Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page1of99 Page ID #:110 EXHIBIT A DONARUE & HORROW, LLP Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 2of99 Page ID #:111 0 Oo DN A HW BRB WN ee h iw] bo Bho i] nN tw ie) ha dems tot — _ por — oo roars a — oo ~] ON Un -& Go bo bn a to oo ~~] an LA i Ww > fm] MICHAEL B. HORROW (State Bar #162917) Bh se DONAHUE & HORROW, LLP . s jee 1960 E. Grand Ave., Suite 1215 = ae El Segundo, California 90245 Ss - Telephone: (310) 322-0300 j pre G Facsimile: (310) 322-0302 bo Bon ony Ml Email: mhorrow@donahuehorrow.com ed r ,. Fie @ Attomeys for Plaintiffs, - on te BRUCE M. KRALL, on behalf of themselves ce a and all others similarly situated ; eS UNITED STATES DISTRICT COURT CENTRAL DISTRICT OF CALIFORNIA CENTRAL DIVISION || BRUCE M. KRALL, ¢ on behalf of himself and all| Case No.: SACV 09-1043-JVS(RNBx) others similarly. situated, "Assigned for all purpases to the Honorable James V. Plaintiffs, Selna vs. FOURTH AMENDED CLASS ACTION COMPLAINT FOR FRAUD, NEGLIGENT . LIFE INSURANCE COMPANY OF THE MISREPRESENTATION, AND SOUTHWEST, and DOES 1 through 10, VIOLATION OF THE UNFAIR inclusive, COMPETITION LAW; DEMAND FOR JURY TRIAL Defendant. Plaintiff, BRUCE M. KRALL (“MR. KRALL”), by his attorneys, brings the action against LIFE INSURANCE COMPANY OF THE SOUTHWEST (“LSW”), on behalf of himself and all others similarly situated, and for this complaint allege, pursuant to his own investigation and . knowledge, and otherwise upon information and belief, as follows: SYNOPSIS OF CASE 1. This class action is brought on behalf of all persons who, beginning in 2005, purchased a Revolutionary Life Policy, California Policy Form number 8212CA in the state of California, Case No. SACV 09-1043-JVS (RNBx) -1- FOURTH AMENDED COMPLAINT AND JURY DEMAND . : z AOA TA AE NRSC Tt EAE ARNT SIES TUNEL hl Hinds ners MAL NOM al MAO ARID Dads atetinnpeeer prone ren ORCA NER Aster nn rt TO eee Seatcaeatine heat APTA ASE tes teenie len ammnamanae ahd anemanatinmnnenieietiateinemaeneianes 7 L cuameearenetiesaainmmenmbaenceicecicica reeanenmmenaater nue ant ace pion sn an core terete es pi oo 7 DONAHUE & HORROW, LLP Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 3o0f99 Page ID #:112 1 and who have been damaged by LSW’s deceptive misrepresentations concerning 2 performance of these contracts and the likelihood that benefits illustrated prior to purchase of | 3 the contracts could ever be achieved. | 4 2. The LSW Revolutionary Policy is a life insurance contract where the interest credits to the | 5 contract’s investment portion referred to as the “Accumulated Value”. The “Accumulated | 6 Value” is based on LSW determined factors applied to a contractual formula using the | 7 performance of an external index such as the Standard & Poor’s 500 index without | 8 dividends. 9 3. To entice purchasers of these high-cost insurance contracts, LSW used printed illustrations 10 touting the benefits of the “historical performance” of the Standard & Poor’s 500 index in an 11 amount far greater than the Standard & Poor’s 500 index actually returned. LSW 12 deliberately misrepresented the actual rates of return of the Standard & Poor’s 500 index in 13 the printed LSW Revolutionary Life Policy Illustrations to achieve millions of dollars of 14 sales from unsuspecting policyholders and to maximize its sales and profits. 15 4. Plaintiffs allege that LSW’s conduct was fraudulent, negligent, in violation of California 16 Insurance Code Sections 10509.950 et seq. and in violation of the Unfair Competition Law. 17 Plaintiffs also allege that LSW committed fraud at the point of sale of these insurance 18 contracts with Plaintiff and class members. 19 JURISDICTION AND VENUE 20 5. MR. KRALL purchased his LSW Revolutionary Life insurance policy from Defendant while val living in Orange County, California and he paid his premiums were paid from Orange 22 County, California. Defendant is incorporated and organized under the laws of the State of 23 Texas and has its corporate headquarters at 1300 West Mockingbird Lane, Dallas, Texas 24 75247-4921. 25 6. Upon information and belief, the amount in controversy exceeds $5,000,000 for 26 representative Plaintiffs and class members collectively, exclusive of interest and costs, by wey, virtue of the combined increase of premium to all class members nationwide, and the revenue 28 and profit reaped by Defendant from its transactions with Plaintiff and the Class, as a direct Case No. SACV 09-1043-JVS (RNBx) —-2- FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 4 of99 Page ID #:113 “ao NN NN \o 10 11 12 13 14 15 16 Vy} 18 19 20 a1 22 23 24 25 26 27 28 and proximate result of the wrongful conduct alleged herein, and by virtue of the statutory _ damages alleged herein and equitable relief-sought. 10. Venue is proper within the State of California. Defendant maintains offices, has agents, transacts business, and is found within this state. Moreover, a substantial part of the events and omissions giving rise to the claims alleged herein arose in part within this state. PARTIES Plaintiff, BRUCE M. KRALL, is a former policyholder of a Revolutionary Life insurance policy issued by the LIFE INSURANCE COMPANY OF THE SOUTHWEST with Policy Number LS0136686 and under policy form 8212CA(0305). Plaintiff purchased his policy on March 27, 2007 from an LSW appointed agent (Gerald Wolfe). MR. KRALL currently resides in Ladera Ranch, CA. See Exhibit “A”, BRUCE M. KRALL’s LSW Revolutionary Life policy. . Defendant LIFE INSURANCE COMPANY OF THE SOUTHWEST is a stock life insurer that is wholly owned by National Life Insurance Company of Montpelier, Vermont, a member of a mutual holding company. LSW’s life insurance revenue for 2008 was $174 million and annuity revenue was slightly over $1 billion. The company is licensed in all states of the United States of America except for New York State as well as the District of Columbia. LSW is a Texas domiciled life insurer with its main administrative office in Dallas, Texas with an additional administrative office in Montpelier, Vermont. National Life Insurance Company is wholly owned by its policyholders. See Exhibit “B”, Life Insurance Company of the Southwest’s 2009 Annual Statement. The true names or capacities, whether individual, corporate, associate, or otherwise, of Defendants, DOES 1 through 10, are unknown to plaintiff who therefore sues said Defendants by such fictitious names. Plaintiff is informed and believes and on such information and belief alleges that each of the Defendants sued herein as a DOE is legally responsible in some manner for the events and happenings referred to herein, and will ask leave of this court to amend this complaint to insert their true names and capacities in place and instead of the fictitious names when the same become known to plaintiff. Case No. SACV 09-1043-JVS (RNBx) —3- FOURTH AMENDED COMPLAINT AND JURY DEMAND aiicicauaialeieaeadaayhesiensiiadooatineitsaniatialnaisaiaaiiias H i | | & i a i DONAHUE & HORROW, LLP Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page5of99 Page ID #:114 1 - PLAINTIFF BRUCE M. KRALL 2 11. Plaintiff MR. KRALL purchased policy number LS0136686 from LSW through its 3 then appointed insurance agent Gerald Wolfe of Juris Wealth Management of 8001 4 Irvine Center Drive, a floor, Irvine, CA 92618. Mr. Wolfe used the title when 5 signing letters “Attorney at Law & Wealth Coach.” Mr. Wolfe represented to MR. 6 KRALL at all times that he was a California licensed insurance agent representing 7 LSW. Plaintiff MR. KRALL relied on the special knowledge, training and skill of 8 LSW’s appointed and licensed insurance agent Wolfe and the representations made in 9 the written illustrations dated November 29, 2006 and insurance policy materials 10 when he purchased the LSW Policy. MR. KRALL also relied on Wolfe’s written 11 promises and specialized training and knowledge based on his representations that he 12 was a licensed California insurance agent in purchasing this LSW policy. 13 12. On November 29, 2006, KRALL was presented a Life Insurance Illustration by | 14 Wolfe on LSW letterhead and clearly marked as a document from LSW. See Exhibit 15 “C.” In the Life Insurance Illustration, LSW represented the following notable facts 16 about the LSW Revolutionary Life insurance policy form 8212CA(0305): | 17 e On Page 10, LSW stated that the “assumed interest rate” for Equity Indexed | 18 Strategy I based upon the historical performance, from 1984 to the present, of the | 19 S&P 500 Index with a Participation Rate of 140.00% and an Index Earnings Cap | 20 of 10.00% was 8.40%. | 2) 13. Based on the affirmative representations in the LS W Illustration of November 29, | 22 2006 and the expectations set forth about its performance, MR. KRALL purchased 23 LSW Revolutionary Life insurance form number 8212CA(0305) with an effective 24 date of March 27, 2007 when he was age 47. The Face Amount was $5,175,000. The 25 planned vein was $180,000 payable annually. The contract had a Percent of 26 Premium Expense Charge of 5%, Monthly Administrative Charge of $2,462.42 and a 27 Monthly Policy Fee of $5. The surrender charge for accessing the accumulated value 28 was $98,635.50 in the first year, $143,709.75 in the second year then reducing Case No. SACV 09-1043-JVS (RNBx) —4- FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page6of99 Page ID #:115 \\\ 14. 15; 16. 