Version, April 2004 (the "Procedures") available at
www.arbitrationtaskforce.ora, except as modified herein.

The arbitration will be held in New York City or another place as the parties may mutually agree. The
arbitration will be conducted before a three person Panel qualified as:

a) Current or former officers of life insurance or reinsurance companies, or

b) Professionals with no less than 10 years of experience in or serving t he life insurance
or reinsurance industries.

The parties will select such candidates from the ARIAS-US Certified Arbitrators List available
at www.ARIAS.US.org.

The customs and practices of the life insurance and reinsurance industri< /FONT>es may be considered by the
Panel to resolve any ambiguities in the Agreement but only insofar as such customs and practices are
consistent with a strict construction of the terms of this Agreement. The Panel will not have the
authority to award punitive or exemplary damages.

The Panel will award the remedy sought by the party seeking relief to th< /FONT>e extent the remedy is
provided for in this Agreement or otherwise reasonably compensates the damaged party for the
economic effect of any demonstrated breach. Such remedies may include, bu t will not be limited to,
monetary damages, revisions to the terms of the Agreement, including adjustments to premiums or
allowances paid or to be paid, or any combination of the foregoing.

The Panel shall issue an order, appropriate for confirmation in a court of competent jurisdiction, to
resolve all matters in dispute. In addition, the Panel shall issue a written opinion setting forth the
reasons for the award, with citations to the record of the hearing that support the reasoning.

The decision of the Panel will be final and binding upon the parties and their respective successors
and assigns. Each party hereby consents to the entry of a judgment confirming or enforcing the
award in the United States District Court for the Southern District of New York and/or in any other
court of competent jurisdiction.

Within 20 days after the transmittal of an award, either party, upon notice to the other party, may
request the Panel to correct any clerical, typographical. or computational errors in the award. The other
party will be given ten days to respond to the request. The Panel will di spose of the request within 20
days of its receipt of such request and any response thereto. The Panel will not be empowered to re-
determine the merits of any claim already decided.

Each party will:

c) Bear its own fees and expenses in connection with the arbitration, including the fees of any
outside counsel and witness fees, and

d) Share equally in the fees for the members of the Panel and the costs of the
arbitration, such as hearing rooms, court reporters, etc.

It is the intent of the parties that these arbitration provisions replace and be in lieu of any statutory
arbitration provision, if permitted by law.

10.4 Expedited Dispute Resolution Process

The parties agree that the following types of issues and disputes will be subject to arbitration under
the expedited procedures set forth in this Article:

a) Any dispute regarding the obligations of the parties with respect to a single Reinsured
Policy, regardless of the amount in controversy; or

b) Any dispute in which the amount in controversy, exclusive of interest or costs, is less than $1< BR> million.

Arbitration proceedings under this Article will be commenced as specified in Article 10.3, and shall be
subject to the requirements of Article 10.3 to the extent they are not inconsistent with this Article.

The proceedings will be held before a single neutral umpire meeting the q ualifications set forth in Article
10.3. If the parties are unable to agree on an umpire within 30 days following commencement of the action,
the selection will be made pursuant to the Umpire Selection Procedure of the ARIAS-US Certified
Arbitrators List available at www.ARIAS-US.org. No ex parte communication will be permitted with the
umpire at any time prior to the conclusion of the proceedings.

Within 21 days from the date the selection of the umpire is agreed upon, the parties and umpire will
conduct an organizational meeting by teleconference to familiarize the umpire with the dispute and to set a
timetable for submission of briefs. There will be no discovery, and the dispute will be submitted on < /FONT>briefs
and documentary evidence only, unless otherwise agreed by the parties or ordered by the umpire for good
cause.

Within 30 days of submission of briefs by the parties. the umpire will render a written award which will
be final and binding on the parties.

q)

Article 11

11 . 1 Insolvency

A party to this Agreement will be deemed "insolvent" when it:

a) Applies for or consents to the appointment of a receiver, rehabilitator, conservator, liquidator or
statutory successor (hereinafter referred to as the Authorized Representative) of its properties
or assets; or

b) Is adjudicated as bankrupt or insolvent; or

c} Files or consents to the filing of a petition in bankruptcy. seeks reorganization or an
arrangement with creditors or takes advantage of any bankruptcy, dissolution. liquidation,
rehabilitation. conservation or similar law or statute; or

dl Becomes the subject of an order to rehabilitate or an order to liquidate as defined by
the insurance code of the jurisdiction of the party's domicile.

In the event of the insolvency of the Company, all reinsurance ceded, renewed or otherwise becoming
effective under this Agreement will be payable by the Reinsurer directly to the Company or to its
Authorized Representative on the basis of the liability of the Company for benefits under the Reinsured
Policies without diminution because of the insolvency of the Company.

The Reinsurer will be liable only far benefits reinsured as benefits beco me due under the terms of the
Reinsured Policies and will not be or become liable for any amounts or reserves to be held by the Company as
to the Reinsured Policies or for any damages owed by the Company as a result of issuance of any of the
policies. The Company or its Authorized Representative will give written notice to the Reinsurer of all
pending claims against the Company on any Reinsured Policies within a rea sonable time after filing in the
insolvency proceedings. While a claim is pending, the Reinsurer may investigate such claim and interpose, at
its own expense, in the proceedings where the claim is to be adjudicated, any defense or defenses which it
may deem available to the Company or its Authorized Representative.

The expense incurred by the Reinsurer will be chargeable, subject to court approval. against the Company as
part of the expense of its insolvency proceedings to the extent of a proportionate share of the benefit which
may accrue to the Company solely as a result of the defense undertaken by the Reinsurer. Where two or more
reinsurers are involved in the same claim and a majority in interest elect to interpose a defense to such claim,
the expense will be apportioned in accordance with the terms of the Agreement as though such expense had
been incurred by the Company.

In the event of the insolvency of the Reinsurer, the Company may cancel this Agreement for new business by
promptly providing the Reinsurer or its Authorized Representative with written notice of cancellation, to be
effective as of the date on which the Reinsurer's insolvency is established by the authority responsible for
such determination. Any requirement for a notification period prior to the cancellation of the Agreement
would not apply under such circumstances,

In addition, in the event of the insolvency of the Reinsurer, the Company may provide the Reinsurer or
its Authorized Representative with written notice of its intent to recapture all reinsurance in force
under this Agreement regardless of the duration the reinsurance has been in force or the amoun< FONT color="#0c1019">t
retained by the Company on the Reinsured Policies. The effective date of a recapture due to insolvency
will be at the election of the Company but may not be earlier than the date on which the Reinsurer's
insolvency is established by the authority responsible for such determination. If the Company elects to
terminate reinsurance under this Article, a termination settlement will b e made according to the terms
specified in the Business Transfer Events provision of Exhibit C-1.

In the event of the insolvency of either party, the rights or remedies of this Agreement will remain in
full force and effect.

Article 12

, 2.1 DAC Tax Election (If applicable to the Company)

The Company and the Reinsurer agree to the election pursuant to Section 1.848-2(9)(8) of the Income Tax
Regulations effective December 29. 1992, under Section 848 of the Internal Revenue Code of 1986, as
amended (such election being referred to as the "DAC Tax Election"). whe< /FONT>reby:

a)	The party with the net positive consideration for this Agreement for each taxable year will capitalize specified policy acquisition expenses with respect to this Agreem ent without regard to the general deductions limitation of Section 848(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code”);
b)	The parties agree to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency. If requested, the Company will provide supporting information reasonably requested by the Reinsurer. (The term "net consideration" means "net consideration" as defined in Regulation Section 1.848-2(f));
c)	This DAC Tax Election will be effective for the first taxable year in which this Agreement is effective and for all years for which this Agreement remains in effect.

The Company and the Reinsurer will each attach a schedule to their respective federal income tax returns
filed for the first taxable year for which this DAC Tax Election is effective. Such schedule will identify the
Agreement as a reinsurance agreement for which the DAC Tax Election under Regulation Section 1.848-
2(g)(8) has been made.

The Company and the Reinsurer represent and warrant that each is respecti vely subject to U.S. taxation
under either the provisions of subchapter L of Chapter 1 or the provisions of subpart F of subchapter N of
Chapter 1 of the Code.

12. 2 Taxes and Expenses

Apart from any taxes, allowances. refunds, and expenses specifically ref< /FONT>erred to in this Agreement, no
assessments by guaranty associations or comparable organizations, taxes, allowances. or expense will be
paid by the Reinsurer to the Company for any Reinsured Policy.

Article 13

13.1 Entire Agreement

This Agreement and Exhibits constitute the entire agreement between the parties with respect to the business
reinsured hereunder and supersede any and all prior representations, warranties, prior agreements or
understandings between the parties pertaining to the subject matter of this Agreement. There are no
understandings between the parties other than as expressed In this Agreement and Exhibits. In the event of
any discrepancy between the Agreement and the Exhibits. the Exhibits will control.

Any change or modification to this Agreement and Exhibits will be null and void unless made by
written amendment and signed by both parties.

13.2 Inspection of Records

The Reinsurer or its duly appointed representatives will have access to records of the Company, whethe r
written or electronic, and including system view access, concerning the business reinsured hereunder for the
purpose of inspecting, auditing and photocopying those records. Such access will be provided at the office of
the Company and will be during reasonable business hours. Assuming the Reinsurer has continued to perform
the undisputed portion of its obligations under this Agreement, the Company may not withhold ac cess to
information and records on the grounds that the Reinsurer is in breach.

The Reinsurer's right of access as specified above will survive until all of the Reinsurer's obligations under
this Agreement have terminated or been fully discharged.

13.3 Utmost Good Faith

AU matters with respect to this Agreement require the utmost good faith of each of the parties.

13.4 Confidentiality

The parties will keep confidential and not disclose or make competitive use of any shared Proprietary
Information, as defined below, unless:

a) The information becomes publicly available other than through unauthorized
disclosure by the party seeking to disclose or use such information;

b) The information is independently developed by the recipient;

c) The disclosure is, in the reasonable judgment of the Reinsurer, required for the purpose of any
reinsurance, retrocession, securitization, or structured, asset-backed or asset-based financing;

d) The disclosure is required by external auditors; or

e) The disclosure is required by law .

"Proprietary Information" includes, but is not limited to, underwriting manuals and guidelines,
applications, contract forms, and premium rates and allowances of the Reinsurer and the Company, but
shall not include the existence of this Agreement and the identity of the parties.

In addition, the Reinsurer will protect the confidentiality of Non-Public Personal Information, as
defined below, by:

a) Holding all Non-Public Personal Information in strict confidence;

b) Maintaining appropriate measures that are designed to protect the security, integrity
and confidentiality of Non-Public Personal Information;

c) Using Non-Public Personal Information only to carry out the Reinsurer' s obligations under
this Agreement: and

d) Disclosing Non-Public Personal Information to third parties only as necessary to perform
services under this Agreement, for purposes of retrocession, or as may be required or
permitted by law.

"Non-Public Personal Information" is personally identifiable medical, financial, and other personal
information about proposed, current and former applicants, policy owners, contract holders, insureds,
annuitants, claimants, and beneficiaries of Reinsured Policies or contracts issued by the Company, and
their representatives, that is not publicly available. Non·Public Personal Information does not include
de-identified personal data, i.e., information that does not identify, or could not reasonably be
associated with, an individual.

The Company will obtain, if required by any law, appropriate consent to the collection, use and
disclosure of Non-Public Personal Information, from each insured to enable the parties to fully exercise
their rights and perform their obligations under this Agreement.

Article 14

14.1 Representations and Warranties

The Company makes no representations and warranties as to the future experience or profitability
arising from the Reinsured Policies.

Each party represents and warrants that it is solvent on a statutory basis on the date hereof in all
states in which it does business or is licensed.

"Material” or "materially" for purposes of Articles' 4 and 15 will mean facts that a prudent actuary
would consider as reasonably likely to affect the Reinsurer's experience under the Agreement. Prior to
the execution of this Agreement, the Company has provided to the Reinsurer the Business Guidelines for
use in its assessment of the risks covered hereunder, The Company represents and warrants that, to th< /FONT>e best
of its knowledge:

a) It has disclosed to the Reinsurer all information which is material to the risks being assumed
hereunder; and

b) The Business Guidelines were complete and accurate when disclosed; and

c) There has been no material change in the Business Guidelines between the "as of" dates of the
information and the date of Agreement execution.

This Article will not terminate or expire until all Reinsured Policies have been discharged or terminated
in full.

r)

Article 15

15.1 Business Continuity

All Reinsured Policies will be issued and administered in accordance with the Business Guidelines. The
parties acknowledge that changes to or failure to comply with the Business Guidelines may materially
affect the Reinsurer's experience under this Agreement. Therefore, the Co mpany will notify the Reinsurer
of any change that materially affects the reinsured business, including c hanges to the Business Guidelines.
This Agreement will not cover policies affected by such changes unless the Reinsurer has agreed in
writing and in advance to accept the affected policies. Outsourcing of underwriting functions,
administrative functions or claims administration with respect to the Reinsured Policies will be
considered a material change. If the Reinsurer agrees to accept policies affected by the outsourcing, the
Company will secure the Reinsurer's right to audit and inspect the party performing such Outsourced
services.

In the event the Company makes a change that materially affects the reinsured business. includ< FONT color="#0b0e16">ing changes
to the Business Guidelines, without the Reinsurer's consent to accept the affected policies:

a) The parties will attempt to negotiate revised terms as necessary under which the a ffected
Reinsured Policies may continue to be reinsured; and

b) If the parties are unable to agree on revised terms within 120 days, any Reinsured
Policies materially and adversely affected by the change will be excluded from coverage
under this Agreement.

If Reinsured Policies are excluded, the parties will make returns of Agreement Cash S ettlements previously
made in connection with the subject Reinsured Policies. For purposes of t his Agreement, the term
"Agreement Cash Settlements" will mean premiums, allowances. commissions, cash surrender values, death
claims, dividends. experience refund payments and similar settlements made under this Agreement. but
excludes items relating to reserves or interest on reserves.

s)

Article 16

16.1 Duration of Agreement

This Agreement is unlimited as to its duration.

Except as provided in Article 7.6, the Reinsurer or the Company may terminate this Agreement or any plan
listed in Exhibit A with respect to the reinsurance of new business by giving at least 90 days' written
notice of termination to the other party or pursuant to Article 15.' of this Agreement. During the 90 day
notification period, the Company will continue to cede and the Reinsurer will continue to accept
policies covered under the terms of this Agreement.