7s 18. annually from there to zero in contract years 11 and later. After consideration of the suggestions from LSW and Wolfe, MR. KRALL agreed to Equity Indexed Strategy 1 — Point to Point Index with an Initial Participation Rate of 140% and an initial Earnings Cap of 10%. MR. KRALL paid two annual premiums or a total of $360,000 as of October 1, 2009. After seeing the Policy value diminish rapidly, on October 8, 2009, MR. KRALL surrendered the LSW Policy (See Exhibit “D”). At the time of surrender, the Accumulated Cash Value in MR. KRALL’s LSW Policy was $273,041.59. MR. KRALL then paid a $127,719 “Surrender Penalty” and was sent a check for $145,322.59. As aresult of the misleading representations made to him by LSW in its Illustration of November 29, 2006, MR. KRALL paid $360,000 in premium dollars and subsequently received only $145,322.59. MR. KRALL lost $214,677.41 while owning this LSW Policy from March 27, 2007 to October 8, 2009. MR. KRALL relied on the November 29, 2006 LSW Illustration to his detriment. LSW falsely represented on Page 10 of the Illustration that the Assumed Interest Rate for Equity Index Strategy 1 based upon historical performance, from 1984 to the present, of the S & P 500 Index with a Participation Rate of 140.00% and Index Earnings Cap of 10.00% was 8.4%. The subsequent pages in the Illustration (i.e. pages 12 to 15) used a current weighted average interest rate of 7.69% in the first year and then rates greater than 8.01% after policy year two. The Illustration culminates with a rate of 8.39% in policy year fifty five (55) by estimating a projected Accumulated Policy Value of greater than 80 million dollars ($80,093,928 on page 13). LSW knew the representation of the 8.4% rate was false when it authorized ad ratified the presentation of this November 29, 2006 Illustration to KRALL as part of the sales process. LSW knew and expected consumers like MR. KRALL would rely on the Illustration in purchasing the LSW Revolutionary Life Insurance Policy. Case No. SACV 09-1043-JVS (RNBx) —5- FOURTH AMENDED COMPLAINT AND JURY DEMAND i i ake sic Uatcnacaae wt cca carcteshenareninucmnentadmmninnieantshapeiit DONAHUE & HORROW, LLP Case 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 7 of99 Page ID #:116 1 19. Attached as Exhibit ’E” is the Declaration of David N. Fuller CFA, ASA. Mr. Fuller 2 is an een in financial valuation consulting services with more than twenty years 3 experience in this field. Mr. Fuller recreated the historical performance as 4 represented by the LSW November 29, 2006 Illustration using the same parameters- 5 notably from Page 10 of the Illustration “from 1984 to the present, of the S & P 500 6 Index with a Participation Rate of 140.00% and Index Earnings Cap of 10.00%” and 7 found that “...8.4% was not historically achievable over any 10-year period or 8 longer.” According to Mr. Fuller, “.. -since 1926 to 2006, there were only two five- 9 year periods when this level of return could have been achieved or exceeded. The 10 first was 1984-1989 and the second was 1994-1999. Historically, the highest 10-year 11 and 20-year periods for Index Strategy 1 were 7.5%.” See Paragraph 11 of the 12 Declaration of David N. Fuller CFA, ASA, attached hereto as Exhibit “E”. 13 20. Based on the LSW Illustration dated November 29, 2006, MR. KRALL purchased the 14 LSW Policy and paid $360,000 in premiums. He justifiably and reasonably relied on 15 the Policy values based on the specialized nature of the sncodiee as it was presented by 16 LSW and its appointed agent Gerald Wolfe. As a result, MR. KRALL lost more than 17 $200,000 when he surrendered the Policy on October 8, 2009. 18 19 LSW VIOLATED CALIFORNIA INSURANCE CODE SECTION 10509-955 (b) BY 20 MISLEADING KRALL AS TO THE “NONGUARANTEED” ELEMENTS IN THE 21 REVOLUTIONARY LIFE POLICY 22 ‘a 21. At Page 10 of the November 29, 2006 Illustration presented to Mr. Krall by Wolfe a4 and titled “Non-Guaranteed Assumed Interest Rate Disclosure”, LSW represented 5 that there were nonguaranteed Participation Rates and Index Earnings Cap for the a Equity Indexed Strategies. However, LSW never identified the Participation Rate 5 and Earnings Rates that were “nonguaranteed”. - \\ Case No. SACV 09-1043-JVS (RNBx) sie: FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas# 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 8 of99 Page ID #:117 1 22. A reasonable consumer reading Page 10 of the November 29, 2006 Illustration would 2 not be able to determine that the contractually guaranteed Participation Rate was | 3 really 100% and not the 140% quoted throughout the Policy Illustration or that the 4 Indexed Earnings Cap was actually only guaranteed minimally at 3% and not the 5 10% as used throughout the Policy Illustration to show potential Accumulated Policy 6 Values. There was nothing in the Illustration presented to MR. KRALL on that day 3 or ever that clearly showed the contractually guaranteed elements for the Participation 8 Rate and Earnings Cap versus the nonguaranteed elements. Instead, LSW mixed and 9 matched the guaranteed and nonguaranteed rates and caps together confusing the 10 purchaser and in violation of California law. This is a misleading description of non- 11 guaranteed elements prohibited by California Insurance Code 10509.955 (b)(2). 12 23. The LSW Illustration presented to Mr. Krall on November 29, 2006 violated the 13 following statutory requirements contained in the California Insurance Code Sections 14 because: is 1) Under 10509.955 (a) (2), it failed to identify the business address of the 16 producer or insurer’s authorized representative, Mr. Gerald Wolfe; “417 2) Under 10509.955 (a) (5), it failed to identify the form number as the Policy 18 Form stated on the illustrations was 8212(0305) and the policy form issued to 19 Mr. Krall was 212CA(0305); a 3) Under 10509.955 (b) (4), LSW is prohibited from using a Policy Illustration i. that did not comply with the requirements of the California Insurance Code; 73 4) Under 10509.956 (a) (8), the guaranteed elements were not shown before the 24 corresponding nonguaranteed elements; 25 5) Under 10509.956 (c) (1) (C) (i), LSW was required to use the nonguaranteed 26 credited interest at rates that were the average of the guaranteed rates and the et rates contained in the Illustration scale and LSW did not. 28 Case No. SACV 09-1043-JVS (RNBx) -~7T- FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 9of99 Page ID #:118 4] CLASS ACTION ALLEGATIONS . 24. Plaintiff brings this action on behalf of himself and on behalf of all other members of the Class, defined as: 2 3 4 All LSW former and current policyholders who purchased the LSW 5 Revolutionary Life policy form number 8212CA(0305) or predecessor or subsequent forms from LSW from 2005 to the present in the State of California, » 6 and who at the time of purchase or policy delivery were presented with a Policy Illustration that misrepresented the historical rate of return of the S&P 500 Index 7 as filtered through the LSW Revolutionary Life Policy’s parameters. 8 9 25. Upon information and belief, there are hundreds of class members throughout the State of California. Therefore, individual joinder of all members of the Class would 10 be impracticable. | 11 26. Common questions of law or fact exist as to all members of the Class. These 12 questions predominate over the questions affecting only individual class members. 13 These common legal or factual questions include: 14 a. Whether LSW falsely presented the Accumulated Policy Values as part of its 15 Revolutionary Life Policy Illustrations for policy form number 8212CA(0305) 16 or predecessor or subsequent forms from LSW from 2005 to the present in the 17 State of California; 18 b. Whether LSW’s actions described herein violate California’s Unfair 19 Competition Laws; 20 c. Whether LSW breached its contracts with the Plaintiff and the Class; and 21 d. The appropriate measure of damages, restitution and/or other remedies. 22 27. Plaintiff's claims are typical of the claims of the Class, in that Plaintiffs are LSW 2 Revolutionary Life policyholders who were not informed of LSW’s conduct alleged 24 throughout this Third Amended Complaint, and have received notice that LSW is not 25 providing expected benefits under the contract. 26 28. Plaintiff is an adequate representative of the Class because his interests do not 27 conflict with the interests of the class members he seeks to represent, and he has 28 retained counsel competent and experienced in conducting complex class action Case No. SACV 09-1043-JVS (RNBx) —8- FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 10 of 99 Page ID #:119 ' 1 litigation. Plaintiff and his counsel will adequately protect the interests of the Class. | 2 29. A class action is superior to other available means for the fair and efficient | 3 adjudication of this dispute. The damages suffered by each individual class member | 4 likely will be relatively small, especially given the burden and expense of individual | 5 prosecution of the complex litigation necessitated by LSW’s conduct. Thus, it would | 6 be virtually impossible for the class members individually to effectively redress the | 7 wrongs done to them. Moreover, even if the class members could afford individual | 8 actions, it would still not be preferable to class wide litigation. Individualized actions | 9 present the potential for inconsistent or contradictory judgments. By contrast, a class | 10 action presents far fewer management difficulties and provides the benefits of single | 11 adjudication, economies of scale, and comprehensive supervision by a single court. | 12 FIRST CAUSE OF ACTION 13 (Fraud) | 14 30. Plaintiff hereby repeats and realleges the foregoing paragraphs of this Third . | 15 Amended Complaint and incorporates the same as though fully set forth herein. 