The Reinsurer remains liable for all Reinsured Policies in force as of the date of the termination, until their
natural expiration, unless the parties mutually decide otherwise or as specified otherwise in this
Agreement.

16.2 Severability

Determination that any provision of this Agreement is invalid or unenforceable will not affect or
impair the validity or the enforceability of the remaining provisions of this Agreement.

16.3 Construction

This Agreement will be construed and administered without regard to authorship and without any
presumption or rule of construction in favor of either party. This Agreement is between sophisticated
parties. each of which has reviewed the Agreement and is fully knowledgeable about its terms and
conditions.

16.4 Credit for Reinsurance

The parties intend that the Company will receive statutory reserve credit in its state of domicile for reinsurance provided under this Agreement. The parties agree to use reasonable efforts to ensure that such reserve credit wilt remain available to the Company.

16.5 Non-Waiver; Retrocession

A waiver by either party of any violation, or the default by the other party in its adherence to any term of this Agreement. will not constitute a waiver of any other or su bsequent violation or default. No prior transaction or dealing between the parties will establish any custom or usage waiving or modifying any provision of the Agreement. The failure of either party to enforce any part of this Agreement will not constitute a waiver of any right to do so.

The Reinsurer may reinsure or retrocede any risks or business assumed hereunder. but may not effect any novation of this Agreement without the Company's prior written Consent.

t)
16.6 Survival; Governing Law

All provisions of this Agreement will survive its termination to the extent necessary to carry out the purpose
of this Agreement. This Agreement shall be governed by the laws of the State of Vermont.

Execution

u)

This Agreement has been made in duplicate and hereby executed by both parties.

Signed for and on behalf of National Life Insurance Company

By: /s/ Christie Day

By: /s/ Reinsurance Adminstrator

Signed for and on behalf

By:

Titl
^e:----------------

Date:

'-

• ------- ----, - --'

Exhibit A

Business Covered

Agreement Effective Date:

July 1, 2006. The commencement dates for specific plans are shown below.

Coverage:

The policies on the plans shown below which have application dates falling in the period that begins with the Comm encement Date and ends with the Termination Date and that qualify for automatic reinsurance are covered according to the Basis specified below, provided that the policies are on residents of the United States or Canada.

Basis:

Redacted the excess over the Company's retention as stated in Exhibit 0, to the maximum of the automatic Acceptance Limits stated in Exhibit E, applicable to policies on Jives with surnames commencing with the letters A to Z inclusive.

Company's State of Domicile: Vermont

Plans. Riders and Benefits:

Plan Identification	Exhibit Reference for	Commencement Date	Termination Date
	Rates
Cornerstone Whole Life		July 1, 2006

C-1

July 1, 2006

Above listed plans	C-l
issued under Table 4
Program

Riders:
Term Rider
Term Purchase Provision Rider
OPEP Rider (Qualified Plan Exchange)
ACR (Accelerated Care Rider) Beneficiary
Insurance Option Rider Annual Premium
Adds Rider (APAR) Single Premiums
Add Rider
Exchange to New Insured Rider
Flex Term Rider
Accelerated Benefit Rider - Terminal Illness
Accelerated Benefit Rider - Chronic Illness

All above listed riders issued under Table 4 Program

Exhibit A-l

Business Guidelines

The Company affirms that the following have been supplied to the Reinsurer and are in use as of the effective date of this Agreement:

1.	Underwriting Requirements Grid (medical and non-medical) (NL Underwriting Guide.pd1l
2.	Preferred Underwriting Criteria or Rules (NL Underwriting Guide.pdf)
3.	Policy Form(s)
4.	Supplemental Benefit and Rider Form(s)
5.	Cornerstone Series Product Specs.doc

The Company affirms that the following Underwriting Manual is in use as of the effective date of this Agreement:

Exhibit A-2

Facultative Submissions

The Company may submit on a facultative basis to the Reinsurer any application for a policy which meets the
conditions outlined in Article 2.2 by sending to the Reinsurer an Application for Reinsurance, a sample of
which is included as Exhibit B. The Application for Reinsurance will include copies of all underwriting
evidence that is available for risk assessment, including copies of the application for insurance, medical
examiners' reports, attending physicians' statements, inspection reports. and other papers bearing on the insurability
of the risk as requested by the Reinsurer. The Company will also notify the Reinsurer of any outstanding
underwriting requirements at the time of the facultative submission. Any subsequent information pertinent to the
risk assessment will be transmitted to the Reinsurer immediately.

After consideration of the Application for Reinsurance and related papers, the Reinsurer will < FONT color="#181e29">promptly inform the
Company of its underwriting decision. The Reinsurer's facultative offer will expire at the end of 120 days, unless
otherwise specified by the Reinsurer. If the Company accepts the Reinsurer's offer and the policy is placed in force
in accordance with the Business Guidelines provided to the Reinsurer, the Company will duly notify the Reinsurer
according to the New Business Report specified in Exhibit F. The Reinsurer's share of liability for such policy will
commence at the time specified in Article 4.3 of the Agreement.

FacEasy Submissions

The Reinsurer may, at its option, permit the Company to apply for facultative reinsurance by using the FacEasy
method of submission. Only policies with face amounts of $2,500,000 or less and on proposed insureds aged 75 or
less may be submitted as FacEasy submissions.

If this option is made available to the Company by the Reinsurer, the Company may apply for reinsurance on a
facultative basis by sending to the Reinsurer an Application for Reinsurance, a sample of which is included as
Exhibit B-1. Unless specified elsewhere in the Agreement, only those documents relevant to issues prom pting
facultative submission will be provided to the Reinsurer, and all other documents will be considered reviewed and
approved by the Company. The Company will also notify the Reinsurer of any outstanding underwriting
requirements at the time of the facultative submission, Any subsequent information pertinent to the risk assessment
will be transmitted to the Reinsurer immediately.

After consideration of the Application for Reinsurance and related papers, the Reinsurer will promptly inform the
Company of its underwriting decision, The Reinsurer's facultative offer will expire at the end of 120 days, unless
otherwise specified by the Reinsurer, If the Company accepts the Reinsurer's offe r and the policy is placed in force
in accordance with the Business Guidelines provided to the Reinsurer, the Company will duly notify the Reinsurer
according to the New Business Report specified in Exhibit F. The Reinsur< /FONT>er's share of liability for such policy will
commence at the time specified in Article 4.3 of the Agreement.

It any risk is submitted to more than one reinsurer for consideration, the Company's rules for placement of
facultative cases will apply.

Reinsurance Application

Exhibit B

Form of Blank Reinsurance Application

x)

Exhibit B-1

FacEasy Application

Exhibit C

General Terms

1 . Premium Tax:

The Reinsurer will not reimburse the Company for premium taxes.

2.	Dividend Payments:
	The Reinsurer will not reimburse the Company for dividends paid to policyholders.
3.	Policy Loans;
	The Reinsurer will not participate in policy roans or other forms of indebtedness as respects the Reinsured Policies.
4.	Cash Surrender Values:
	The Reinsurer will not reimburse the Company for cash surrender values paid to the policyholder.
5.	Reinsurance Limits:

Minimum Initial Reinsurance Limit:
Minimum Final Reinsurance Limit:
Minimum Initial Facultative Reinsurance Limit:

N/A
$250,000 (face amount) to age 70
$100,001 (face amount) over age 70

6.

Interest Calculation on Late Payments: Premiums or other amounts remaining unpaid for more than 30 days from the due date as specified in Exhibit F or otherwise required will accrue interest from ·th e due date at a rate equal to the Three Month London Interbank Offering Rate (USDR) as published in the Wall Street Journal (or if not available, a comparable publication) on the due date or, if the due date is not a business day. on the next busin ess day after the due date, plus 50 basis poif1ts per annum to be compounded and adjusted every three months after such due date.

7.

Rates Applicable to Increases: First year reinsurance premium rates and allowanc es will apply to the amount normally underwritten of a non-contractual increase.

Exhibit C-1

Rates and Terms for Cornerstone Whole Life

1.	Reinsurance Structure: VRT
2.	Age Basis: Age Nearest Basis
3.	Premium Mode: Annual in Advance
4.	Billing Frequency: Monthly
5.	Premiums:
	Basic Premiums: The Company will pay to the Reinsurer a basic premium calculated by multiplying the net amount at risk of the Reinsured Policy. as defined in the Net Amounts At Risk provision of this Exhibit, by the appropriate rate from the 90-95 SOA Select & Ultimate ANB Rate Table, subject to the percentages shown below. The Company will continue to pay the appropriate premium to the Reinsurer as long as the Reinsured po licy is in force.
	The following percentages will be applied in all durations to the reinsurance premiums payable hereunder:

	Issue Ages 0-59	Issue Ages 60-85
Elite Preferred NT		Preferred TB Standard TB

Preferred NT

Standard NT

Juvenile Rates (issue ages 19 and less) will be issued using the standard nonsmoker class.

Facultative Policies: The rates above shall be used for all facultative busine ss submitted by the Company to the Reinsurer.

TABLE 4 PROGRAM:

All Policies issued by the Company and found to be rateable up to and including Table 4 [redacted] prior to reinsurance review can be automatically issued to the Reinsurer at ~d rates. The Company will pay the Reinsurer one hundred and twenty percent __ of the rates above for policies issued under the Table 4 Program.

Extra Premiums: Any extra premiums payable due to additional mortality risk will be payable to the Reinsurer.

y)
Multiple extra premiums are equal to the sum of the standard premium and 25% of the standard
premium for each assessed table of extra mortality

Policy Fee:

There is no policy fee applicable

Term Rider. Annual Premium Adds Rider. Single Premium Adds Rider. Flex Term Rider:
Premiums will be calculated on the amount reinsured using the same rates as the base plan.

Term Purchase Provision Rider:
The flex term amount can not be greater than the original face of the policy without additional
underwriting. The flex term amount will be reinsured at point-in-scale rates.

QPEP Rider:
No premiums apply for reinsurance, however point-in·scale rates would apply to exchanges.

Accelerated Care Rider and Accelerated Benefit Riders:
For reinsurance purposes, no premium is paid for the accelerated care rider. [f an acceleration occurs,
the reinsured amount accelerated will be based on the discounted death benefit. rather than the full
death benefit.

88fleficiary Insurance Option Rider:
Amounts generated under this rider will be reinsured at point-in-scale rates.

Exchange to New Insured Rider:
No premiums apply to reinsurance, but new issue rates apply to exchanges.

6. All Other Allowances:

On Flat Extra Premiums: When a flat extra premium is payable for 5 years or less, an allowance of 10% of
the gross flat extra Charged by the Company will be made each year. When a flat extra premium is payable
for more than 5 years. an allowance of 100% of the gross flat extra charged by the Company will be made in
the first year and an allowance of 10% in each year thereafter.

7. Net Amounts At Risk:

The reinsured net amount at risk will be the difference between the reinsured face amount and the cash
values applicable to the reinsured face amount. subject to the "ten year level decrement" lit appropri ate)
method of approximation. The reinsured face amount is the initial amount reinsured under this Agreement
or as reset by subsequent scheduled or fully underwritten increases. Commuted values, if applicable, or any
comparable approximation agree to between the Company and the Reinsurer, may be used to determine the
net amount at risk.

8. Rate Basis:

The rates in this subsection are on a non-participating basis.

9. Rate Guarantee:

The reinsurance rates set out in this Exhibit are guaranteed for the first policy year. In subsequent
policy years, the Reinsurer reserves the right to increase the premiums for reinsurance but not above
the statutory net valuation premium applicable to the Reinsured Policies after increase,

If the Reinsurer exercises its right to increase reinsurance premiums under this Agreement in an
amount greater than that required to ensure that the Reinsurer will participate in its share of any
increases in premium rates, costs, charges or fees as implemented by the Company for the Reinsured
Policies, the Company may recapture all of the Reinsured Policies on which reinsurance rates h< FONT color="#1c232e">ave
been increased regardless of the Reinsured Policies' duration in force. < /FONT>If the Company elects to
terminate reinsurance under this provision, a termination settlement will be made according to the
terms specified in the Business Transfer Events provision of this Exhibit.

10. Deficiency Reserves: No deficiency reserves will be held by the Reinsurer for the Reinsured
Policies,

11. Minimum Recapture Period: [ redacted]

12. Business Transfer Events:

If a Business Transfer Event occurs, a Transfer Settlement Amount will be calculated and paid.

The Transfer Settlement Amount will be:

(a) Any amounts due the Company on the reinsured amounts being transferred,
determined as of the effective date of the transfer; less

(b) Any amounts due the Reinsurer on the reinsured amounts being transferred,
determined as of the effective date of the transfer; plus

(c) The appropriate amount of benefit reserves to be held in respect of the reinsured
amounts being transferred determined as of the effective date of the transfer, based on net U.S.
generally accepted accounting principles ("GAAP") consistent with FASB Statement 60
computed using original pricing assumptions without provision for adverse deviation, less any
amount of unamortized deferred acquisition cost assets related thereto and excluding any
provisions for adverse deviations or similar deficiency or special reserves; less

(d) An aggregate amount equal to the sum as respects all reinsured amounts
transferred of (i) the premium in force for such policy as of the month end immediately
preceding the effective date of the transfer times Iii) a "Business Transfer Factor" to be
determined at the time of the event.

If the Transfer Settlement Amount is greater than zero, the Reinsurer will pay the amount to the
Company in cash. If the Transfer Settlement Amount is less than zero, the Company will pay the
absolute value of the Transfer Settlement Amount to the Reinsurer in cash.

The Transfer Settlement Amount will be paid not later than 15 days following final determination of
such amount in accordance with the provisions of this Section. However

z) if the amount of the Transfer Settlement Amount required as to any Business Transfer Event exceeds $25 million, the party making the payment will have the option to make the payment in five equal annual installments, including accrued interest, commencing on the effective date of the transfer.

The parties will cooperate with each other in order to provide any information reasonably requested by either party in connection with the determination or assessment of the Transfer Settlement Am ount.