16 31. LSW falsely represented on Page 10 of the Illustration that the Assumed Interest Rate | 17 for Equity Index Strategy 1 based upon historical performance, from 1984 to the | 18 present, of the S & P 500 Index with a Participation Rate of 140.00% and Index | 19 Earnings Cap of 10.00% was 8.4%. The subsequent pages in the Illustration (i.e. | 20 pages 12 to 15) used a current weighted average interest rate of 7.69% in the first year 21 and then rates greater than 8.01% after policy year two. The Illustration culminates 22 with a rate of 8.39% in policy year fifty five (55) by estimating a projected 23 Accumulated Policy Value of greater than 80 million dollars ($80,093,928 on page 24 13). 2 32. LSW knew the representation of the 8.4% rate was false when it authorized ad 26 ratified the presentation of this November 29, 2006 Illustration to KRALL as part of 27 the sales process. LSW knew and expected consumers like MR. KRALL would rely 28 on the Illustration in purchasing the LSW Revolutionary Life Insurance Policy. Case No. SACV 09-1043-JVS (RNBx) = ee FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 11o0f99 Page ID #:120 1 33. 34. aS. Attached as Exhibit ”E” is the Declaration of David N. Fuller CFA, ASA. Mr. Fuller is an expert in financial valuation consulting services with more than twenty years experience in this field. Mr. Fuller recreated the historical performance as represented by the LSW November 29, 2006 Illustration using the same parameters- notably from Page 10 of the Illustration “from 1984 to the present, of the S & P 500 Index with a Participation Rate of 140.00% and Index Earnings Cap of 10.00%” and found that “...8.4% was not historically achievable over any 10-year period or longer.” According to Mr. Fuller, “...since 1926 to 2006, there were only two five- year periods when this level of return could have been achieved or exceeded. The first was 1984-1989 and the second was 1994-1999. Historically, the highest 10-year and 20-year periods for Index Strategy 1 were 7.5%.” See Paragraph 11 of the Declaration of David N. Fuller CFA, ASA, attached hereto as Exhibit “E”. Mr. Fuller stated under oath that “The stated period “from 1984 to present” for Index Strategy 1...would not have grown at an 8.4% CAGR [compounded annual growth rate]. Depending on the actual dates applied, the actual CAGR for SPX with the portfolio restrictions from 1984 would have been approximately 6.8%. If the historical average five- year growth rate had been applied in the Defendant’s projections, the results in the Defendant’s presentation to the Plaintiffs would have been materially different. The average 5-year return for Index Strategy 1, with the Portfolio Restrictions, was 5.9% since 1926 through the end of 2006, as calculated in Schedule A.2. In the 55-year example, if a hypothetical client invested $1.00 at 8.38%, at the end of 55 years, the $1.00 would have compounded to $83.60. If the same client invested $1.00 at the 20-year historical average of 6.0%, he would have $24.65 at the end of 55 years. By increasing the rate approximately 2.4% over 55 years, the projected ending value is inflated by approximately 240%.” See Declaration of David N. Fuller CFA, ASA, attached hereto as Exhibit “E”. LSW made these affirmative misrepresentations to MR. KRALL, and engaged in this fraudulent conduct, with the purpose of inducing Plaintiff to rely upon them and to act in reliance thereon. Plaintiff justifiably relied upon LSW’s written representations Case No. SACV 09-1043-JVS (RNBx) —10- FOURTH AMENDED COMPLAINT AND JURY DEMAND : ¢ 4 i : I : i : i | i ; i i | { ' L ij i t i L i i i y H secre SRN NRO DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 12 o0f99 Page ID #:121 N and specifically the November 29, 2006 Illustration and KRALL further reasonably relied upon LSW to not conceal from him material information regarding the historical performance, from 1984 to the present, of the S & P 500 Index with a Participation Rate of 140.00% and Index Earnings Cap of 10.00% and its impact on ’ cost, benefits, cash values, and out of pocket premiums payable by LSW under this 36. Shi 38. Ce 40. Policy. As a result of Plaintiff’s reliance on these representations and lack of knowledge of such fraud, Plaintiff suffered economic losses as outlined above and incorporated herein and consequential damages in an amount to be proven at the time of trial. Based on the LSW Illustration dated November 29, 2006, KRALL purchased the LSW Policy and paid $360,000 in premiums. He justifiably and reasonably relied on the Policy values based on the specialized nature of the product as it was presented by LSW and its appointed agent Gerald Wolfe. KRALL lost more than $200,000 when he surrendered the Policy on October 8, 2009. See Exhibit “D”. The aforementioned acts were performed by LSW with malice, fraud, and oppression and were authorized and ratified by directors, officers and managing agents of defendant compelling and warranting the imposition of punitive damages. SECOND CAUSE OF ACTION (Negligent Misrepresentation) Plaintiff hereby repeats and realleges all of the foregoing paragraphs of this Third Amended Complaint and incorporate the same as though fully set forth herein. LSW negligently failed to reveal the accurate Accumulated Policy Value information to Plaintiff KRALL, and intended by this misrepresentation and omission to induce Plaintiff KRALL to alter his position and purchase the LSW Policy (Exhibit “A”) with the expectation that the income provided by such Policy would be greatly in excess of the income LSW was aware was likely to be provided. Plaintiff was ignorant of the truth concealed by LSW, and acted in justifiable reliance on LSW’s misconduct in purchasing and paying on the Policy. Case No. SACV 09-1043-JVS (RNBx) -1l- FOURTH AMENDED COMPLAINT AND JURY DEMAND manppecenesemnanuecier ener DONAHUE & HORROW, LLP - Casd| 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 13 of 99 Page ID #:122 THIRD CAUSE OF ACTION (Unfair Competition) 41. Plaintiff hereby repeats and realleges the foregoing paragraphs of this Third Amended Complaint and incorporate the same as though fully set forth herein. | 42. As alleged herein, LSW prepared a false and misleading illustration that indicated a | certain result even though LSW knew that such a result was not achievable thereby misleading consumers and misrepresenting what the Policy could actually do. LSW’s Policy language itself also provided no language informing a reasonable person that its sales promises and representations should be ignored and were not true. Plaintiff relied on these materials, including LSW’s affirmative false disclosure when evaluating whether to purchase the Policy. 43. After selling the Policy in this manner, and despite providing written literature and statements to Plaintiff encouraging the retention of the Policy, LSW did not inform Plaintiff that its illustrated result was not sustainable and that it was impossible for the . results to occur as promised on the illustration. 44. As a result of Plaintiffs reasonable reliance on these representations and lack of knowledge of such false statements, Plaintiff purchased the Policy and suffered economic losses as outlined above and incorporated herein and consequential damages in an amount to be proven at the time of trial. 45. Such conduct constitutes unfair competition as defined under California law and California Business & Professions Code section 17200 et seq. (“UCL”), constituting unfair, fraudulent, and/or unlawful business practices, and further constitutes false advertising under California Business & Professions Code section 17500 et seq. and California Insurance Code section 790.03, et. seq. Plaintiffs have suffered the required injury in fact, and have lost money or property, as the result of LSW’s misconduct described above, conferring Plaintiff with standing to proceed with this UCL claim. \\\ Case No. SACV 09-1043-JVS (RNBx) -12- FOURTH AMENDED COMPLAINT AND JURY DEMAND DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 14 of 99 Page ID #:123 46. 47. Plaintiff respectfully requests that the Court enjoin LSW from future acts of those described herein and to apply equitable remedies to cure the harms suffered by Plaintiff and others as a proximate result of defendants’ conduct. Such injunctive relief will confer on the general public significant benefits. Such enforcement of these rights under their policies is necessary to halt defendants’ conduct and to restore the benefits lost to thousands of covered persons, and the financial burden of such enforcement is, in the interests of justice, borne by the responsible parties. Thus, an award of attorney’s fees for prosecution of this cause of action, and all fees incurred in proving the merits of same, to Plaintiff's counsel payable by defendants, is appropriate under Code of Civil Procedure section 1021.5 or upon any other basis approved by the Court. WHEREFORE, Plaintiff prays for judgment against defendants as follows: 1. Compensatory damages against defendants in an amount to be proven at trial, including any damages as may be provided for by statute; 2. Punitive damages in an amount appropriate to punish or set an example of these defendants; 3. Reasonable attorneys’ fees; 4. An injunction restraining LSW from engaging in the above-referenced UCL violations and notifying affected California policyholders of certain facts; 5. For costs of suit incurred herein; and 6. For such other and further relief as the court deems just and proper. DATED: October 22, 2010 DOM & H OW, LLP MICHAEL B. HORROW Attorneys for Plaintiff \\ Case No. SACV 09-1043-JVS (RNBx) —13- FOURTH AMENDED COMPLAINT AND JURY DEMAND sesh aseieiielaeeauanseaiiaasoaiapeaptaiaanaiainniiadeii DONAHUE & HORROW, LLP Cas@ 2:10-cv-09198-JVS-JDE Document 5-1 Filed 10/29/10 Page 15 0f99 Page ID #:124 DEMAND FOR JURY TRIAL 2 3 Plaintiff hereby demands a trial by jury on all causes of action and/or issues so triable. 