13.	Conversions: It is understood that for policies issued under the Company's Competitive
	Underwriting	Program and which convert from a term plan in any existing term reinsurance agreement
	between	the Company and the Reinsurer to a permanent plan under this Agreement, the policy arising from
	the	conversion shall be reinsured under the current terms and conditions for the permanent plan and the
	amount	to be reinsured shall continue in a like proportion to the amount ceded to the Reinsurer at issue.
	It	is further agreed that for policies issued under the Company's Table 4 Program and which convert from a
	term	plan reinsured under any existing reinsurance agreement between the Company and the Reinsurer to a
	permanent	plan reinsured under this Agreement, the policy arising from the conversion shall be reinsured
	under	this Agreement in the same proportion as the original policy had been reinsured. and using the rate for
	the	Table 4 Program as described in this Agreement on a point in scale basis.
	It	is further agreed that for conversions of a term plan in any existing term reinsurance agreement
	between	the Company and the Reinsurer to a permanent plan under this Agreement, the Company shall
	recapture	the policy upon conversion and reinsure one hundred percent (100%1 of the excess over the
	Company's	retention under the current terms and conditions for the permanent plans in the above
	Agreement.	The Reinsurer's share of the converted policy will be equal to the Reinsurer's share as
	defined	in this Agreement.
	For	conversion of a fully-retained term plan in any existing term reinsurance agreement between the
	Company	and the Reinsurer to a permanent plan under this Agreement, the proportionate share of the
	amount	in excess of the Company's retention at time of conversion shall be reins ured under the current terms
	and	conditions at point in scale rates, provided that normal underwriting practices were followed when the
	term	plan was originally issued.
	The	policy converting to a Reinsured Policy must be underwritten in a manner consistent with the
	underwriting	applied to a Reinsured Policy.
14.	Conditions Requiring Claims Consultation: For purposes of this provision, "retention" will refer to the limits
	specified	in the appropriate Exhibit 0 in effect at the time of policy issue.
	Before	conceding liability or making settlement to the claimant. the Company will seek the Reinsurer's
	recommendation	if:
	a)	The claim occurs during the contestable period and the Company is contesting the claim. or

aa)

g) The claim occurs during the contestable period and the Company kept its ret ention at the
time of issue and it is not contesting the claim, but the face amount per life exceeds $0, or

c) The claim occurs outside of the contestable period and the Company kept its
retention at the time of issue and it is not contesting the claim, but th e face amount per life
exceeds $1,000,000. or

d) The claim occurs outside of the United States or Canada, and the face amount per
life exceeds $0, or

e) The claim is one for which there is no body, Le. the insured is missin g and
presumed dead, or

f) The claim is one for which there is reasonable doubt as to the authenticity of the death
certificate or the reliability of the medical report concerning such death.

If the Reinsurer discovers that the Company's claims paying practices and procedures differ
materially from those performed at the inception of the Agreement or from the Business
Guidelines, then, in addition to any other remedies, the Reinsurer may, with 30 days' written notice,
adjust the threshold amounts specified above.

15. Special Conditions:

None

bb)

Exhibit D

The Company's Retention limits

life:

The Company will retain its Retention Limit. as stated below.

$2,000,000, applicable for all ages and ratings.

It is understood that the sum of all amounts retained on a life will not exceed the Company's < FONT color="#0e131b">Retention Limit on
a per life basis.

Exceptions:

1. In addition to the basic retention, the Company will retain the full amounts of additional insurance
provided in the following situations:

a) Accidental Death Benefit (ADB) rider
b) The Company's employee term insurance
c) Guaranteed issue I simplified issue underwriting (non-COLl)
d) Waiver of Premium (WP) rider
e) Waiver 01 Monthly Deductions (WMDI rider

2. On all plans other than universal life, the Company will retain, in addition to its basic
retention, a share proportional to its basic retention of the additional insurance provided in the
following situations:

a) Purchased by dividends,
b) Issued under the terms of its annual premium additions rider (APAR).

3. Under the Company's Table 4 Program the Company will retain a twenty percent (20%) quota share up
to a maximum limit of $1,000,000.

Risk Retention:

Any change in the net amount at risk due to changes in the cash value applicable to the policy will be
shared proportionately between the Company and its reinsurers.

Exhibit E

Automatic Issue and Acceptance Limits

Automatic Limit:

Lifa:

The Reinsurer agrees to accept its applicable share of the excess over the Company's retention but not more than the following limits on anyone life. This limit applies to all plans except BID rider, the Table 4 Program and conversions from term plans.

Ages	Std (100%) Table 4(200%)
0-75	$13,500,000
76-80	$ 9,760,000

It is understood that the Company's Total Automatic Coverage including the Company's retention is as follows:

Ages	Std (100%) Table 4(200%)
0-75	$20,000,000
76-80	$15,000,000

BI0 Rider:

The Reinsurer agrees to accept 75% of the following amount on any BIO Rider:

BIO Rider Face Amount less the Company's available retention.

It is understood that the Company's Total Automatic Coverage for the BID Rider. including the Company's
retention, is $9,000,000, subject to the Total Automatic Coverage shown in the Ute Section above. In other words,
the total amount of insurance in force on the life applying for a 810 Rider, plus the amount of 810 Rider being
applied for, cannot exceed the limits shown in the Life Section above.

APAR Rider:

The Reinsurer agrees to accept an amount corresponding to its share of the basic policy.

Table 4 Program:

The Reinsurer agrees to accept its applicable share of each policy but no t more than the following limits on anyone
life:

Ages	Standard 1100%1 - Table 4 (200%)
0-75	$3,000,000

EXHIBIT E Page 2
(Revised November 1. 20051

The Reinsurer agrees to accept up to a seventy-five percent 175%) quota share of any policy submitted under the
Table 4 Program where the Company has either fully or partially filled its retention on a life now applying under the
Table 4 Program. For example, if the Company is fully retained on a life applying for the maximum policy allowed
under the Table 4 Program ($5.000,0001. the Reinsurer agrees to accept 75% of such policy, i.e,.
$3,750,000.

W.      P.: Not covered A.D.: Not covered

Jumbo Limit:

Life:

• Applies to the Table 4 Program:

$5,000,000 inforce and applied for on anyone life.

- Applies to all other plans originally issued under this treaty:

$35,000,000 inforce and applied for on anyone life.

Conditional Receipt or Temporary Insurance Agreement Liability

The amount of coverage provided by the Reinsurer under a Conditional Receipt (or Interim Receipt) or
Temporary Insurance Agreement will not exceed the lesser of:

1. The Reinsurer's share of $1,000,000; or

2. The Reinsurer's Automatic Acceptance Limits; or

3. The Reinsurer's share of the difference between the amount of insurance provided by the
Conditional Receipt (or Interim Receipt) or Temporary Insurance Agreement and the Company's
maximum Retention Limit assuming the life had been underwritten as standard. The Company's
Retention Limit will include any amounts retained under any inforce policies on the life.

Exhibit F

Reinsurance Reports

The Company acknowledges that timely and correct compliance with the reporting requirements of this
Agreement are a material element of the Company's responsibilities hereunder and an important basis of the
Reinsurer's ability to reinsure the risks hereunder. Consistent and material non-compliance with reporting
requirements, including extended delays, will constitute a material breach of the terms of this Agreement.

Remittance Reporting:
The Company will self-administer reinsurance transactions. Reinsurance premiums are payable as specified in the
Premium Mode provision of Exhibit C-1. During each accounting period, as defined below, the Company will report
to the Reinsurer all first year and renewal premiums which became due during the previous accounting p eriod. Any
adjustments made necessary by changes in reinsurance effective during a p revious accounting period will also be
reported.

The Company will take credit, without interest, for any unearned premium< /FONT>s arising due to reductions,
cancellations or death claims. The unearned premiums refunded wilt be net of allowances and policy fees.

The Company will pay the balance of premiums in arrears due under a reinstated Reinsured Policy.

If a net balance is due to the Reinsurer, the Company will forward a remittance in settlement with its report. If the net
balance ;s due to the Company, the Reinsurer will forward a remittance in settlement within 30 days of receipt of the
report.

Report Requirements:

The Company will send to the Reinsurer the following reports (elec tronically), by the times indicated below:

1	New Business	Accounting Period
.	(New issues only- first time	Monthly
	policy reported to the		21st day after month end
	Reinsurer)
2.	Renewal Business	Monthly
	(Policies with renewal		21st day after month end
	dates within Accounting
	Period)
3.		Monthly
	Changes & Terminations (including
	conversions, replacements		21st day after quarter end
	reinstatements, increases,
	decreases. recaptures, lapses,
4.	claims, etc.)	Quarterly
		Due Date
	Inforce List	21" day after month
	(Listing of each policy in	end
	force)

5. Accounting Information	Monthly	21st day after month end
(only required for Paper Reporting)
(See Exhibit F· 1 tor Sample Summary
Reporting Form, Section II

6.	Statutory Reserves	Quarterly	21st day after quarter end
	(See Exhibit F-l for Sample Summary
	Reporting form, Section 11)
7.Policy Exhibit Monthly		Monthly	21St day after month
(only required for Paper Reporting)			end
{See Exhibit F-1 for Sample Summary
8. Valuation Reserve			October 31st
Certification		Annually
(See Exhibit F-2 for Sample)
9. Tax Reserve Certification (See			June 1st
Exhibit F·3 for Sample)		Annually

Minimum Data Requirements for Paper Administration:

Paper Reporting

The data elements specified below as Billings and Transactions Data must be provided for each reported record on the New Business Report, the Renewal Business Report and the Changes and Transactions Report.

Billings and Transactions Data:
General
1	Reporting Period Dates	Specifies the beginning and ending date of the
		reporting period represented on the statement file.
Insured Data
2.	Last Name	Represents the surname or family name of the
		insured; must be specified for each insured on
		joint policy types; it is desired that name fields
		be parsed out into these listed components
3.	First Name	Represents the given name of the insured; must be
		specified for each insured on joint policy types; it is
		desired that name fields be parsed out into
		these listed components
4.	Middle Name or Middle Initial (if available)	Represents the middle name of the insured; must be
		specified for each insured on joint policy types; it is
		desired that name fields be parsed out into
		these listed components
5.	Date of Birth	Specifies the date on which the insured was born;
		this field must be provided on each insured on a

• joint policy.

cc)
B.	Sex	Indicates the gender of the insured; this field must
		be provided on each insured on a joint Policy.
7.	Tobacco Use Code	Indicates whether the insured is a smoker or user of
		tobacco products.
B.	Rating	Indicates whether the insured is standard,
		substandard. or uninsurable.
9.	Residence	State, province. or other geographical code that
		indicates where the insured resides.
10.	Insured Sequence Number	Specifies the number assigned by the ceding
		company to delineate one insured from another		on.
		policy with multiple insured.
Coverage Data
11.	Currency	Indicates the currency to be applied in calculating
		monetary amounts, if currency within this treaty is a
		variable on a by policy basis.
12.	Reinsurance Method	Indicates whether the policy is being ceded on an
		automatic or facultative basis.
13.	Policy Number	Specifies the number assigned by the ceding
		company to the policy record.
14.	Coverage Sequence Number	Specifies the number assigned by the ceding
		company to delineate one coverage or benefit from
		another on a policy with multiple coverages or
		benefits.
15.	Issue Date	The date the Policv or benefit was issued.
16.	Reinsurance Effective Date (if different than	Specifies the date upon which the reinsurance
	issue date}	coverage goes into effect, if it goes into effect on a
		date other than the issue date.	Can also be used to
		specify the original Policy Issue Date on a
		contractual policy conversion.
17.	Plan Code	Specifies the plan of insurance being provided to the
		insured; there must be a Separate plan code for each
		coveraae.
18.	Joint Ufe Indicator	Indicates that the coverage is a joint coverage and
		that multi ole lives are involved with the Coveraoe.
19.	Smoker Code	Indicates that the coverage has been issued at either
		non-smoker or smoker rates.
20.	Preferred Risk Class	Indicates the level of classification between the
		preferred and standard categories; there may be
		more than one revel of the preferred classification
		available, and this will indicate the specific level for
		this oolicv.
21.	Mortality Rating	Specifies the exact rating assigned to the policy;
		premium rates will be based on this rating; this
		ratina is aenerallv exoressed as a oercentaae.
22.	Flat Extra Rate	Specifies a flat rate per thousand to be charged on
		the policV.

23.	Flat Extra Duration	Specifies the number of years that the flat extra
		rating will be charged.
24.	Direct Face Amount	Specifies the face Amount of the benefit issued to
		the insured before the purchase of any reinsurance.
25.	Reinsured Face Amount	Specifies the face amount of the reinsurance
		purchased.
26.	Reinsured Amount at Risk	Specifies the net amount at risk for the current
		year's reinsurance benefits.
27.	Death Benefit Option	Specifies the option used to calculate the policy net
		amount at risk on Universal life products, only.
26.	Coverage Maturity or Expiry Date	Specifies the date on which the insurance coverage
		will cease, based on the type of plan issued to the
		insured.
29.	Issue Age	From date of issue, the age at which premiums will
		be charged when the case does not use a rated age.
30.	Rated Age	From the date of issue, the age at which premiums
		will be charged when the age is increased for
		substandard reasons, or when the age is an
		equivalent ace for joint products.
31.	Transaction Code	Indicates the specific action that has occurred to
		cause a policy to appear on the billing or transaction
		report, such as New Business, Renewal, Lapse,
		Death etc.
32.	Transaction Effective Date	Specifies the date on which the transaction is
		Applied to the insured's policy.
33.	Standard Premium	The premium to be paid for the reinsured benefit;
		this must be specified for each benefit provided on a
		policy record.
34.	Substandard Premium	In the event that a mortality rating has been
		assigned, this is the substandard portion of the
		premium to be paid for the reinsured benefit; this
		must be specified for each benefit provided on a
		Policy record
35.	Flat Extra Premium	The premium to be paid the reinsurer for any flat
		extra premiums assigned to the policy.
36.	Fees	Any additional fees to be charged, such as policy
		fees
37.	Standard Allowance	The allowance to be taken for the reinsured benefit;
		this must be specified for each benefit provided on a
		Policy record.
38.	Substandard Allowance	In the event that a mortality rating has been
		assigned, this is the portion of the allowance to be
		taken for the substandard premium; this must be
		specified for each benefit provided on a policy
		record.
39.	Flat Extra Allowance	In the event a flat extra rating has been assigned to
		the policy, this is the portion of the allowance to be
		taken on the flat extra premium; this must be
		specified for each flat extra premium provided on a
		policy record.
40.	Fee Allowance	The allowance to be taken for any fees paid on the
		record.