4 DATED: October 22, 2010 5 6 7 ICHAEL B. HORROW g Attorneys for Plaintiff 9 Case No. SACV 09-1043-JVS (RNBx) =—14— FOURTH AMENDED COMPLAINT AND JURY DEMAND | +. Gase-2:4.0-ev-09.98-JVS-JDE—Decument- 5-1—Filed-4.0/29/1.0--Rage-1.6-0f.99-PageIDHH4.25 nn EXHIBIT “A” sment-5-1. Sica -Page-14 of99...Page|D-#:126. We, Life Insurance Company of the Southwest, agree to pay the Death Benefit to the Beneficiary, subject to the terms of this policy, when we receive at our Administrative Office due proof that the Insured died while this policy was in force. Equity-Indexed Flexible Premium Adjustable Benefit Life Insurance. Flexible premiums are papebie through the end of the Premium Payment Period or until the prior death of the Insured. The adjustable - Death Benefit is payable upon the death of the Insured. This policy is nonparticipating. Right to Review Policy. This policy, at any time within ten days after its receipt by the Owner, may be returned in person or by mail to us or to the agent through whom it was bought. Upon such return, the - policy will be deemed void as of its Effective Date. We will then refund any premium paid. Effective Date: 03/27/2007 Policy Number: 180136686 Face Amount: $5,175,000 Insured: Bruce M Krall Issue Age: 47 Gus As stated in the application unless later changed Beneficiary: As stated in the application unless later changed The data and the terms on this and all following pages are part of ‘this policy. This contract is a legal contract between the contract Owner and Life Inserance Company of the Southwest. READ YOUR POLICY CAREFULLY. Signed for Life Insurance Company of the Southwest at Dallas, Texas, as of the Date of Issue, by Boom A Mk bith WM Mage President Qacgee chinn eae nen ads Chairman of the Board LIFE INSURANCE COMPANY OF THE SOUTHWEST ADMINISTRATIVE OFFICE MAILING ADDRESS: - LIFE INSURANCE COMPANY OF THE SOUTHWEST, ONE NATIONAL LIFE DRIVE, MONTPELIER, VT os604 CUSTOMER SERVICE: 800-732-8939 Home OFFICE ADDRESS: Lire INSURANCE COMPANY OF THE SOUTHWEST, 1300 West Mocuincsirb LANE, DALLAS, TX 75247 LSW 1S 4 STOCK COMPANY. 8212CA(0305) CUSTOMER SERVICE INFORMATION ’ We are here to serve you As our policyholder, your satisfaction is very important to us. Should you have a valid claim, or any question about the policy or the premium for it, we fully expect to provide service promptly and fairly. If you do have any questions, please contact the agent who sold the policy or write or call our administrative offices: Life Insurance Company of the Southwest (“LSW”} ' One National Life Drive Montpelier, Vermont 05604 ae Attention: Customer Service Telephone: 1-800-732-8939 Should you feel you are not being treated fairly, we want you to know you may contact the California Department of Insurance with your complaint and seek assistance from’ the governmental agency that regulates insurance. To contact the Department, write or call: Consumer Services Division California Department of Insurance 300 So. Spring Street Los Angeles, California 90013 Consumer Hotline: 1-800-233-9045 yo 8016CA(0697) Cat. No. 44599 DATA SECTION UA53HM EFFECTIVE DATE: MAR. 27, 2007 POLICY NUMBER: 1LS0136686 : MATURITY DATE: MAR. 27, 2080 INSURED: BRUCE M KRALL ISSUE AGE: 47 FACE AMOUNT: $5175000 OWNER: AS STATED IN THE APPLICATION UNLESS LATER CHANGED AS STATED IN THE APPLICATION UNLESS LATER CHANGED BENEFICIARY: | MONTHLY POLICY DATE: 27TH DEATH BENEFIT OPTION: B MINIMUM MONTHLY PREMIUM: $4641.36 $180000.00 PAYABLE ANNUALLY PLANNED PERIODIC PREMIUM: © MAR. 27, 2007 TO MAR. 27, 2080 FOR PREMIUM PAYMENT PERIOD: THIS POLICY MAY TERMINATE PRIOR TO THE END OF THE PREMIUM PAYMENT PERIOD IF PREMIUMS PAID ARE INSUFFICIENT TG CONTINUE COVERAGE. PREMIUMS IN ADDITION TO THE PLANNED PERIODIC PREMIUM MAY BE NECESSARY TO KEEP THIS COVERAGE IN FORCE. i ‘ ; ' POLICY LOANS AND WITHDRAWALS WILL REDUCE THE CASH SURRENDER VALUE OF THIS POLICY AND MAY RESULT IN TERMINATION OF THIS POLICY PRIOR TO THE DEATH OF THE INSURED. MINIMUM FACE AMOUNT: $25000.00 WITHDRAWAL FEE: $25.00 FOR EACH WITHDRAWAL ADDITIONAL BENEFIT RIDERS: RIDER FOR ACCELERATED BENEFIT, ACME ORATET DPEWrTorre 9 RIDER FOR ACCELERATED BENEFITS “ RIDER FOR ACCELERATED BENEFITS 3 OVERLOAN PROTECTION RIDER THE LOAN INTEREST RATE IS VARIABLE. THE LOAN INTEREST RATE AT THE EFFECTIVE DATE IS 5.80%. DATA SECTION PRYR LS0136686 COVER PAGE 19..0f.99.... Page. D.#:1.28...: DATA SECTION — GUAR EE Shere OF ‘CALCULATIONS FACE AMOUNT: $5175000° EFFECTIVE DATE: MAR. 27, 2007 ACCUMULATED VALUE INTEREST RATE: 0.16516% COMPOUNDED MONTHLY, WHICH iS EQUIVALENT TO 2.00% COMPOUNDED PER YEAR MORTALITY TABLE: COMMISSIONERS 2002 CSO ULTIMATE MALE NON-SMOKER AGE LAST BIRTHDAY THE INSURED HAS BEEN CLASSIFIED A PREFERRED NON-TOBACCO. TABLE OF GUARANTEED MAXIMUM COST OF INSURANCE RATES (PER $1,000 PER MONTH) ATTAINED AGE RATE ATTAINED AGE — RATE ATTAINED AGE RATE 47 .03710 72 2.60426 OF 26. 45342 48 -04859 73 2.88497 98 28,14901 49 .05963 i 74 3.18679. 99 29.96423 . 50 .07509 75 3.51565 - 100 31.70427 . 51 09497 . 76 3.88671 (101 33.25265 52 34679 ~ a7 3 4.31857 102 34.90475 53 .38431 .. 7B 4.82063 103 36. 66691 54 -43185 79 5.38383 104 38.53573 55 - 48524 80 6.01260 105 - 40,51145 56 . 54029 81 6.69705 106 - 42.61697 57 .59369 82 7.42303 107 44,86020 58 . 64709 - 83 8.21697 108 47,25110 59 . 70967 84 9.10125 . 109 49.79713 60 . 78562 85 _ 10.08656 110 5250694 61 ' 87827 86 11.17261 111 55,39319 62 -98597 : B87 12.34897 112 — 58.46521 63 1.10372 88 13.60255 113 - 61.73550 64 1.22650 a9 14.92103 114 65,21324 65 1.35433 90 16.23779 115 . 68,91186 66 1.48387 91 17.53725 116 72.84242 . «BF 1.61928 92 18. 90234 117 77 .01849 - 68 - 1.76227 93 20.34569 118 81.45131 69 1,92286 94 21.87059 119 83.33333 70 2.11028 95 - - 23..38520 MATURITY 83.33333 7i 2.33795 96 24. 86843 DATE . DATA SECTION PRYR LSO136686 FIRST OF FOUR PAGES - ( DATA SECTION DEFINITION OF LIFE INSURANCE TEST: GUIDELINE PREMIUM TEST GUIDELINE SINGLE PREMIUM: $1323512.51 GUIDELINE LEVEL PREMIUM: $281426.79 | TABLE OF DEATH BENEFIT STANDARD FACTORS ATTAINED DEATH ATTAINED ' DEATH AGE BENEFIT AGE BENEFIT FACTOR FACTOR 47 2.030 59 1.340 48 1.970 60 1,300 - 49 1.910 61 1.280 50 1.850 62 1,260 51 1.780 63 1.246 52 1.710 - 64 1,220 53 1.640 65 1.200 54 1.570 66 1,190 55 1.500. 67 1.180 56 1.460 68. 1,170 57 1.420 "69 1,160 58 1.380 70 1.150 . DATA SECTION PRYR L§0136686 SECOND OF FOUR PAGES ' ATTAINED 75 - AGE -lled.10/29/10...Page-21 of 99 Page ID #130 DEATH BENEFIT FACTOR 1.136 1.110 1.090 1,070 1.050 1.040 1.030 1.020 © 1.010 Case.2:10-cv-09198-JIVS-JDE Docu o_ PRVR “DATA SECTION FACE AMOUNT: $5175000 EFFECTIVE DATE: MAR. 27, 2007 AS OF THE EFFECTIVE DATE, THE FOLLOWING RATES ARE APPLICABLE TO INTEREST CREDITING STRATEGIES TO WHICH YOU MAY DIRECT YOUR PREMIUM. THESE RATES _ARE IN EFFECT UNTIL FUR IESE NOTICE. FIXED-TERM STRATEGY FIXED-TERM SEGMENT LENGTH; MINIMUM FIXED-TERM SEGMENT INTEREST RATE: INITIAL FIXED-TERM SEGMENT INTEREST RATE: EQUITY INDEXED STRATEGY. 1 - POINT TO POINT TINDER: EQUITY INDEXED TERM: INITIAL PARTICIPATION RATE: GUARANTEED MINIMUM PARTICIPATION RATE: INITIAL INDEX EARNINGS CAP: GUARANTEED MINIMUM INDEX EARNINGS CAP: EQUITY INDEXED STRATEGY 2 - POINT TO AVERAGE INDEX: EQUITY ENDEXED TERM: INITIAL PARTICIPATION RATE: GUARANTEED MINIMUM PARTICIPATION RATE: INITIAL INDEX EARNINGS CAP: GUARANTEED MINIMUM INDEX EARNINGS CAP: DATA SECTION LS0136686 THIRD OF FOUR PAGES 3 YEARS 2.002 ANNUAL EFFECTIVE RATE 4,25% ANNUAL EFFECTIVE RATE STANDARD & POOR'S 500 INDEX 5 YEARS 140% 100% 16.00% 3.00% STANDARD’ & POOR'S 500 INDEX 5 YEARS 130% 30% NO CAP NO CAP " PRYR ‘MONTHLY ADMINISTRATIVE CHARGE:. DATA SECTION $5175000 MAR. 27, 2007 FACE AMOUNT: EFFECTIVE DATE: ' PERCENT OF PREMIUM EXPENSE CHARGE; 5% $2462.42 MONTHLY POLICY FEE: $5.00 — _ SURRENDER CHARGES POLICY YEAR. Oo COS OF Uf Wo ho Pe 10 aa 11 AND LATER DATA SECTION » LSC136686 FOURTH OF FOUR PAGES SURRENDER CHARGE $98635.50 143709.75 127719.00 111728.25 95789,.25 79850.25 63859.50 47920.50 31981.50 15990.75 9.00 DATA SECTION ACCELERATED BENEFITS RIDER 1 POLICY NUMBER: - 180136686 INSURED: | BRUCE M KRALL EFFECTIVE DATE: MAR. 27, 2007 MONTHLY COST: NONE DATA SECTION ACCELERATED BENEFITS RIDER 1 — PAGE 1 OF 1 _ POLICY NUMBER: INSURED: . EFFECTIVE DATE: MONTHLY COST: DATA SECTION ACCELERATED BENEFITS RIDER 2 LS0136686 | BRUCE M KRALL MAR. 27, 2007 NORE DATA SECTION ACCELERATED BENEFITS RIDER 2 ~ PAGE 1 OF 1 POLICY NUMBER: INSURED: EFFECTIVE DATE: MONTHLY COST: DATA SECTION ACCELERATED BENEFITS RIDER 3. LS0136686 BRUCE M KRALL MAR. 27, 2007 NONE DATA SECTION | : ACCELERATED BENEFITS RIDER 3 ~ PAGE 1 OF 1 DATA SECTION OVERLOAN PROTECTION RIDER POLICY NUMBER = LS0136686 INSURED 3 BRUCE M KRALL EFFECTIVE DATE MAR, 27, 2007 THE INSURED HAS BEEN CLASSIFIED A PREFERRED NON-TOBACCO. PERCENT GF ACCUMULATED VALUE EXERCISE CHARGE ATTAINED EXERCISE ATTAINED EXERCISE