Inforce list:

As required, a complete listing of all policy records considered to be in force under this Agreement must also be
provided to the Reinsurer (Report #4 in Report Requirements, above). Eac< /FONT>h record on the lnforce List must contain
data elements 1-30, as specified in the above listing of data requirements.

Reporting System: The system used by the Company to administer its reinsurance is:

Home Grown System

The Company will inform the Reinsurer at least one reporting period in advance of any change in the reporting
format or data prior to its use in reports to the Reinsurer. The Company will provide the Reinsurer with a test file
containing such a change prior to its implementation in the production of reports.

Notification of Acceptance of Facultative Offer: The Company will promptly advise the Reinsurer of its acceptance
of the Reinsurer's underwriting decision pertaining to facultative business by sending notice to the Reinsurer on the
next New Business Report, providing the full details of the facultative new business.

Additional Information: Upon request, the Company will promptly provide the Reinsurer with any additional
information related to the Reinsured Policies and which the Reinsurer requires in order to complete its financial
statements.

Exhibit F-1

SEE ADMINISTERED REINSURANCE SUMMARY REPORTING FORM

Exhibit F-3

Tax Reserve Certification for Self Administered Business Ceded from National life Insurance Company

In force and Reserves at December 31. 200x:
Plan:

In force Reinsured Amount:

In force Number of Reinsured Policies:

ff)

Exhibit F-2

Valuation Reserve for Self· Administered Business Ceded to [redacted] from National Life Insurance Company

EX-5

FUND PARTICIPATION AGREEMENT

This Fund Participation Agreement (the "Agreement"), effective as of 24^th day of April, 2009, is made by and
among National Life Insurance Company ("Company"), JPMorgan Insurance Trust (the "Trust"), the Trust’s
investment advisors, JPMorgan Investment Advisors Inc. and J. P. Morgan Investment Management Inc. (the
“Advisers”), and the Trust's administrator, JPMorgan Funds Management, Inc. (the "Administrator”).

WHEREAS, the Trust engages in business as an open-end management investment company and is available
to act as the investment vehicle for separate accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-out provisions (hereinafter referred to
individually and/or collectively as "Variable Insurance Products");

WHEREAS, insurance companies desiring to utilize the Trust as an investment vehicle under their Variable
Insurance Products are required to enter into participation agreements with the Trust and the Administrator (the
"Participating Insurance Companies");

WHEREAS, shares of the Trust are divided into several series of shares, each representing the interest in a
particular managed portfolio of securities and other assets, any one or more of which may be made available for
Variable Insurance Products of Participating Insurance Companies;

WHEREAS, the Trust intends to offer shares of the series set forth on Schedule B (each such series hereinafter
referred to as a “Portfolio”) as may be amended from time to time by mutual agreement of the parties hereto under this
Agreement to the accounts of the Company specified on Schedule A (hereinafter referred to individually as an
“Account,” collectively, the “Accounts”);

WHEREAS, the Trust has obtained an order from the Securities and Exchange Commission, granting the
Trust exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940,
as amended (hereinafter 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 Trust to be sold to and held by Variable Insurance Product separate accounts of both affiliated
and unaffiliated insurance companies (hereinafter the "Shared Funding Exemptive Order");

WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act and
its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act");

WHEREAS, the Advisers are duly registered as an investment advisers under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws;

WHEREAS, the Advisers is the investment adviser of the Portfolios of the Trust;

WHEREAS, the Company has registered certain Variable Insurance Products under the 1933 Act; and

WHEREAS, to the extent permitted by applicable insurance laws and regulations, each Account intends to
purchase shares of the Portfolios to fund certain of the aforesaid Variable Insurance Products and the Trust is
authorized to sell such shares to each such Account at net asset value.

NOW, THEREFORE, in consideration of their mutual promises, the Company, the Trust, the Advisers, and
the Administrator agree as follows:

Article 1
The Contracts

1. The Company represents that it has established each of the Accounts specified on Schedule
A as a separate account under Vermont law, and has registered each such Account as a unit investment trust
under the 1940 Act to serve as an investment vehicle for variable annuity contracts and/ or variable life
contracts offered by the Company (the “Contracts”). The Contracts provide for the allocation of net amounts
received by the Company to separate divisions of the Account for investment in the shares of the Portfolios.
Selection of a particular division is made by the Contract owner who may change such selection from time to
time in accordance with the terms of the applicable Contract. The Company agrees to make every reasonable
effort to market its Contracts. In marketing its Contracts, the Company will comply with all applicable state
or Federal laws.

Article 2
Trust Shares

2.1. The Trust agrees to make available for purchase by the Company shares of the Portfolios
and shall execute orders placed for each Account on a daily basis at the net asset value next computed after
receipt by the Trust or its designee of such order. For purposes of this Section 2.1, the Company shall be the
designee of the Trust for receipt of such orders from the Account and receipt by such designee shall constitute
receipt by the Trust; provided that the Trust’s designated transfer agent receives notice of such order by 10:00
a.m. Eastern Time on the next following Business Day (“Trade Date plus 1”). Notwithstanding the foregoing,
the Company shall use its best efforts to provide the Trust’s designated transfer agent with notice of such
orders by 9:30 a.m. Eastern Time on Trade Date plus 1. "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 Securities and Exchange Commission, as set forth in the Trust's prospectus and statement of
additional information. Notwithstanding the foregoing, the Board of Trustees of the Trust (hereinafter the
"Board") may refuse to permit the Trust to sell shares of any Portfolio to any person, or suspend or terminate
the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties
under federal and any applicable state laws, necessary in the best interests of the shareholders of such
Portfolio.

2.2. The Trust agrees that shares of the Trust will be sold only to Participating Insurance
Companies for their Variable Insurance Products and, in the Trust’s discretion, to qualified pension and
retirement plans. No shares of any Portfolio will be sold to the general public.

2.3. The Trust agrees to redeem for cash, on the Company's request, any full or fractional shares
of the Trust held by an Account, executing such requests on a daily basis at the net asset value next computed
after receipt by the Trust or its designee of the request for redemption. For purposes of this Section 2.3, the
Company shall be the designee of the Trust for receipt of requests for redemption from each Account and
receipt by such designee shall constitute receipt by the Trust; provided that the Trust’s designated transfer
agent receives notice of such request for redemption on Trade Date plus 1 in accordance with the timing rules
described in Section 2.1.

2.4. The Company agrees that purchases and redemptions of Portfolio shares offered by the then
current prospectus of the Trust shall be made in accordance with the provisions of such prospectus. The
Accounts of the Company, under which amounts may be invested in the Trust are listed on Schedule A
attached hereto and incorporated herein by reference, as such Schedule A may be amended from time to time
by mutual written agreement of all of the parties hereto.

2.5. The Company will place separate orders to purchase or redeem shares of each Portfolio.
Each order shall describe the net amount of shares and dollar amount of each Portfolio to be purchased or
redeemed. In the event of net purchases, the Company shall pay for Portfolio shares on Trade Date plus 1.
Payment shall be in federal funds transmitted by wire. In the event of net redemptions, the Portfolio shall pay
the redemption proceeds in federal funds transmitted by wire by 2:00 p.m. Eastern Time on Trade Date plus 1.
Notwithstanding the foregoing, if the payment of redemption proceeds on the next Business Day would
require the Portfolio to dispose of Portfolio securities or otherwise incur substantial additional costs, and if the
Portfolio has determined to settle redemption transactions for all shareholders on a delayed basis, proceeds

shall be wired to the Company within seven (7) days and the Portfolio shall notify in writing the person
designated by the Company as the recipient for such notice of such delay by 3:00 p.m. Eastern Time on Trade
Date plus 1.

2.6. Issuance and transfer of the Trust's shares will be by book entry only. Share certificates will
not be issued to the Company or any Account. Shares ordered from the Trust will be recorded in an
appropriate title for each Account or the appropriate subaccount of each Account.

2.7. On each record date, the Administrator shall use its best efforts to furnish same day notice

by 6:30 p.m. Eastern Time (by wire, telephone, electronic media or by fax) to the Company of any dividends
or capital gain distributions payable on the Trust's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive all such dividends and capital
gain distributions in cash. The Trust shall notify the Company of the number of shares so issued as payment
of such dividends and distributions.

2.8. The Administrator shall make the net asset value per share of 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 6:30 p.m. Eastern Time. In the
event that the Administrator is unable to meet the 6:30 p.m. time stated immediately above, then the
Administrator shall provide the Company with additional time to notify the Administrator of purchase or
redemption orders pursuant to Sections 2.1 and 2.3, respectively, above. Such additional time shall be equal to
the additional time that the Administrator takes to make the net asset values available to the Company.

2.9. If the Administrator provides materially incorrect share net asset value information through
no fault of the Company, the Company shall be entitled to an adjustment with respect to the Trust shares
purchased or redeemed to reflect the correct net asset value per share as subsequently determined by the
Administrator. The determination of the materiality of any net asset value pricing error shall be based on the
Trust’s policy for correction of pricing errors (the “Pricing Policy”). The Company shall correct such error in
its records and in the records prepared by it for Contract owners in accordance with information provided by
the Administrator. Any material error in the calculation or reporting of net asset value per share, dividend or
capital gain information shall be reported promptly upon discovery to the Company.

2.10 The Administrator shall provide information to the Company of the amount of shares traded
and the associated cost per share (NAV) total trade amount and the outstanding share balances held by the
Account in each Portfolio as of the end of each Business Day. Such information will be furnished
(electronically or by fax) by 1:00 p.m. Eastern time on the next Business Day.

2.11 Contract Owner Information

2.11(a) Agreement to Provide Information. Company agrees to provide the Fund, or its designee, upon
written request, 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 and transaction type (purchase, redemption, transfer, or exchange) of every
purchase, redemption, transfer, or exchange of Shares held through an Insurance Company Fund Account
maintained by the Company 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.

(i) Period Covered by Request. Requests must set forth a specific period, not to exceed one
year from the date of the request, for which transaction information is sought. A request may be
ongoing and continuous (e.g., for each trading day throughout the year) or for specified periods of
time. A Portfolio may request transaction information older than one year from the date of the

request as it deems necessary to investigate compliance with policies established by the Portfolio for
the purpose of eliminating or reducing market timing and abusive trading practices.

(ii) Form and Timing of Response. Company agrees to provide, promptly upon request of the
Fund or its designee, the requested information specified in 2.11 (a). If requested by the Fund, or its
designee, Company agrees to use best efforts to determine promptly whether any specific person
about whom it has received the identification and transaction information specified in 2.11 (a) is itself
a financial intermediary ("indirect intermediary") and, upon further request of the Fund, or its
designee, promptly either (i) provide (or arrange to have provided) the information set forth in 2.11(a)
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. Company 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 or its designee and the Company; and (c) To the extent
practicable, the format for any transaction information provided to the Fund should be consistent with
the NSCC Standardized Data Reporting Format.

(iii) Limitations on Use of Information. The Fund agrees not to use the information received
pursuant to Section 2.11(a) 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.

2.11(b) Agreement to Restrict Trading. Company agrees to execute written instructions from the Fund to
restrict or prohibit further purchases or exchanges of Shares by a Shareholder that has been identified by the
Fund as having engaged in transactions of the Fund's Shares (directly or indirectly through the Insurance
Company Fund Account) that violate policies established by the Fund for the purpose of eliminating or
reducing market timing and abusive trading practices. 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 Company. Instructions must be
received by the Company at the following address, or such other address that Company may communicate to
the Fund in writing from time to time, including, if applicable, an e-mail and/or facsimile telephone number:

(i)

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.

(ii)

Timing of Response. Company agrees to execute instructions as soon as reasonably

practicable, but not later than five Business Days after receipt of the instructions by the Company.

(iii) Confirmation by Intermediary. Company must provide written confirmation to the Fund
that instructions have been executed. Company agrees to provide confirmation as soon as
reasonably practicable but not later than ten business days after the instructions have been executed.

2.11 (c) Definitions. For purposes of this Section 2.11:

(i) The term “Insurance Company Fund Account” means an omnibus account with the Fund
maintained by Company.

(ii) The term “Fund” includes JPMorgan Distribution Services, Inc., which is the Trust’s principal
underwriter; the Trust’s transfer agent and the series of the Trust listed in the Agreement.

(iii) The term “Shares” means the interests of Shareholders corresponding to the redeemable
securities of record issued by the Fund under the Investment Company Act that are held by or through an
Insurance Company Fund Account.

(iv) The term “Shareholder” means the holder of interests in a variable annuity or variable life
insurance contract issued by the Company (“Contract”), or a participant in an employee benefit plan with
a beneficial interest in a Contract.

(v) 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: (a) 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;
(b) pursuant to a Contract death benefit; (c) one-time step-up in Contract value pursuant to a Contract
death benefit; (d) 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 (e) pre- arranged transfers at the conclusion of a required free look period.

(vi) 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: (a) 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; (b) as a result of any deduction of charges or fees under a Contract;

(c)	within a Contract out of a Fund as a result of scheduled withdrawals or surrenders from a Contract; or
(d)	as a result of payment of a death benefit from a Contract.
	(vii)	The term “written” and/or “in writing” within this Section 2.11 or any Section of this
Agreement	includes electronic writings and facsimile transmissions.
	(viii)	The term "Financial Intermediary" shall mean a "financial intermediary" as defined in 22c-2
of	the Investment Company Act.
	(ix)	The term "purchase" does not include the automatic reinvestment of dividends.
	(x)	The term “promptly” as used in 3(a)(ii) shall mean as soon as practicable but in no event later
than	10 business days from the Company’s receipt of the request for information from the Fund or its

designee.

Article 3
Prospectuses, Reports to Shareholders and Proxy Statements, Voting

3.1. The Trust shall provide the Company with as many printed copies of the Trust's current
prospectuses as the Company may reasonably request, or, at the option of the Company, an electronic version
suitable for printing and duplication. The Administrator will provide the Company with a copy of the
statement of additional information suitable for duplication. If requested by the Company, in lieu of providing
printed copies, the Trust shall provide camera-ready film or computer diskettes containing the Trust's
prospectuses and statement of additional information within a reasonable amount of time in order for the
Company once each year (or more frequently if the prospectuses and/or statement of additional information
for the Trust is amended during the year) to have the prospectuses for the Contracts and the applicable Trust
prospectuses printed together in one document or separately. The Company may elect to print the Trust's

prospectuses and/or its statement of additional information in combination with other investment companies'
prospectuses and statements of additional information.