ATTAINED AGE CHARGE AGE CHARGE AGE PERCENTAGE PERCENTAGE 75 -3.33 84 3.88 93 76 3.46 85 3.94 94 77 3.47 : 86 4.00 95 78 3.55 87 4.03 96 ‘o ; 79 3.60 ‘88 4.10 97 \ 80 3.65 : 8&9 4.13 38 81 3.73 50 4.17 99+ 82 3.79 91 3.39 83 3.85 92 2.59 BATA SECTION RIDER FOR OVERLOAN PROTECTION - PAGE 1 OF 1 EXERCISE CHARGE PERCENTAGE _ 8212CA(0305) INDEX: SECTION . GENERAL TERMS OF THIS PoLicy Consideration Entire Contract Representations Incontestability Policy Effective Dates Policy Months, Years and Anniversaries Misstatement of Age or Sex Attained Age Payment of Benefits - Postponement of Benefits Basis of Values Notices Annual Report Projection Report ROLES IN THIS POLICY Owner Beneficiary Trust Beneficiary Change of Beneficiary Assignments Spendthrift Provision PREMIUMS Policy Protection Period Payment of Premiums Net Premium Grace Period . Reinstatement DraTu BENEFIT AND Poticy CHANGES Death Benefit . Death Benefit Options Changes in Face Amount and Death Benefit Option — Suicide Limitation INTEREST CREDITING STRATEGIES Basic Strategy Fixed-Term Strategy ‘Bquity-Indexed Strategies PAGE a y AN A HH & On NN NW a Oo 2 beh lank No fed eh fa bm ww BRA WwW We DD SECTION Pouicy VALUES Accumulated Value Monthly Deduction Monthly Cost of Insurance CASH SURRENDER AND WITHDRAWALS Cash Surrender Value Withdrawals Poticy Loans © Policy Loans Loan Value — Loan Interest Rate General Loan Terms PAYMENT OPTIONS Option Effective Date General Payment Option Terms Choice of Gption Change of Payment Option Lump Sum Removal of Proceeds Applied Under a Payment Option - Option 1 -Payment of Interest Only Option 2 -Payments for a Stated Time — Option 3°-Payments for Life Option 4 -Payments of a Stated Amount ; Option 5 - Life Annuity Option 6 - Joint and Two-Thirds Annuity Option 7 - 50% Survivor Annuity PAGE 25 26 Any riders and Endorsements and a copy of the application, follow page 27 We, Life Insurance Company of the Southwest, agree to pay the Death Benefit to the Beneficiary, subject to the terms of this policy, when we receive at our Administrative Office due proof that the Insured diéd while this policy was in force. GENERAL TERMS OF THIS PoLicy CONSIDERATION __. This policy is issued in consideration of the application and payment of the first premium. We will incur no liability. if no premium is paid. ENTIRE CONTRACT On the Effective Date the entire contract between the parties is this policy and a copy of the application and all riders and endorsements which are attached at issue. Any change of this contract must be written and may be made only by one of our authorized officers or registrars. We will send the Owner a copy of any application for a change which we approve. It and any additional Data Section shall become part of this contract on the effective date of such change. <= REPRESENTATIONS Any statement made by or for the Insured shall be deemed a representation and not a warranty. Unless such statement is in the attached application or in any subsequent application, it shall not be used to: make this policy void; or . make any increase in Face Amount void; or make any Reinstatement void; or defend any claim. AWN ms INCONTESTABILITY After this policy has been in force during the life of the Insured for two years from the Effective Date of the policy, we will not contest it, however, 1. we may contest any increase in Face Amount for which an application is required until such increase has been in force during the life of the Insured for two years from its Efféctive Date; and 2. we may contest any Reinstatement until such Reinstatement has been in force during the life of the Insured for two years from its Effective Date.. : Life Insurance Company. of the Southwest ' Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305) Page 1 Poricy EFFECTIVE DATES POLICY MONTHS, YEARS AND ANNIVERSARIES MISSTATEMENT OF AGE OR SEX The insurance coverage goes into effect on the Effective Date shown in the Data Section. Any increase in Face Amount for which an application is required shall become effective on the Monthly Policy Date on or next following the date we approve the application for such increase in Face Amount. Any increase in Face Amount for which an application is not required shall become effective on the Monthly Policy Date on or next following the. date we receive the request for such increase unless otherwise provided by the policy. Any decrease in Face Amount requested shall become effective on the Monthly Policy Date on or next following the date we receive the request for such decrease. . Any Reinstatement of this policy shall become effective on the Monthly Policy Date on or next following the date we approve the application for Reinstatement. Any charige of Death Benefit Option shail become effective on me Monthly Policy Date on or next following the date we receive the request for such change. Policy Months, Years and Anniversaries shall be measured from the Effective Date. The Monthly Policy Date shown in the Data Section occurs on the same day each month or on the last day of any month having no such date. The Pll. w: ah Lie. Te Effective Date is tac sirst Monthly Policy Date. The Issue Age shown in the Data Section is the age of the Insured on his or her last birthday as of the Bffective Date. It is based on the information shown in the application. If the age or sex of the Insured has been misstated, we will adjust the Face Amount to be the amount it would have been had the Monthly Deduction on the date the adjustment takes effect been based on the correct age and sex of the Insured. The adjustment shall take effect on the Monthly Policy Date on or next following the date we receive proof to our satisfaction of such misstatement. If the Insured has died, we will adjust the Face Amount as of the last Monthly Policy Date prior to the Insured’s death. Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305) Page 2 ATTAINED AGE PAYMENT OF ’ BENEFITS POSTPONEMENT OF BENEFITS BASIS OF VALUES The Attained re of the Insured on any date is the Issue Age shown in the Data Section plus the number of Policy Years and Months which have passed since the Effective Date. We will pay all benefits under this policy at our Administrative Office. Before payment of any Death Benefit we may investigate the death. We may delay payment of any amounts which are payable as a result of Cash Surrender or Withdrawal for up to six months after we receive written request in a form satisfactory to us. If we defer such payment for more than 30 days, we will pay interest at a rate not less than 2.00% per year or as mandated by state law, from the date we receive such request to the date of payment. We may also delay payment of any amounts which are payable as a result of a Policy Loan for up to six months after we receive written request in 2 2 form satisfactory to vs. We have the right to postpone payment which is derived from any amount recently paid to us by check or draft, until we are satisfied the.check or draft has been paid by the bank or other financial institution on which it is drawn. The guaranteed values for this policy are equal to or greater than those required by the law of the state where this policy is delivered. The guaranteed values are based on the Accumulated Value Interest Rate and Mortality Table shown in the Data Section. A detailed statement of the method of computing values has been filed in the state in which this policy is delivered. This policy meets the minimum nonforfeiture requirements of the state where this policy is delivered. The Paid Up Annuity Values, and all tabled values in Payment Options, are based on the 2000 Table for Individual Annuitant Mortality (IAM} and compound interest at a rate of 1.50% per year. Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8212CA(0305) Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 3 Notices Uniess this policy provides otherwise, any requests for changes or notices: 41. fom us to the Owner shall be sent to the last address known to us of the Owner; and 2. from us to an assignee shall be sent to the last cade known to us of such assignees and 3. from the Owner or an assignee to us must be in writing and received by us at our Administrative Office in Montpelier, Vermont. ANNUAL REPORT At least once each Policy Year we will send a report to the Owner. The report will show, as of its date: J. the Accumulated Value; and 2, the Cash Surrender Value; and 3. any debt to us on this policy; and 4. the Death Benefit. The report will also show a summary of transactions of the previous year and any information required by law. PROJECTION REPORT The Owner may request, in writing, a report which projects future values and future Death Benefits for this policy. The report will also show any information required by law. We may charge a fee for the report, not to exceed $25. The Projection Report will be based: on: 1. data the Owner gives us as to Face Amount aud premiums; and 2. such assumptions as either the Owner or we specify. ROLES IN THIS PoOLicy OWNER The Owner may: exercise the rights under this policy; and . assign the policy; an release or discharge the policy; and change the policy if we agree to such change; and . enjoy the benefits under this policy. Pw Life Insurance Comparry of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732- 3939 . Home Office: 1300 West Mockingbird Lane * Dallas, Texas email 8212CA(0305) Page 4 BENEFICIARY TRUST BENEFICIARY CHANGE OF BENEFICIARY ~ These actions may be taken without the consent and against the