3.2(a). The Company will deliver or cause to be delivered to each of its Contract owners, at or prior
to the time of purchase of any Portfolio shares, a copy of such Portfolio’s prospectus and, upon request, a copy
of its statement of additional information. For prospectuses and statements of additional information
provided by the Company to its existing owners of Contracts in order to update disclosure as required by the
1933 Act and/or the 1940 Act, the cost of setting in type, printing and distributing shall be borne by the Trust.
If the Company chooses to receive camera-ready film or computer diskettes in lieu of receiving printed copies
of the Trust's prospectus and/or statement of additional information, the Trust shall bear the cost of typesetting
to provide the Trust's prospectus and/or statement of additional information to the Company in the format in
which the Trust is accustomed to formatting prospectuses and statements of additional information,
respectively, and the Company shall bear the expense of adjusting or changing the format to conform with any
of its prospectuses and/or statements of additional information. In such event, the Trust will reimburse the
Company in an amount equal to the product of x and y where x is the number of such prospectuses distributed
to owners of the Contracts, and y is the Trust's per unit cost of printing the Trust's prospectuses. The same
procedures shall be followed with respect to the Trust's statement of additional information. The Trust shall
not pay any costs of typesetting, printing and distributing the Trust's prospectus and/or statement of additional
information to prospective Contract owners. Except as otherwise provided in this Section 3.2, all expenses of
preparing, setting in type and printing and distributing Trust prospectuses and statements of additional
information shall be the expense of the Company.

3.2(b). The Trust shall provide the Company with copies of Annual and Semi-Annual Reports (the
“Reports”) in such quantity, at such time and in the format requested by the Company, as the Company shall
reasonably require for distributing to Contract owners. The Trust, at its expense, shall provide the Contract
owners designated by the Company with copies of its proxy statements and other communications to
shareholders (except for prospectuses and statements of additional information, which are covered in Section
3.2(a) above, and Reports). The Trust shall not pay any costs of distributing Reports and other
communications to prospective Contract owners.

3.2(c). The Company agrees to provide the Trust or its designee with such information as may be
reasonably requested by the Trust to assure that the Trust's expenses do not include the cost of typesetting,
printing or distributing any of the foregoing documents other than those actually distributed to existing
Contract owners.

3.2(d). Except as otherwise provided in this Agreement, the Trust shall pay no fee, other
compensation or other expenses under this Agreement. The Trust may, however, pay the Company servicing
fees under a written servicing agreement for certain Portfolios pursuant to the services plan it has adopted. In
addition, the Trust has adopted a plan pursuant to Rule 12b-1 to finance distribution expenses for certain
Portfolios, and the Trust's distributor may pay fees under such plan to the Company or to a designated affiliate
under a separate written agreement between such parties.
3.2(e). All expenses, including expenses to be borne by the Trust pursuant to Section 3.2 hereof,
incident to performance by the Trust under this Agreement shall be paid by the Trust. The Trust shall see to it
that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if
and to the extent deemed advisable by the Trust, in accordance with applicable state laws prior to their sale.
The Trust shall bear the expenses for the cost of registration and qualification of the Trust's shares.

3.3. If and to the extent required by law, the Company shall with respect to proxy material
distributed by the Trust to Contract owners designated by the Company to whom voting privileges are
required to be extended:

(i)	solicit voting instructions from Contract owners;
(ii)	vote the Trust shares in accordance with instructions received from Contract owners; and

(iii)      vote Trust shares for which no instructions have been received in the same proportion as Trust shares of such Portfolio for which instructions have been received, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners.

The Company reserves the right to vote Trust shares held in any segregated asset account in its own right, to
the extent permitted by law.

Article 4
Sales Material and Information

4.1. The Company shall furnish, or shall cause to be furnished, to the Trust, the Advisers or their
designee, drafts of the separate accounts prospectuses and statements of additional information and each piece
of sales literature or other promotional material prepared by the Company or any person contracting with the
Company to prepare such material in which the Trust, the Advisers or the Administrator is described, at least
ten Business Days prior to its use. No such material shall be used if the Trust, the Advisers, the Administrator
or their designee reasonably objects to such use within ten Business Days after receipt of such material.

4.2. Neither the Company nor any person contracting with the Company to prepare sales
literature or other promotional material shall give any information or make any representations or statements
on behalf of the Trust or concerning the Trust in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or Trust prospectus, as such registration
statement or Trust prospectus may be amended or supplemented from time to time, or in reports to
shareholders or proxy statements for the Trust, or in sales literature or other promotional material approved by
the Trust or its designee, except with the permission of the Trust or its designee.

4.3. The Administrator shall furnish, or shall cause to be furnished, to the Company or its
designee, each piece of sales literature or other promotional material prepared by the Trust in which the
Company or its Accounts, are described at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten Business Days after receipt of
such material.

4.4. Neither the Trust, the Administrator, nor the Advisers shall give any information or make
any representations on behalf of the Company or concerning the Company, each Account, or the Contracts,
other than the information or representations contained in a registration statement or prospectus for the
Contracts, as such registration statement or prospectus may be amended or supplemented from time to time, or
in published reports or solicitations for voting instruction for each Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of the Company.

4.5. The Trust will provide to the Company, upon its request, at least one complete copy of all
registration statements, prospectuses, statements of additional information, reports, proxy statements,
applications for exemptions, requests for no-action letters, and all amendments to any of the above, that relate
to the Trust or its shares, promptly after the filing of such document with the Securities and Exchange
Commission or other regulatory authorities.

4.6. The Company will provide to the Trust, upon the Trust's 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, requests for
no action letters, and all amendments to any of the above, that relate to the investment in an Account or
Contract, prior to with the filing of such documents with the Securities and Exchange Commission or other
regulatory authorities.

4.7. For purposes of this Article 4, the phrase "sales literature or other promotional material"
includes, but is not limited to, any of the following: advertisements (such as material published, or designed
for use in, a newspaper, magazine, or other periodical, radio, television, internet, telephone or tape recording,

videotape, display, signs or billboards, motion pictures, 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, or published article), and educational or training materials or other
communications distributed or made generally available to some or all agents or employees.

4.8. The Company and its agents shall make no representations concerning the Trust except
those contained in the then-current prospectus and statement of additional information of the Trust and in
current printed sales literature of the Trust.

Article 5
Administrative Services to Contract Owners

5. Administrative services to Contract owners shall be the responsibility of the Company and
shall not be the responsibility of the Trust, the Advisers or the Administrator. The Company, the Trust and the
Administrator recognize that the Account(s) will be the sole shareholder(s) of Trust shares issued pursuant to
the Contracts.

Article 6
Representations and Warranties

6.1. The Trust represents that it believes, in good faith, that each Portfolio is currently qualified
as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code") and that it will make every effort to maintain such qualification of the Trust and that it will notify
the Company immediately 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.

6.2. The Company represents that it believes, in good faith, that the Contracts will at all times be
treated as life insurance or annuity contracts, as applicable, under applicable provisions of the Code, and that it
will make every effort to maintain such treatment and that it will notify the Trust 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.

6.3. The Trust represents that it believes, in good faith, that the Portfolios will at all times
comply with the diversification requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of
the regulations under the Code, and that it will make every effort to maintain the Trust’s compliance with such
diversification requirements, and that it will notify the Company immediately upon having a reasonable basis
for believing that a Fund has ceased to so qualify or that a Portfolio might not so qualify in the future.

6.4. The Company represents and warrants that the interests of the Contracts are or will be
registered unless exempt and that it will maintain such registration under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act and interpretations and guidance (including no-action
letters) of the Securities and Exchange Act issued thereunder and under the 1940 Act, and that the Contracts
will be issued and sold in compliance with all applicable federal and state laws and regulations. The Company
also represents and warrants that the Portfolios will be sold in accordance with such Portfolio’s current
prospectus. The Company further represents and warrants that it is an insurance company duly organized and
in good standing under applicable law and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under the Vermont Insurance Code and the regulations
thereunder and has registered or, prior to any issuance or sale of the Contracts, will maintain the registration of
each Account as a unit investment trust in accordance with and to the extent required by the provisions of the
1940 Act and the regulations thereunder, unless exempt therefrom, to serve as a segregated investment account
for the Contracts. The Company shall amend its registration statement for its Contracts under the 1933 Act
and the 1940 Act from time to time as required in order to effect the continuous offering of its Contracts.

6.5. The Company represents that it believes, in good faith, that the Account is a "segregated
asset account" and that interests in the Account are offered exclusively through the purchase of a "variable

contract," within the meaning of such terms under Section 1.817-5(f)(2) of the regulations under the Code, and
that it will make every effort to continue to meet such definitional requirements, and that it will notify the
Trust 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.

6.6. The Trust represents and warrants that it is and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Trust in an amount no less than the minimal
coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated
from time to time. Such bond shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company. The Trust will notify the Company immediately upon having a reasonable basis
for believing that the Trust no longer has the coverage required by this Section 6.6.

6.7. The Company represents and warrants that all of its directors, officers, employees,
investment advisers, and other entities dealing with the money or securities of the Trust are and shall continue
to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Trust, in an
amount not less than five million dollars ($5,000,000). Such bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company. The Company agrees to make all
reasonable efforts to see that this bond or another bond containing these provisions is always in effect and
agrees to notify the Trust immediately upon having a reasonable basis for believing that the Company no
longer has the coverage required by this Section 6.7.

6.8. The Trust represents that a majority of its disinterest trustees have approved the Trust's
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act.

6.9. The Advisers and the Administrator each represents and warrants that it complies with all applicable
federal and state laws and regulations and that it will perform its obligations for the Trust and the Company in
compliance with the laws and regulations of its state of domicile and any applicable state and federal laws and
regulations.

Article 7
Statements and Reports

7.1. The Administrator or its designee will make available electronically to the Company within
five (5) Business Days after the end of each month a monthly statement of account confirming all transactions
made during that month in the Account.

7.2. The Trust and Administrator agree to provide the Company no later than March 1 of each
year with the investment advisory and other expenses of the Trust incurred during the Trust's most recently
completed fiscal year, to permit the Company to fulfill its prospectus disclosure obligations under the SEC's
variable annuity fee table requirements.

Article 8
Potential Conflicts

8.1. If required under the Shared Funding Exemptive Order, the Board will monitor the Trust for
the existence of any material irreconcilable conflict between the interests of the Contract owners of all
Accounts investing in the Trust. An irreconcilable material conflict may arise for a variety of reasons,
including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or
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 owners
and variable life insurance Contract owners; or (f) a decision by a Participating Insurance Company 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.

8.2. If required under the Shared Funding Exemptive Order, the Company will report in writing
any potential or existing material irreconcilable conflict of which it is aware to the Administrator. Upon
receipt of such report, the Administrator shall report the potential or existing material irreconcilable conflict to
the Board. The Administrator shall also report to the Board on a quarterly basis whether the Company has
reported any potential or existing material irreconcilable conflicts during the previous calendar quarter. 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.

8.3. If required under the Shared Funding Exemptive Order, the and it is determined by a
majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets
allocable to some or all of the separate accounts from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including (but not limited to) another Portfolio of the Trust, or submitting the
question 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
policy 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/or (2) establishing a new registered management investment company or managed separate account. No
charge or penalty will be imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will be carried out with a view only to
the interests of Contract owners.

8.4. If required under the Shared Funding Exemptive Order, 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 Trust's
election, to withdraw the affected Account's investment in the Trust and terminate this Agreement with respect
to such Account (at the Company's expense); 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. No charge or penalty will be imposed as a result of such withdrawal.
The Company agrees that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of Contract owners.

8.5. If required under the Shared Funding Exemptive Order, the, for purposes of Sections 8.3

through 8.4 of this Agreement, a majority of the disinterested members of the Board shall determine whether
any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Trust be
required to establish a new funding medium for the Contracts. The Company shall not be required by Section
8.3 through 8.4 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.

8.6. If required under the Shared Funding Exemptive Order, i and to the extent that Rule 6e-2
and Rule 6e-3(T) under the 1940 Act 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 Shared Funding Exemptive Order) on terms and conditions materially different from those
contained in the Shared Funding Exemptive Order, then the Trust and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.

8.7. If required under the Shared Funding Exemptive Order, each of the Company and the
Advisers shall at least annually submit to the Board such reports, materials or data as the Board may
reasonably request so that the Board may fully carry out the obligations imposed upon them by the provisions
hereof and in the Shared Funding Exemptive Order, and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board. Without limiting the generality of the foregoing or the
Company’s obligations under Section 8.2, the Company shall provide to the Administrator, upon request, a
written report to the Board no later than January 15^th of each year, or as soon as practicable thereafter,
indicating whether any material irreconcilable conflicts have arisen during the prior fiscal year of the Trust.
All reports received by the Board of potential or existing conflicts, and all Board action with regard to
determining the existence of a conflict, notifying Participating Insurance Companies of a conflict, and
determining whether any proposed action adequately remedies a conflict, shall be properly recorded in the
minutes of the Board or other appropriate records, and such minutes or other records shall be made available
to the Securities and Exchange Commission upon request.

Article 9
Indemnification

9.1.	Indemnification By The Company
9.1	(a). The Company agrees to indemnify and hold harmless the Trust, the Administrator, the

Advisers, and each member of their respective Boards and officers and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of
this Section 9.1) against any and all losses, claims, damages or liabilities (including legal and other expenses
and amounts paid in settlement with the written consent of the Company), to which the Indemnified Parties
may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities are related to the sale or acquisition of the Trust's shares or the Contracts and:

(i)      arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement or prospectus for the Contracts or contained

in the Contracts or sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or on behalf of the Trust
for use in the registration statement or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in connection with the sale of
the Contracts or Trust shares; or

(ii)	arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or sales literature of the Trust not supplied by the Company, or persons under its control and other than statements or representations authorized by the Trust) or unlawful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Trust shares; or
(iii)	arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature of the Trust or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to the Trust by or on behalf of the Company; or
(iv)	arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or

(v)      arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company; as limited by and in accordance with the provisions of Section 9.1(b) and 9.1(c) hereof.

9.1(b). The Company shall not be liable under this indemnification provision with respect to any
losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may
arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement.

9.1(c). The Company shall not be liable under this indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in
writing within a reasonable time after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify the Company of any such claim
shall not relieve the Company from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Company shall be entitled to participate, at as own expense, in the
defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel
reasonably satisfactory to the Indemnified Party named in the action. After notice from the Company to such
Indemnified Party of the Company's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Company shall not be liable to such
Indemnified Party under this Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other than reasonable costs of
investigation.