interest of any Beneficiary and any contingent owner. if the Owner cannot change the Beneficiary, these actions may be taken only by the Owner and the Beneficiary jointly. These actions may be taken only while the Insured is alive. The Owner has the right to change the Beneficiary. If the Owner expressly waives this right, no change can be made. Unless later changed, the Beneficiary shall be as stated in the application. The interest of any Beneficiary who dies before the Insured shall vest in the Owner unless otherwise stated. If used, the term “children” of any person shall include only lawful children born to or legally adopted by that person. We may rely on an affidavit by any person. who in our judgment knows the facts to identify any Beneficiary or payee not specified by name. All our liability shall cease when we pay on the basis of such affidavit. Unless an duthoneed ie or registrar of the Company explicitly agrees in writing, the following provision shall apply when a trust is named as Beneficiary. In no event is the Company responsible for the application or disposition of any proceeds it pays to a Trust Beneficiary. Payment to a Trust Beneficiary is a full discharge of the liability of the Company. If a designated trust provides for successor trustees, the designation in this policy includes successor trustees. Likewise, if the trust allows amendments, the trust, if so amended, remains asa — designated Bencrelery. A Trust Beneficiary is considered to be a Beneficiary who did not survive the Insured ifs pee 1. the trust has been terminated; or 2. the specified testamentary trust does not qualify as such; or 3. for any other reason a Trust Beneficiary is not entitled to any proceeds. If the Owner has the right, a new Beneficiary may be named from time t time during the life of the Insured by filing at our Administrative Office written notice in such form as we may require. When notice is received at. our Administrative Office, the change shall take effect on the date the novice is signed whether or not the Insured is living at the time of receipt. We will net be liable for any payment we make before receipt of the written notice at our Administrative Office. Life Insurance Company of the Southwest Administrative Offi ce: One National Life Drive * Montpelier, Vermont 05604 * (800} 732-8939 FEFaTTETS Home Office: 1300 West ——— Lane * Dallas, Texas 753247 Page $ 5 _Page.34.0f.99 Page.ID#143 ASSIGNMENTS ' ‘We are not responsible for the validity or effect of any assignment of this policy. We will not recognize any assignment until it has been filed at our Administrative Office. The interest of any Beneficiary whom the assignor can change and of any contingent owner shall. be transferred to the assignee by the terms of any assignment. If the assignee acquires a right to proceeds, they shall — be paid in one sum even though a Payment Option may be in effect at the time the assignment was signed. . SPENDTHRIFT PROVISION If we receive at our Administrative Office written request by the Owner for this Spendthrift Provision, then, to the extent allowed by law: 1. only the Owner may transfer, anticipate, commute, or encumber the proceeds of this policy; and 2. only legal process against the Owner may affect the proceeds of this policy. : Any proceeds payable after this request is withdrawn by the Owner shall not be affected by this provision. PREMIUMS PoLicy PROTECTION PERIOD The first 60 policy months following the Effective Date of this policy is referred to as the Policy Protection Period. An increase in coverage does not initiate a new Policy Protection Period. PAYMENT OF PREMIUMS The first premium is due on the Date of Issue. This first premium cannot be less than the Minimum Monthly Premium shown in the Data Section. ~ During the Policy Protection Period the payment of cumulative premiums, in excess of withdrawals and loans, at least equal to the Minimum Monthly Premiums payable since the Effective Date of the policy will keep the policy in force to the next Monthly Policy Date, as fong as the Accumulated Value is sufficient to provide for Monthly Deductions. Otherwise, this policy wifl remain in force as long as the Cash Surrender Value is palace to provide for Monthly Deductions. Life Gerais Company of th the Southwest Administrative Office: One National Life Drive * hsuipelne Vermont 05604 * ae 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305} Page 6 The Planned Periodic Premiums are the prerniams the Applicant has chosen to pay. Planned Periodic Premiums may be paid on an annual, semi-annual, _ guarterly, or monthly basis. The Owner may change the amount or frequency of such premiums at any time by sending a written notice to us at our Administrative Office. However, we may limit any increase in either amount or frequency. Premiums in addition to the Planned Periodic Premiums may he necessary to keep this policy and the coverages provided by this policy and any additional benefit riders in force. We will accept Unscheduled Premiums, which are premiums in addition to the Planned Periodic Premiums. We may limit the number and amount of. Unscheduled Premiums. All premiums are limited by a minimum and a maximum. The minimum is $25 per premium. The maximum is the limit imposed by the Internal Revenue Code for qualifying the policy as “Life Insurance” for Federal Income Tax purposes, or such lower amount as we may set. We will not accept any premium in excess of the maximum. We will return any premiums not accepted and any interest credited to such premiums to the Owner within 60 days after the end of the Policy Year in which the premiums were received. i - The first premium may be paid to us either throngh our duly authorized agent : in exchange for a receipt signed by that agent or at our Administrative Office. All later premiums must be paid to us at our Administrative Office. No premium will be accepted on or after the Maturity Date. NET PREMIUM A Net Premium is determined by multiplying a premium received times 1 minus the Percent of Premium Expense Charge stated in the Data Section. GRACE PERIOD if on any Monthly Policy Date the Cash Surrender Value is less than the Monthly Deduction on such date, a Grace Period shall start, unless: 1. the policy is within the Policy Protection Period; and 2, the Accumulated Value less any debt to us on this policy is greater than the Monthly Deduction on that dates and 3. the cumulative premiums paid since the policy’s Effective Date, less any withdrawals and less any debt to us on this policy, are greater than or ‘equal to the cumulative Minimum Monthly Premiums due since the policy’s Effective Date. A Grace Period shall be 61 days. During a Grace Period this policy shall remain in force. = , : Life Insurance Company of the Southwest Adtinistrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 . Page 7 8212CA(0305) The premium needed to keep the policy in force beyond a Grace Period which : ends during the Policy Protection Period shall equal the greater of fa} or (b) | where: a) equals the sam of the Minimum Monthly Premiums in effect on the policy over all of the months from the Effective Date of the policy to.the start of the Grace Period, plus all withdrawals, plus three times the Minimum Monthly Premium in effect at the beginning of the Grace Period, plus any debt to us on this policy, less all premiums paid; and where ‘b}’ equals the premium which — will be sufficient to “produce an Accumulated Value, net of policy debt, equal to two times the Monthly Deduction due on the date the Grace Period began. The premium needed to keep the policy in force beyond a Grace Period which ends after the Policy Protection Period shall be the premium sufficient to produce a Cash Surrender Value equal to three times the Monthly Deduction due on the date the Grace Peried began. We will mail notice of the premium needed to the Owner. If such premium is unpaid on the later of: 1. the last day of the Grace Period; or 2. the 31"day after such notice is sent; then this policy shall terminate without value. A Grace Period will not begin solely because payments of Planned Periodic Premiums are discontinued. Whether or not premiums are paid, Monthly Deductions will be made from the Accumulated Value. No interest will be credited to this policy during a Grace Period. The terms of this Grace Period provision will determine if and when a Grace Period starts. Life feranes Company of the Southwest Administrative Office: One National Life Drive * hese Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 $212CA(0305) Page 8 . REINSTATEMENT If this policy terminates after the end of a Grace Period, it may be reinstated. It must be reinstated on a Monthly Policy Date within five years from the start of such Grace Period and prior to the Maturity Date.’ For Reinstatement we will require: 1. an application for Reinstatement; and 2. proof to our satisfaction that the Insured is insurable; and . 3. payment of an amount determined as follows: a) b) If Reinstatement occurs dicing a Policy Protection Period, the required payment shall be an amount equal to the premium which will be sufficient to produce an Accumulated Value, net of policy debt, four times the Monthly Deduction due on the date the Grace Period began, or, if greater: 1. the sum of the Minimum Monthly Premiums in effect on the policy over all the months from the Effective Date of this _ policy to the start of the Grace Period; plas all withdrawals; plus three times the Minimum Monthly Premium shown in the Data Section; plus any debt to us on this policy; less all premiums paid. If Reinstatement occurs after the Policy Protection Period, the required payment shall be a premium which will make the Cash i, Surrender Value sufficient to provide: two times the Monthly Deduction due on the date the Grace Period began; plus three times the Monthly Deduction due on the date of Reinstatement. We will send the Owner notice of the required payment upon request. "Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8932 © Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 — 8212CA(0305) Page 9 In the event of Reinstatement: 1. the Accumulated Value of the policy at the time of final lapse will be restored along with the Cash Value available for deductions at the time ~ that the Grace Period began; and 2. the schedule of Surrender Charges for the policy months following the date the Grace Period began shali become the schedule of Surrender Charges for the policy months following the date of Reinstatement; and 3. the schedule of Monthly Administrative Charges per Thousand for the policy months following the date the Grace Period began shall become the schedule of Monthly Administrative Charges per Thousand for the policy months following the date of Reinstatement. , DEATH BENEFIT AND PoLicy GHANGES DEATH BENEFIT DEATH BENEFIT OPTIONS We will pay the Death Benefit to the Beneficiary when we receive at our Administrative Office due proof that the Insured died while this policy was in force. We will pay the Death Benefit in one sum unless a Payment Option is chosen. If the Death Benefit is paid in one sum, it shall be increased by interest from the date of the Insured’s death to the date of payment. We will set the rate of interest at not less than 2.00% per year or as mandated by state law. The Owner may elect either of two Death Benefit Options, Option A or Option B, for the period prior | to the Insured’s Attained Age 120, The Death Benefit Option is Stated i ii the Data Section. : Option A. Under Option A, the Death Benefit is equal to the greater of - 1. the Face Amount of the policy on the date of the Insured’s death; or 2, the Death Benefit Factor shown in the Data Section multiplied by the Accumulated Value on the date of the Insured’s death; less the amount of any Monthly Deductions then due and any debt to us on this policy. Option B. Under Option B, the Death Benefit i is equal to the greater of 4. the Hse Amount plus the Accumulated Value of the policy on the date of the Insured’s death; or 2. the Death Benefit Factor shown in the Data Section mniliplied a the Accumulated Value on the date of the Insured’s death; Life Insurance Comparey of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05 604 * ” (300) 732-8939 Home Office: 1300 West Mockingbird Lane * Datflas, Texas 75247 8212CA(0305} Page 10 as, CHANGES IN FACE AMOUNT AND DEATH BENEFIT OPTION less the amount of any Monthly Deductions then due and any debt to us on this policy. The Owner may request any of the following changes. We will make a change subject to the conditions stated. These changes may be made only while the Insured is living and after the first Policy Anniversary. We will send the Owner a revised or additional Data Section if any of these changes is made. Face Amount Increases. We will require an application from the Owner and proof to our satisfaction that the Insured is then insurable. An increase in Face Amount must satisfy the minimum Face Amount requirements of the policy and shall be effective upon the Monthly Policy Date on or next following our approval. Face Amount Decreases. We will require a written request from the Owner. A decrease in Face Amount shall be effective upon the Monthly Policy Date on or next following our receipt of the request. Decreases shal! not be permitted which would reduce the sum of the Face Amount to less than any of the following: 1. the minimmm insurance amount for which the policy would qualify as “Life Insurance” for Federal Income Tax purposes under the Internal Revenue Code; or 2. the Minimum Face Amount shown in the Data Section; or : 3. 75% of the largest total Face Amount in force at any time in the twelve policy months prior to our receipt of the request. A decrease in Face Amount will affect units of Face Amount in the reverse order in which they were created. . Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8212CA(0305) Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 11 SUICIDE LIMITATION Death Benefit Option Changes.The Death Benefit Option may be changed once each Policy Year after the first Policy Anniversary prior to the Insured’s Attained Age 120. We will require a written request from the Owner. A change will be | effective ‘on any Monthly Policy Date requested. The change may be made only if after such change the policy would qualify as “Life Insurance” for Federal Income Tax purposes under the Internal Revenue Code. The Minimum Monthly Premium will be recomputed to reflect the change in Options. ; 1. Upon a change from Option A to Option B, the Face Amount shall decrease by an amount equal to the Accumulated Value of the policy just prior té the Effective Date of the change. However, the change may be made only if after such change the Face Amount would not be less than the Minimum Face Amount shown in the Data Section. ; 2. Upon a change from Option B to Option A, the Face Amount shall increase by an amount equal to the Accumulated Value just prior to the Effective Date of the change. No additional Surrender Charges shall be imposed solely because of this change. If the Insured dies within two years of the Effective Date as the result of suicide, while sane or insane, we will pay only a sum equal to: , 1. the premiums paid; less 2. any withdrawals made; less 3. any debt to us on this policy. A similar two-year period shall apply to any increase in Face Amount for which an application is required: Such period shall begin on the Effective Date of any such increase. During such period if the Insured dies as the result of suicide, while sane or insane, we will pay, in lieu of any such increase in Face Amount, only a sam equal to the Cost of Insurance that we have deducted from the Accumulated Value for such increase. Payment wiil be made to the Beneficiary. if this policy is. reinstated, a similar two-year period shalt start from the Effective Date of Reinstatement. During such period, if the Insured dies as the result of suicide, while sane or insane, we will pay only a sum equal to: 1. the premiums paid since the Effective Date of Reinstatement; less 2. any withdrawals made since the Effective Date of Reinstatement; less 3. any debt to us on this policy. Life Insurance Company of the Southwest : Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305) - Page 12 Padataioa INTEREST CREDITING STRATEGIES | Basic STRATEGY FEXED-TERM . STRATEGY Accumulated Value in this policy is apportioned into one or more segments distinguished by their interest crediting strategies. Four interest crediting strategies are made available under this policy. ae Interest will be credited to the Accumulated Value in the Basic Strategy on a daily basis at a rate not = than 2.00% per year. The Basic Strategy Misia Value for a Policy Year is seal to 12.5 times the Monthly Deduction due on the first day of that Policy ¥ Year. Tt will remain unchanged until the first day of the next Policy Year. AH Net Premiums ate paid into the Basic Strategy. On the 21"day of each month, the Accumulated Value in the Basic Strategy that is in excess of the Basic Strategy Minimum Value, subject to a minimum amount of $50.00, will be transferred to one or more of the following three interest crediting strategies according to an allocation selected by the Applicant at the ‘time of policy application. The Owner has the right to change the ailocation selection. Each transfer of Accumulated Value made to this strategy creates a distinct Fixed-Term Segment. Each Fixed-Term Segment will have a duration of five years. Interest will be credited to the Accumulated Value in each Fixed-Term Segment on a daily basis at a rate not less than 2.00% per year. Interest rates payable on Accumulated Value in any given segment may vary over the lifetime of that segment, and different Fixed-Term Segments may be credited interest at different rates. Accumulated Value cannot be transferred out of any Fixed-Term Segment prior to the end of its five-year duration unless the interest rate credited to Accumulated Value in such segment falls below the interest rate initially credited to the segment. Under that scenario, the Owner may request. that the Accumulated Value in this Fixed-Ferm Segment be immediately transferred to the Basic Strategy. Otherwise, the Accumulated Value within a segment will be automatically transferred to the Basic Strategy at the end of the segment’s five-year duration. Life nwo Company of ti the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8212CA(0305) Home Office: 1300. West Mockingbird Lane * Dallas, Texas 75247 Page 13 Equrry-INDEXED STRATEGIES Bach transfer of Accumulated Value made to an Equity-Indexed Strategy creates a distinct Equity-Indexed Segment. Each Equity-Indexed Segment will have a duration of five years. Index Earnings will be credited to the Accumulated Value in each segment on each anniversary of the creation of = segment. Equity- Indexed Strategy 1 (Point- to-Point). Index — will be credited to Accumulated Value in each segment within this Equity-Indexed