9.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any
litigation or proceedings against them in connection with the issuance or sale of the Trust shares or the
Contracts or the operation of the Trust.

9.2. Indemnification by Administrator

9.2(a). The Administrator agrees to indemnify and hold harmless the Company and each of its
directors and officers 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 9.2) against any and all
losses, claims, damages or liabilities (including legal and other expenses and amounts paid in settlement with
the written consent of the Administrator) to which the Indemnified Parties may become subject under any
statute, at common law or otherwise, insofar as such losses, claims, damages or liabilities:

(i)

arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Trust or the Administrator by or on behalf of the Company, the Advisers, Counsel for the Trust, the independent public accountant to the Trust, or any person or entity that is not acting as agent for or controlled by the Administrator for use in the registration statement or prospectus for the Trust or in sales literature (or a ny amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Portfolio shares; or

(ii)

arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the

	Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Administrator; or
(iii)	arise as a result of any failure by the Administrator to provide the services and furnish the materials under the terms of this Agreement; or
(iv)	arise out of or result from any material breach of any representation and/or warranty made by the Administrator in this Agreement or arise out of or result from any other material breach of this Agreement by the Administrator; as limited by and in accordance with the provisions of Section 9.2(b) and 9.2(c) hereof.

9.2(b). The Administrator shall not be liable under this indemnification provision with respect to
any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such
may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations
and duties under this Agreement.

9.2(c). The Administrator shall not be liable under this indemnification provision with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall have notified the
Administrator in writing within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the
Administrator of any such claim shall not relieve the Administrator from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against the Indemnified Parties, the Administrator will be
entitled to participate, at its own expense, in the defense thereof. The Administrator also shall be entitled to
assume the defense thereof, with counsel reasonably satisfactory to the Indemnified Party named in the action.
After notice from the Administrator to such Indemnified Party of the Administrator's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by
it, and the Administrator will not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in connection with the defense
thereof other than reasonable costs of investigation.

9.2(d). The Company agrees promptly to notify the Administrator of the commencement of any
litigation or proceedings against it or any of its Indemnified Parties in connection with the issuance or sale of
the Contracts or the operation of each Account in which the Portfolios are made available.

9.3. Indemnification by the Advisers

9.3(a). The Advisers agree to indemnify and hold harmless the Company and its directors and
officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act
(hereinafter collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this
Section 9.3) against any and all losses, claims, damages or liabilities (including legal and other expenses and
amounts paid in settlement with the written consent of the Advisers) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages or
liabilities:

(i)      arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or

	omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Advisers or the Trust by or on behalf of the Company, the Administrator, Counsel for the Trust, the independent public accountant to the Trust, or any person or entity that is not acting as agent for or controlled by the Advisers for use in the registration statement or prospectus for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Portfolio shares; or
(ii)	arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Advisers; or
(iii)	arise as a result of any failure by the Advisers to provide the services and furnish the materials under the terms of this Agreement; or
(iv)	arise out of or result from any material breach of any representation and/or warranty made by the Advisers in this Agreement or arise out of or result from any other material breach of this Agreement by the Advisers; as limited by and in accordance with the provisions of Section 9.3(b) and 9.3(c) hereof.

9.3(b). The Advisers shall not be liable under this indemnification provision with respect to any
losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as may arise
from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.

9.3(c). The Advisers shall not be liable under this indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified Party shall have notified the Advisers in
writing within a reasonable time after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but failure to notify the Advisers of any such claim
shall not relieve the Advisers from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this indemnification provision. In case any such action is
brought against the Indemnified Parties, the Advisers will be entitled to participate, at its own expense, in the
defense thereof. The Advisers also shall be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the Indemnified Party named in the action. After notice from the Advisers to such Indemnified
Party of the Advisers's election to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Advisers will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof other then reasonable costs of investigation.

9.3(d). The Company agrees to promptly notify the Advisers of the commencement of any litigation
or proceedings against it or any of Indemnified Parties in connection with this Agreement, the issuance or sale
of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the Trust.

9.4. Indemnification by the Trust

9.4(a). The Trust agrees to indemnify and hold harmless the Company and its directors and officers
and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act
(hereinafter collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this
Section 9.4) against any and all losses, claims, damages or liabilities to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages or
liabilities:

(i)	arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished the Trust by or on behalf of the Advisers, the Company, or the Administrator for use in the registration statement or prospectus for the Trust or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Portfolio shares; or
(ii)	arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Company by or on behalf of the Trust; or
(iii)	arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement; or
(iv)	arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust; as limited by and in accordance with the provisions of Section 9.4(b) and 9.4(c) hereof.

9.4(b). The Trust shall not be liable under this indemnification provision with respect to any losses,
claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as may arise from
such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement.

9.4(c). The Trust shall not be liable under this indemnification provision with respect to any claim
made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing
within a reasonable time after the summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not
relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to participate, at its own expense, in the defense
thereof. The Trust also shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to
the Indemnified Party named in the action. After notice from the Trust to such Indemnified Party of the
Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Trust will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other then reasonable costs of investigation.

9.4(d). The Company agrees to promptly notify the Trust of the commencement of any litigation or
proceedings against it or any of the Indemnified Parties in connection with this Agreement, the issuance or
sale of the Contracts, with respect to the operation of each Account, or the sale or acquisition of shares of the
Trust.

Article 10
Applicable Law

10.1. This Agreement shall be construed and the provisions hereof interpreted under and in
accordance with the laws of The Commonwealth of Massachusetts.

10.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the
rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and
regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared
Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith.

Article 11
Termination

11.1. This Agreement shall continue in full force and effect until the first to occur of:

(a) termination by any party for any reason upon ninety days advance
written notice delivered to the other parties; or

(b) termination by the Company by written notice to the Trust, the Advisers, and the
Administrator with respect to any Portfolio based upon the Company's determination that
shares of such Portfolio are not reasonably available to meet the requirements of the
Contracts. Reasonable advance notice of election to terminate shall be furnished by the
Company, said termination to be effective ten (10) days after receipt of notice unless the
Trust makes available a sufficient number of shares to reasonably meet the requirements of
the Account within said ten (10) day period; or

(c) termination by the Company upon written notice to the Trust, the Advisers, and the
Administrator with respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment medium of the Contracts
issued or to be issued by the Company. The terminating party shall give prompt notice to
the other parties of its decision to terminate; or

(d) termination by the Company upon written notice to the Trust, the Advisers and the
Administrator with respect to any Portfolio in the event that such portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision; or

(e) termination by the Company upon written notice to the Trust, the Advisers, and the
Administrator with respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Section 6.3 hereof; or

(f) termination by either the Trust, the Advisers, or the Administrator by written notice to the
Company, if either one or more of the Trust, the Advisers, or the Administrator, shall
determine, in its or their sole judgment exercised in good faith, that the Company and/or
their affiliated companies 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, provided that the Trust, the Advisers, or the Administrator will give the
Company sixty (60) days' advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after consideration of the actions taken
by the Company and any other changes in circumstances since the giving of such notice, the
determination of the Trust, the Advisers, or the Administrator shall continue to apply on the
60th day since giving of such notice, then such 60th day shall be the effective date of
termination; or

(g)	termination by the Company by written notice to the Trust, the Advisers,
	Administrator, if the Company shall determine, in its sole judgment exercised in good faith, that either the Trust, the Advisers, or the Administrator 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, provided that the Company will give the Trust, the Advisers, and the Administrator sixty (60) days' advance written notice of such determination of its intent to terminate this Agreement, and provided further that after consideration of the actions taken by the Trust, the Advisers, or the Administrator and any other changes in circumstances since the giving of such notice, the determination of the Company shall continue to apply on the 60th day since giving of such notice, then such 60th day shall be the effective date of termination; or
(h)	termination by any party upon the other party's breach of any representation or any material breach of any provision of this Agreement, which breach has not been cured to the satisfaction of the terminating party within ten (10) days after written notice of such breach is delivered to the Trust or the Company, as the case may be; or
(i)	termination by the Trust, the Advisers, or Administrator by written notice to the Company in the event an Account or Contract is not registered (unless exempt from registration) or sold in accordance with applicable federal or state law or regulation, or the Company fails to provide pass-through voting privileges as specified in Section 3.3.
11.2.	Effect of Termination. Notwithstanding any termination of this Agreement, the Trust may

continue to make available additional shares of the Trust pursuant to the terms and conditions of this
Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts") unless such further sale of Trust shares is proscribed by law, regulation or
applicable regulatory body, or unless the Trust determines that liquidation of the Trust following termination
of this Agreement is in the best interests of the Trust and its shareholders. The parties agree that this Section
11.2 shall not apply to any terminations under Article 8 and the effect of such Article 8 terminations shall be
governed by Article 8 of this Agreement.

11.3. The Company shall not redeem Trust shares attributable to the Contracts (as distinct from
Trust shares attributable to the Company's assets held in the Account) except (i) as necessary to implement
Contract owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations
or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required
Redemption") or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust, the Advisers and the Administrator the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the Trust and the Advisers) to the
effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract
owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first
giving the Trust or the Advisers 30 days notice of its intention to do so.

Article 12
Notices

Any notice shall be sufficiently given when sent by registered or certified mail to the other party at
the address of such party set forth below or at such other address as such party may from time to time specify
in writing to the other party.

If to the Trust:

JPMorgan Insurance Trust
Mail Code OH1-1235
1111 Polaris Parkway

OH1-1235
Columbus, Ohio 43240
Attn: Contract Administrator

If to the Administrator:

JPMorgan Funds Management, Inc.
Mail Code OH1-1235
1111 Polaris Parkway
OH1-1235
Columbus, Ohio 43240
Attention: Contract Administrator

If to the Advisers:

JPMorgan Investment Advisors Inc.
Mail Code OH1-0211
1111 Polaris Parkway
OH1-1235
Columbus, Ohio 43240
Attn: Contract Administrator

J.P. Morgan Investment Management Inc.
Mail Code OH1-0211
1111 Polaris Parkway
OH1-1235
Columbus, Ohio 43240
Attn: Contract Administrator

If to the Company:

Article 13
Miscellaneous

13.1. All persons dealing with the Trust must look solely to the property of the Trust for the
enforcement of any claims against the Trust as neither the Board, officers, agents or shareholders assume any
personal liability for obligations entered into on behalf of the Trust. Each of the Company, the Advisers, and
the Administrator acknowledges and agrees that, as provided by the Trust's Amended and Restated
Declaration of Trust, the shareholders, trustees, officers, employees and other agents of the Trust and the
Portfolios shall not personally be bound by or liable for matters set forth hereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim hereunder. The Trust's Amended and
Restated Declaration of Trust is on file with the Secretary of State The Commonwealth of Massachusetts.

13.2. The Company will comply with all applicable laws and regulations aimed at preventing,
detecting, and reporting money laundering and suspicious transactions. Without limiting the generality of the
foregoing, the Company shall take all appropriate steps, consistent with applicable regulations and generally

accepted industry practices, to: (i) obtain, verify, and retain information with regard to Contract owner
identification and source of Contract owner funds, and (ii) maintain records of all Contract owner transactions.
The Company will (but only to the extent consistent with applicable law) take all steps appropriate to provide
the Trust with any requested information about Contract owners and their accounts in the event that the Trust
shall request such information due to an inquiry or investigation by any law enforcement, regulatory, or
administrative authority. To the extent permitted by applicable law and regulations, the Company will notify
the Trust of any concerns that the Company may have in connection with any Contract owner in the context of
relevant anti-money laundering laws or regulations.

13.3. Subject to the requirements of legal process and regulatory authority, each party hereto shall
treat as confidential the names and addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall
not disclose, disseminate or utilize such names and addresses and other confidential information until such
time as it may come into the public domain without the express written consent of the affected party.

13.4. 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.

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

13.6. If any provision of this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected thereby.

13.7. Each party hereto shall cooperate with each other party and all appropriate governmental
authorities (including without limitation the Securities and Exchange Commission, the Financial Industry
Regulatory Authority and state insurance regulators) and shall permit such authorities (and other parties
hereto) reasonable access to its books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.

13.8. 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.

139. This Agreement or any of the rights and obligations hereunder may not be assigned by any
party without the prior written consent of all parties hereto; provided, however, that the Advisers may, with
advance written notice to the other parties hereto, assign this Agreement or any rights or obligations hereunder
to any affiliate of or company under common control with the Advisers if such assignee is duly licensed and
registered to perform the obligations of the Advisers under this Agreement.

13.10. The Company shall furnish, or shall cause to be furnished, to the Trust or its designee upon
request, copies of the following reports:

(a) the Company's annual statement (prepared under statutory accounting principles) and annual
report (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year;

(b) the Company's June 30th quarterly statements (statutory), as soon as practical and in any
event within 45 days following such period;

(c) any financial statement, proxy statement, notice or report of the Company sent to
stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders;

(d) any registration statement (without exhibits) and financial reports the Company filed with
the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing
thereof; and

(e) any other public report submitted to the Company by independent accountants in connection
with any annual, interim or special audit made by them of the books of the Company, as soon as practical after
the receipt thereof.

13.11. The names “JPMorgan Insurance Trust” and ”Trustees of JPMorgan Insurance Trust” refer
respectively to the Trust created and the Trustees, as trustees but not individually or personally, acting from
time to time under a Declaration of Trust dated June 7, 1993 to which reference is hereby made and a copy of
which is on file at the office of the Secretary of The Commonwealth of Massachusetts and elsewhere as
required by law, and to any and all amendments thereto so filed or hereafter filed. The obligations of
”JPMorgan Insurance Trust” entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and are not binding upon any of the
Trustees, shareholders or representatives of the Trust personally, but bind only the assets of the Trust, and all
persons dealing with any series of shares of the Trust must look solely to the assets of the Trust belonging to
such series for the enforcement of any claims against the Trust.

13.12. The Trust and the Administrator agree to consult with the Company concerning whether any
Portfolio of the Trust qualifies to provide a foreign tax credit pursuant to Section 853 of the Code.

[SIGNATURE PAGES FOLLOW]

NATIONAL LIFE INSURANCE COMPANY
Company

By:_____/s/ Elizabeth MacGowan____________

Name: ___ Elizabeth MacGowan ________________

Title: ___Vice President___________________

JPMORGAN INSURANCE TRUST

By:_____/s/ Jeffrey House_________________

Name: ____ Jeffrey House ____________________

Title:________________________________________

JPMORGAN INVESTMENT ADVISORS INC.

By:__________/s/ John Noel____________________

Name: __________ John Noel _____________________

Title: ________________________________________

J.P. MORGAN INVESTMENT MANAGEMENT INC.

By:_______/s/ Gary Madich__________

Name: _______ Gary Madich __________________

Title: ________________________________________

JPMORGAN FUNDS MANAGEMENT, INC.

By:________/s/ Robert Young________________

Name: ______ Robert Young __________________

Title: _______________________________________

SCHEDULE A

SEPARATE ACCOUNTS AND CONTRACTS

as of April 24, 2009 which Accounts and Contracts may be changed from time to time upon written notification to the
Trust by the Company within a reasonable time from such change

Name of Separate Account and Date Established by Board
of Directors

Form Number
Funded by Separate Account

Schedule B

Portfolios of the Trust

JPMorgan Insurance Trust Balanced Portfolio Class 1
JPMorgan Insurance Trust Core Bond Portfolio Class 1
JPMorgan Insurance Trust Diversified Equity Portfolio Class 1(proposed post-merger name JPMorgan Insurance Trust
U.S. Equity Portfolio)
JPMorgan Insurance Trust Diversified Mid Cap Growth Portfolio Class 1
JPMorgan Insurance Trust Diversified Mid Cap Value Portfolio Class 1 (proposed post-merger name JPMorgan
Insurance Trust Mid Cap Value Portfolio)
JPMorgan Insurance Trust Equity Index Portfolio Class 1
JPMorgan Insurance Trust Government Bond Portfolio Class 1 (proposed merger into JPMorgan Insurance Trust Core
Bond Portfolio)
JPMorgan Insurance Trust International Equity Portfolio Class 1
JPMorgan Insurance Trust Intrepid Growth Portfolio Class 1
JPMorgan Insurance Trust Intrepid Mid Cap Portfolio Class 1
JPMorgan Insurance Trust Small Cap Equity Portfolio Class 1 (proposed post-merger name JPMorgan Insurance Trust
Small Cap Core Portfolio)

EX-7

SUPPLEMENTAL PAYMENT AGREEMENT

This Agreement is made effective April 24, 2009 by and between National Life Insurance
Company (the “Company”) and JPMorgan Investment Advisors Inc. (“JPMIA”) and J.P. Morgan
Investment Management Inc. (“JPMIM”).

WHEREAS, the Company and JPMorgan Insurance Trust (the “Trust”) have entered into a Fund
Participation Agreement (“Participation Agreement”) in order for certain separate accounts of the Company
(“Separate Accounts”) to purchase shares (“Shares”) of the Portfolios of the Trust listed on Appendix A
hereto (each, a “Portfolio”; collectively, the “Portfolios”). The Portfolios will serve as investment vehicles
under variable annuity or life contracts ("Variable Contracts”) offered by the Company.

WHEREAS, the Company performs certain administrative and support services for the owners of
its Variable Contracts.

WHEREAS, JPMIA and JPMIM are willing to pay the Company Supplemental Payments out of
their legitimate profits for administrative and other services, set forth in Appendix B hereto, rendered by
the Company;

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the
parties hereby agree as follows:

1. JPMIA and JPMIM as appropriate depending on the Portfolio or Portfolios involved,
recognize that the Company, on behalf of each of the Separate Accounts, is the sole
shareholder of shares of the Portfolios issued under the Participation Agreement. JPMIA
and JPMIM further recognize that the Trust will derive a substantial administrative
benefit by virtue of having the Company, on behalf of each of the Separate Accounts,
aggregate all purchase and redemption orders from owners of the Variable Contracts, and
submit an omnibus order for each Account for the Portfolio shares issued under the
Participation Agreement rather than multiple shareholders having record of ownership of
such shares. In consideration of the savings resulting from such arrangement, and to
compensate the Company for its costs, JPMIA and/or JPMIM agrees to pay the Company
Supplemental Payments at the annual rate designated in Appendix A of the average daily
net assets of a Portfolio’s Shares owned beneficially by the Company’s customers in the
Variable Contracts listed on Appendix A from time to time for which the Company
provides services, which fee will be computed daily and payable monthly. The parties
agree that such payments are for administrative services and investor support services,
and do not constitute payment for investment advisory, distribution or other services.
Payment of such amounts by JPMIA and/or JPMIM shall not increase the fees paid by
the Trust or its shareholders.

2. The Company hereby represents and warrants that this Agreement and the receipt of
payments by the Company from JPMIA and/or JPMIM is legal and valid, and does not
violate any statute, regulation, rule, order or judgment binding on the Company, or any
agreement binding on the Company or affecting its property. The Company further
represents and warrants that it has made all disclosures and obtained all consents required
in order for it to receive payments under this Agreement. The representations and
warranties set forth in this paragraph shall be made both as of the date hereof and shall
continue as long as payments are made to the Company pursuant to this Agreement.

3. JPMIA and JPMIM hereby represent and warrant that this Agreement and the receipt of
payments by the Company from JPMIA and JPMIM is legal and valid, and does not
violate any statute, regulation, rule, order or judgment binding on JPMIA and JPMIM, or
any agreement binding on JPMIA and JPMIM or affecting their property. JPMIA and
JPMIM further represent and warrant that they have made all disclosures and obtained all
consents required in order for it to make payments under this Agreement. The

1

representations and warranties set forth in this paragraph shall be made both as of the
date hereof and shall continue as long as payments are made to the Company pursuant to
this Agreement.

4. This Agreement shall be governed and interpreted in accordance with the internal laws of
the State of New York.

5. This Agreement may be terminated by either party without cause by giving the other
party at least thirty (30) days’ prior written notice of its intention to terminate. This
Agreement shall terminate automatically upon the redemption of all of a Separate
Account’s investment in the Trust, upon the termination of the Trust’s obligation to sell
its shares under the Participation Agreement, or upon either party’s receipt of notice from
the other party that the representations and warranties set forth in paragraph 2 or
paragraph 3, as the case may be, are no longer true or upon termination of the
Participation Agreement. This Agreement may be amended only by a written instrument
signed by both parties.

IN WITNESS WHEREOF, this Agreement has been executed effective as of the date set forth above by a
duly authorized officer of each party.

National Life Insurance Company	JPMorgan Investment Advisors Inc.
(Company)
	By:
By:
Name:	Name:
Title:	Title:
Date:	Date:__________________________

J.P. Morgan Investment Management
Inc.

By: ____________________________

Name: ______________________

Title: _______________________

Date: _______________________

2

Appendix A

Portfolios

JPMorgan Insurance Trust Balanced Portfolio Class 1
JPMorgan Insurance Trust Core Bond Portfolio Class 1
JPMorgan Insurance Trust Diversified Equity Portfolio Class 1(proposed name JPMorgan Insurance Trust
U.S. Equity Portfolio)
JPMorgan Insurance Trust Diversified Mid Cap Growth Portfolio Class 1
JPMorgan Insurance Trust Diversified Mid Cap Value Portfolio Class 1 (proposed name JPMorgan
Insurance Trust Mid Cap Value Portfolio)
JPMorgan Insurance Trust Equity Index Portfolio Class 1
JPMorgan Insurance Trust Government Bond Portfolio Class 1 (proposed merger into JPMorgan
Insurance Trust Core Bond Portfolio)
JPMorgan Insurance Trust International Equity Portfolio Class 1
JPMorgan Insurance Trust Intrepid Growth Portfolio Class 1
JPMorgan Insurance Trust Intrepid Mid Cap Portfolio Class 1
JPMorgan Insurance Trust International Equity Portfolio Class 1
JPMorgan Insurance Trust Small Cap Equity Portfolio Class 1

Servicing Fees

For each Portfolio: 0.25 basis points (0.25%) of the average daily net assets of the Class 1 Shares of the
Portfolio held by Separate Accounts for the Variable Contracts’ owners, except the Equity Index Portfolio
which shall be paid at 0.10 basis points (0.10%) .

Variable Contracts

Form Number
Funded by Separate Account
Varitrak Variable Universal Life Insurance
33-91938
(VT)7206(0395)
Sentinel Estate Provider Survivorship Variable Universal Life Insurance
33-44723
(VT)7416(1002)
Sentinel Advantage Variable Annuity
33-19583
(VT)7400VT(1002)
Sentinel Benefit Provider Variable Universal Life
33-67003
9004 (0898)

Agreed to effective this 24th day of April 2009.

3

JPMORGAN INVESTMENT ADVISORS INC.	NATIONAL LIFE INSURANCE COMPANY
By:	By:
Name:	Name:
Title:___________________________________	Title:_____________________________________
J. P. MORGAN INVESTMENT
MANAGEMENT INC.
By:
Name:
Title:_____________________________________

4

Appendix B

Administrative and Other Services

Maintenance of Books and Records

· Assist as necessary to maintain book entry records on behalf of the Trust regarding
issuance to, transfer within (via net purchase orders) and redemption by the Accounts of Trust
shares.
· Maintain general ledgers regarding the Accounts’ holdings of Trust shares, coordinate
and reconcile information, and coordinate maintenance of ledgers by financial institutions and
other Contract owner service providers.

Communication with the Trust Company

· Serve as the agent of the Trust for receipt of purchase and redemption orders from Contract owners
investing in the Trust through the Accounts and to transmit such orders, and payment therefor, to the
Trust.
· Coordinate with the Trust’s agents respecting daily valuation of the Trust’s shares and the Accounts’
units.
· Purchase Orders
- - Determine net amount available for investment in the Trust.
- - Deposit receipts at the Trust’s custodians (generally by wire transfer).
- - Notify the custodians of the estimated amount required to pay dividend or distribution.
· Redemption Orders
- - Determine net amount required for redemptions by the Trust.
- - Notify the custodian and Trust of cash required to meet payments.
· Purchase and redeem shares of the Trust on behalf of the Accounts at the then current price in
accordance with the terms of the Trust’s then-current prospectus.
· Assist in routing and revising sales and marketing materials to incorporate or reflect the comments
made by the Trust and/or the Adviser.
· Assist in reducing, discouraging, or eliminating market timing transactions in Trust shares in order to
reduce or eliminate adverse effects on the Trust or its shareholders.

Processing Distributions from the Trust

• Process ordinary dividends and capital gains.
• Reinvest the Trust’s distributions.

Reports

· Periodic information reporting to the Trust, including, but not limited to, furnishing registration
statements, prospectuses, statements of additional information, reports, solicitations for voting
instructions, sales and other promotional material, and any other SEC filings with respect to the
Accounts invested in the Trust, as not otherwise provided for.
· Periodic information reporting about the Trust, including any necessary delivery of the Trust’s
prospectus and annual and semi-annual reports to owners and prospective owners of Contracts, as not
otherwise provided for.

5

Trust-Related Contract Owner Services

· Provide general information with respect to Trust inquiries (not including information about
performance or related to sales).
· Provide information regarding performance of the Trust and its Portfolios and the subaccounts of the
Accounts.
· Oversee and assist the solicitation, counting and voting or Contract owner voting interests in the Trust
pursuant to Trust-related proxy statements.

Other Administrative Support

· Provide other administrative and legal compliance support for the Trust as mutually agreed upon by
the Company and the Trust, the Adviser, or the Administrator.
· Relieve the Trust of other usual or incidental administrative services provided to individual owners and
prospective owners of Contracts.

6

EX-8

National Life Insurance Company
One National Life Drive
Montpelier, VT 05604

Dear Sir or Madam:

This letter sets forth the agreement between Deutsche Investment Management Americas
Inc. (the “Adviser”) and National Life Insurance Company (the "Company") concerning certain
administrative services to be provided by you on a sub-administration basis, with respect to
Portfolios (as defined below) of the DWS Variable Series I, DWS Variable Series II and/or DWS
Investments VIT Funds (collectively, the "Fund").

1. Administrative Services and Expenses. Administrative services for the Accounts
(as defined below) which invest in Portfolios of the Fund pursuant to the
Participation Agreement(s) among the Company, the Fund, the Fund’s principal
underwriter (the “Underwriter”), and the Adviser (the "Participation Agreement")
and for purchasers of Variable Insurance Products (as defined below) are the
responsibility of the Company. Administrative services for the Portfolios, in
which the Accounts invest, and for purchasers of shares of the Portfolios, are the
responsibility of the Fund, the Underwriter or the Adviser. Capitalized terms not
defined herein, including “Accounts” and “Variable Insurance Products,” shall
have the meanings ascribed to them in the Participation Agreement.

The Company has agreed to assist the Adviser, as the Adviser may request from
time to time, with the provision of administrative services ("Administrative
Services") to the Portfolios, on a sub-administration basis, as they may relate to
the investment in the Portfolios by the Accounts. It is anticipated that
Administrative Services may include (but shall not be limited to) the mailing of
Fund reports, notices, proxies and proxy statements and other informational
materials to holders of the Variable Insurance Products supported by the Accounts
with allocations to the Portfolios; the provision of various reports for the Fund
and for submission to the Fund's Board of Trustees; the provision of shareholder
support services with respect to the Portfolios; such services listed on Schedule A
attached hereto and made a part hereof.

2. Administrative Expense Payments. In consideration of the anticipated
administrative expense savings resulting from the arrangements set forth in this
Agreement, the Adviser agrees to pay the Company on a quarterly basis an
amount set forth in Schedule B attached hereto and made a part hereof.

The expense payment contemplated by this Paragraph 2 shall be calculated by the
Company at the end of each calendar quarter and the Company shall provide to
the Adviser a statement showing the calculation of the quarterly amount payable

September 1^st, 2008
Page 2

by the Adviser and such other supporting data as may be reasonably requested by
the Adviser. The Adviser shall make the quarterly expense payment to the
Company within 10 days after the end of each calendar quarter, or within 10 days
after the Adviser's receipt from the Company of the expense calculation,
whichever is later.

3. Nature of Payments. The parties to this letter agreement recognize and agree that
the Adviser's payments to the Company relate to Administrative Services only.
The amount of administrative expense payments made by the Adviser to the
Company pursuant to Paragraph 2 of this letter agreement shall not be deemed to
be conclusive with respect to actual administrative expenses or savings of the
Adviser.

4. Term. This letter agreement shall remain in full force and effect for so long as the
assets of the Portfolios are attributable to amounts invested by the Accounts under
the Participation Agreement, unless terminated in accordance with Paragraph 5 of
this letter agreement.

5. Termination. This letter agreement may be terminated by either party upon 90
days' advance written notice or immediately upon termination of the Participation
Agreement or upon the mutual agreement of the parties hereto in writing. In the
event of a termination of this letter agreement, the administrative expense
payments made by the Adviser to the Company pursuant to Paragraph 2 of this
letter agreement shall continue with respect to assets of the Portfolios attributable
to Accounts of the Company (not including investments made after the date of
termination) for a period of one year from the date of termination of this letter
agreement; provided however, that the Adviser shall not be required to make such
payments for any time period where the Adviser has ceased to serve as investment
manager for the Fund.

6. Representations. The Company represents and agrees that it will maintain and
preserve all records as required by law to be maintained and preserved in
connection with providing the Administrative Services, and will otherwise
comply with all laws, rules and regulations applicable to the Administrative
Services. The Company represents and warrants that its receipt of any expense
payments pursuant to this Agreement complies with applicable laws, rules and
regulations and is disclosed to holders of the Variable Insurance Products to the
extent required by applicable laws, rules and regulations. The Adviser represents
and warrants that its payment of any such expense payments pursuant to this
Agreement complies with applicable laws, rules and regulations and that the

September 1^st, 2008
Page 3

prospectus or statement of additional information of the Fund will disclose such
expense payments to the extent required by applicable laws, rules and regulations.

7. Subcontractors. The Company may, with the consent of the Adviser, contract
with or establish relationships with other parties for the provision of the
Administrative Services or other activities of the Company required by this letter
agreement, provided that the Company shall be fully responsible for the acts and
omissions of such other parties.

8. Authority. This letter agreement shall in no way limit the authority of the Fund,
the Underwriter or the Adviser to take such action as any of such parties may
deem appropriate or advisable in connection with all matters relating to the
operations of the Fund and/or sale of its shares. The Company understands and
agrees that the obligations of the Adviser under this letter agreement are not
binding upon the Fund.

9. Indemnification. This letter agreement will be subject to the indemnification
provisions in the Participation Agreement.

10. Miscellaneous. This letter agreement may be amended only upon mutual
agreement of the parties hereto in writing. This letter agreement, including
Schedule A and Schedule B, constitutes the entire agreement between the parties
with respect to the matters dealt with herein, and supersedes any previous
agreements and documents with respect to such matters. This letter 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. The Company
agrees to notify the Adviser promptly if for any reason it is unable to perform
fully and promptly any of its obligations under this letter agreement.

11. Notice. Any notice required to be sent hereunder shall be sent in accordance with
the Participation Agreement.

September 1^st, 2008
Page 4

If this letter is consistent with the Company's understanding of the matters discussed herein
concerning administrative expense payments, kindly sign below and return a signed copy to the
Adviser.

Very truly yours, 

Deutsche Investment Management Americas Inc. 

By:___/s/ Michael Colon__________________ 

Name:___ Michael Colon 

Title:__Chief Operating Officer_____________ 

By:_____/s/ John Ashley__________________ 

Name:_____ John Ashley 

Title:_____Director__________________ 

Acknowledged and agreed to as of 

this _22__nd day of _October__, 2008 

National Life Insurance Company 

By:___/s/ Elizabeth MacGowan________ 

Name: Elizabeth MacGowan 

Title:__Vice President________________ 

Attachment:	Schedule A
	Schedule B

SCHEDULE A

I.	Fund related contract owner services
	·	Certain costs associated with dissemination of Fund prospectus to existing
		contractowners, as provided in the Participation Agreement.
	·	Fund proxies (including facilitating distribution of proxy material to
		contractowners, tabulation and reporting).
	·	Telephonic support for contractowners with respect to inquiries about the Fund
		(not including information related to sales).
	·	Communications to contractowners regarding performance of the account and the
		Designated Portfolios.
II.	Sub-Accounting Services
	·	Aggregating purchase and redemption orders of the Account for sales of the
		Portfolios.
	·	Processing and reinvesting dividends and distributions of the Portfolios held by
		the Account.
III.	Other administrative Support
	·	Providing other administrative support to the Fund as mutually agreed between
		the Company and the Fund, the Adviser or the Underwriter.

SCHEDULE B

The Adviser agrees to pay the Company, quarterly, an amount based on the following
annual rate(s) for the Portfolio(s) indicated applied to the average daily net asset balance of
Portfolio shares held in the Company’s Accounts pursuant to the Participation Agreement.

FUND & PORTFOLIO (SHARE CLASS)	ANNUAL RATE
DWS VARIABLE SERIES II:
-DWS Dreman High Return Equity VIP (Class B)	10 bps (0.10%)
-DWS Dreman Small Mid Cap Value VIP (Class B)	10 bps (0.10%)
DWS INVESTMENTS VIT FUNDS:
-DWS Equity 500 Index VIP (Class A)	13 bps (0.13%)
-DWS Small Cap Index VIP (Class A)	15 bps (0.15%)

For the month and year in which this letter agreement becomes effective or the expense payment
terminates, there shall be an appropriate proration on the basis of the number of days that the
expense payment is in effect during the quarter.

EX-9

Information Sharing Agreement

This Agreement is entered into by and between National Life Insurance Company ("National Life")
and the Sentinel Variable Products Trust ("Trust") as of April 17, 2007.

Preliminary Statements

1. National Life, the Trust and Equity Services, Inc. have entered into a Participation Agreement
dated July 27, 2000 under which series of the Trust are available through National Life's variable life
and annuity products ("Participation Agreement").

2. National Life and the Trust wish to enter into this Agreement in connection with the Participation
Agreement and in compliance with Rule 22c-2 under the Investment Company Act of 1940, as
amended.

Agreements

1. Agreement to Provide Information. National Life agrees to provide the Trust and/or its designee,
upon written request, the taxpayer identification number ("TIN"), if known, of any or all beneficial
owners of the Funds ("Shareholders"), and the amount, date, name or other identifier of any
investment professional(s) associated with the Shareholders (if known), and transaction type
(purchase, redemption, transfer, or exchange) of every purchase, redemption, transfer, or exchange
of Trust's shares ("Shares") held through an account maintained by National Life during the period
covered by the request.

2. Period Covered by Request. Unless otherwise directed by the Trust, National Life agrees
to provide the information specified above for each trading day.

3. Form and Timing of Response. National Life agrees to transmit the requested information that is
on its books and records to the Trust or its designee promptly, but in any event not later than five
business days, after receipt of a request. If the requested information is not on National Life's books
and records, National Life agrees to use reasonable efforts to: (i) promptly obtain and transmit the
requested information; (ii) obtain assurances from the accountholder that the requested information
will be provided directly to the Trust promptly; or (iii) if directed by the Trust, block further
purchases of Shares from such accountholder. In such instance, National Life agrees to inform the
Trust whether it plans to perform (i), (ii) or (iii). Responses required by this paragraph must be
communicated in writing and in a format mutually agreed upon by the parties.

4. Limitations on Use of Information. The Trust agree not to use the information received under this
section for marketing or any other similar purpose without National Life's prior consent.

5. Agreement to Restrict Trading. National Life agrees to execute written instructions from the Trust
or its designee to restrict or prohibit further purchases or exchanges of Shares by Shareholders that
have been identified by the Trust as having engaged in transactions of Shares

(directly or indirectly through National Life's account) that violate policies established by the Trust
for the purpose of eliminating or reducing any dilution of the value of the outstanding Shares issued
by the Trust.

6. Form of Instructions. Instructions must include the 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 Shareholders or the Shareholders' account(s) or other agreed upon information to which the
instruction relates.

7. Timing of Response. National Life agrees to execute instructions as soon as reasonably practicable,
but not later than five business days after receipt of the instructions by National Life.

8. Confirmation by Intermediary. National Life will provide written confirmation to the Trust or its
designee that instructions have been executed. National Life agrees to provide confirmation as soon
as reasonably practicable, but not later than ten business days after the instructions have been
executed.

9. Definitions. For purposes of this section, "Funds" does not does include the SVPT Money Market
Fund or any other money market fund. The term "shareholder" means the holder of interests in a
variable annuity or variable life insurance contract issued by you. The term "written" includes
electronic writings and facsimile transmissions.

10. Governing Law. The Agreement shall be governed by and interpreted in accordance with
the internal laws of the State of Vermont.

11. Amendments and Assignments. This Agreement may only be amended in a writing signed by
both parties. Neither party shall assign this Agreement without the prior written consent of the other
party provided, however, that either party may assign this Agreement to an affiliated entity or a third
party in connection with a merger, acquisition, reorganization or the sale or transfer of all or
substantially all of its assets to such third party. Subject to the foregoing, this Agreement or the
relevant provisions shall be binding upon, and inure to the benefit of, all successors, executors, heirs,
representatives, administrators and assigns.

NATIONAL LIFE INSURANCE COMPANY	SENTINEL VARIABLE PRODUCTS
/s/ Gregory H. Doremus
Senior Vice President	/s/ Christian W. Thwaites
	President & Chief Executive Officer

2

EX-99.K LEGAL OPININ

May 1, 2009

National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604

To Whom It May Concern:

This opinion is furnished in connection with a Registration Statement on Form N-6 ("Registration Statement")
under the Securities Act of 1933, as amended, of National Variable Life Insurance Account (the "Separate Account") and
National Life Insurance Company ("National Life"), covering an indefinite amount of premiums expected to be received
under certain flexible premium adjustable benefit individual variable life insurance policies ("Policies") to be offered by
National Life. Under the Policies, amounts will be allocated by National Life to the Separate Account as described in the
prospectus included in the Registration Statement to support reserves for such Policies.

I have examined all such corporate records of National Life and such other documents and laws as I consider
appropriate as a basis for the opinion hereinafter expressed. Based upon such examination, I am of the opinion that:

1.	National Life is a corporation duly organized and validly existing under the laws of the State of Vermont.
2.	The Separate Account has been duly created and is validly existing as a separate account pursuant to

Title 8, Vermont Statutes Annotated, Sections 3855 to 3859.

3. The portion of the assets to be held in the Separate Account equal to the reserves and other liabilities
under the Policies is not chargeable with liabilities arising out of any other business National Life may conduct.

4. The Policies have been duly authorized by National Life and, when issued as contemplated by the
Registration Statement, will constitute legal, validly issued and binding obligations of National Life in accordance with
their terms.

I hereby consent to the use of this opinion as an exhibit to the Registration Statement and to the reference to my
name under the heading "Legal Matters" in the Statement of Additional Information.

Very truly yours,

/s/ Lisa F. Muller

Lisa F. Muller
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 Ù ONE NATIONAL LIFE DRIVE Ù MONTPELIER, VERMONT 05604

EX-99.L ACTUARIAL OP

National Life Insurance Company
One National Life Drive· Montpelier, Vermont 05604

Elizabeth H. MacGowan
Vice President - Product Development

May 1, 2009

National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604

Ladies and Gentlemen:

In my capacity as Actuary - Vice President - Product Development of National Life Insurance Company
("National Life"), I have provided actuarial advice concerning: (a) the preparation of Post Effective Amendment
No. 24 to a registration statement for National Variable Life Insurance Account filed on Form N-6 with the
Securities and Exchange Commission under the Securities Act of 1933 (the "Registration Statement") regarding
the offer and sale of Flexible Premium Adjustable Benefit Variable Life Insurance Policies (the "Policies"); and
(b) the preparation of policy forms for the Policies described in the Registration Statement.

It is my professional opinion that:

(1) The illustrations of Death Benefits, Cash Surrender Values, and accumulated premiums in
Appendix A of the prospectus (the "Prospectus") contained in the Registration Statement, based on the
assumptions stated in the illustrations, are consistent with the provisions of the Policies and National Life's
administrative procedures.

(2) The rate structure of the Policies has not been designed so as to make the relationship between
premiums and benefits as shown in the illustrations, appear to be materially more favorable than for any other
prospective purchaser with different assumptions.

(3) The illustrations are based on a commonly used rating classification and premium amounts and
ages appropriate for the markets in which the Contract is sold.

Sincerely,

Elizabeth H. MacGowan, F.S.A., M.A.A.A.
Actuary
Vice President - Product Development

EX-99.M CALCULATION

Male Age 45 Standard Nonsmoker
	Beginning		Premium				End of Year
	of the Year		Tax		Cost of	Investment	Accumulated
Year	AV	Premium	Charge	Policy Fee	Insurance	Income	Value
1	0.00	3,000.00	97.50	90.00	819.35	(44.08)	1,949.07
2	1,949.07	3,000.00	97.50	90.00	879.18	(79.16)	3,803.23
3	3,803.23	3,000.00	97.50	90.00	943.20	(112.45)	5,560.08
4	5,560.08	3,000.00	97.50	90.00	1,011.41	(143.92)	7,217.24
5	7,217.24	3,000.00	97.50	90.00	1,088.63	(173.48)	8,767.63

End of year 5 cash surrender value

8,767.63

minus

2,565.00 =

6,202.63

Surrender charge for a 45 year old male nonsmoker is $2.00 + $8.26 = $10.26 per 1000 of face amount (10.26 x 250 = 2,565.00)

EX-10

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the use in the Statement of Additional Information constituting part of this Post-
Effective Amendment No. 24 to the Registration Statement on Form N-6 of our report dated April 24,
2009 relating to the statutory basis financial statements of the National Life Insurance Company,
which appear in such Statement of Additional Information. We also hereby consent to the use of our
report dated February 26, 2009 relating to the consolidated financial statements of NLV Financial
Corporation and our report dated April 24, 2009 relating to the financial statements of the National
Variable Life Insurance Account, 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.

Hartford, Connecticut
April 29, 2009

EX-11

STEPHEN E. ROTH
DIRECT LINE: 202.383.0158
E-mail: steve.roth@sutherland.com

May 1, 2009

VIA EDGAR

Board of Directors
National Life Insurance Company
One National Life Drive
Montpelier, Vermont 05604

Re: National Variable Life Insurance Account

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. 24 to the
Registration Statement on Form N-6 by National Variable Life Insurance Account for certain
variable life insurance policies (File No. 33-91938). In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of the Securities Act
of 1933.

Very truly yours,

SUTHERLAND ASBILL & BRENNAN LLP

                                                                       /s/ Stephen E. Roth

By:
Stephen E. Roth

8332388.1