Strategy on each anniversary of the creation of that segment based on the performance of the Index on such anniversary. Equity-Indexed Strategy 2 (Point-to-Average). Index Earnirigs will be credited to Accumulated Value in each segment within this Equity-Indexed Strategy on each anniversary of the creation of thar segment based on the performance of the Index averaged throughout the preceding twelve months. . Index. Index refers to the Standard & Poor’s 500 Index, excluding dividend income. It will be used in the determination of Index Eamings made to each — segment within an Equity-Indexed Strategy. If the publication of the Index is discontinued, a suitable index will be substituted and you will be notified of such index. Index Value. The Index Value as of any date is the published value of the Index at the close of business on that date. If no value was published on that date, the last published value of the Index will be used. Annual Index Growth. The Annual Index Growth for an Equity-Indexed Segment is calculated on each anniversary of the creation of that segment. The Annual Index Growth for the Equity-Indexed Strategy 1 is the following: J. the Index Value as of the current anniversary of the Equity Indexed Segment; minus 2. the Index Value as of the preceding anniversary of the Equity Indexed Segment; this difference divided by 3. the Index Value as of the preceding anniversary of the Equity Indexed Segment. Life Insurance Company of the Southwest _— Administrative.Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247. 8272CA(0305) Page 14 Annual Index Growth for the Equity-Indexed Strategy 2 is the following: © 1. the sum of the Index Values for each day the Index Value was published between the preceding anniversary of the Equity-Indexed Segment and the current anniversary of the Equity-Indexed Segment, excluding the Index Value, for the preceding anniversary but including the Index Value for the current anniversary; divided by 2. the number of days the Index Value was published between the preceding anniversary and the current anniversary excluding the preceding anniversary but including the current anniversary; minus 3. the Index Value as of the preceding anniversary of the Equity-Indexed - Segment; this difference divided by , 4. the Index Value as of the preceding anniversary of the Equity-Indexed Segment. Participation Rate. Each Equity-Indexed Segment will have a Participation Rate. The Participation Rate is determined in advance for each twelve-month period - and is subject to change on each anniversary of the creation of a segment. The Participation Rate will never be less than the Guaranteed Minimum Participation Rate for the applicable strategy shown in the Data Pages. Index Earnings Cap. Each Equity-Indexed Segment will have an Index Earnings Cap. The Index Earnings Cap is determined in advance for each twelve-month period and is subject to change on each anniversary of the creation of a segment. The Index Harnings Cap for a segment will never be less than the Guaranteed Minimum Cap for the applicable strategy shown in the Data Pages. Index Earnings. The Index Earnings for each Equity-Indexed Segment are calculated on each anniversary of the creation of 2 segment as follows: 1, the Annual Index Growth for the segment multiplied by the segment’s Participation Rate, with this product adjusted so that it is no less than zero and no greater than the segment’s Index Earnings Cap; multiplied by d 2. the value of the Equity-Indexed Segment at the end of the previous day. Index Earnings are not calculated or credited between anniversaries of a given segment. . On the’ fifth anniversary of each Equity-Indexed Segment, Index Earnings will be increased as necessaty so that the annual rate of Index Earnings over the five-year length of the segment is at least equal to the guaranteed minimum rate of 2.00%. . The Gwner may not elect to transfer Accumulated Value in an Equity-Indexed Segment out of that segment prior to its fifth anniversary, On the fifth anniversary of the creation. of a segment, the Accumulated Value in the Equity-Indexed Segment is automatically transferred to the Basic Strategy. ‘Life Insurance Cannan of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page i§ ACCUMULATED VALUE MoNTHLY DEDUCTION Life Insurance. Comparry of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 73. Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 _-8212CA(0305) Poiicy VALUES if the Accumulated Value of the policy is being calculated in connection with the. termination of the policy, the Index Earnings for each Equity-Indexed - Segment over all full years completed during its elapsed duration will be increased as necessary so that the annual rate of Index Earnings qver those full years is at least equal to 2.00%. The Accumulated Value on the policy Effective Date is the initial minus the initial Monthly Deduction. The Accumulated Value on any other date is equal to the sum of/the values of the Basic Strategy, the Fixed-Term Strategy, the Equity-Indexed Strategy 1, and the Equity-Indexed Strategy 2. The Monthly Deduction due on a Monthly Policy Date shall be| the Monthly Cost of Insurance, plus the Monthfy Administrative Charge Thousand Dollars of Face Amount, plus the Monthly. Policy Fee, plus the monthly cost of any additional benefit riders in force on this policy. Monthly Deductions’ wiil be taken from the Accumulated Value of the policy in the following order: first, from the Basic Strategy until exhausted; second, from the Fixed-Term Strategy ur Fiisteli exhausted; Ps ie . third, from the Equity Indexed Strategy 2 until exhausted; fourth, from the Equity Indexed Strategy 1 until exhausted, Dw If the Fixed-Term Strategy and/or the Equity Indexed Strategies have multiple segments, deductions are made in the reverse order in which the created. . MONTHLY Cost . OF INSURANCE The “Monthly Cost of Insurance shall be based o the risk classification and duration of this policy, and the Insured’s sex and Issye Age. The Monthly Cost of Insurance for a given segment i wejeal to: 1. the applicable Monthly Cost of Insurance Ra s multiplied by - 2. the excess of: a) the Death Benefit plus any debt to us on such date, divided by the sum 1 plus the monthly Accumulated Value Interest Rate shown in the Data Section; over b) the Accumulated Value of this policy on such date. CASH SURRENDER AND WITHDRAWALS CASH SURRENDER _ VALUE . The Owner may, by written request to us, surrender this policy while the Insured is living for its Cash Surrender Value, We maly require that the policy be returned to us. When this policy has been surréndered, it shall be null and void and all rights shall cease. The Cash Surrender Value on any day shall be equal to: the Accumulated Value on such day; less any Surrender Charge which applies on such day; less apy debt to us on this policy any QOL ty ls Of) LOS poucy. wre The Surrender Charges are shown in the Data Section Life Insurance| Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermdnt 05604 * (800) 732-8939 — Home Offi ice: 1300 West Mockingbird e * Dallas, Texas 75247 j Page 17 8212CA(0305} WITHDRAWALS After the first Policy Anniversary and prior to the last day of the Premium Payment Period, the Owner may make withdrawals by written fequest to us. Withdrawals shall be subject ro all of the following terms. 1. Withdrawals may be made only on a Monthly Policy| Date which follows receipt of such request. 2. A Withdrawal Fee of $25.00 will be charged for each withdrawal made. 3. The amount withdrawn may not exceed the Cash Surrender Value on the Monthly Policy Date less three times the Monthly such Monthly Policy Date. 4. The Accumulated Value will be decreased by the withdrawal. 5. If Death Benefit Option A is in ‘effect on the date of the Face Amount of the policy will be reduced by an amount equal to the amount of the withdrawal plus the Withdrawal Fee. Withdrawals, including the Withdrawal Fee, are made from the | Accumulated Value in the following order: 1. first, from the Basic Strategy until exhausted; 2. second, from the Fixed-Term Strategy until exhausted; 3. third, from the Equity Indexed Strategy 2 until exhausted; 4. fourth, from the Equity Indexed Strategy 1 until exhausted. If the Fixed-Term Strategy and/or the Equity Indexed Strategies have multiple segments, withdrawals are made in the reverse. order of which the segments were created. We may defer payment of any withdeawal for not more than six months. If we defer such payment for more than 30 days, we will pay interest from the date we receive such request to the date Of payment at a rate not less than 2.00% of as mandated by state law. ~Poxticy LOANS Poricy Loans We will loan an amount up to the Loan Value of the policy less the amount of any outstanding debt, at any time after the first Policy Year. At the time of the loan the policy must be in force. The policy shall be the sole’ security for the loan and must be duly assigned to us. Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 734-8939 ~ Home Office: 1300 West li Lane * Dallas, Texas 75247 8212CA(0305) 8212CA(0305) LOAN VALUE LOAN INTEREST RATE : The Loan Value on any day is equal to: 4. the Accumulated Value on such day; less 2. the Surrender Charge on such day; less 3. three times the Monthly Deductions due jon the most recent prior Monthly Policy Date. Any loan shalt bear interest from the date the loan|is made. The Loan Interest Rate may change from Policy Year to Policy Year. The Loan Interest Rate on the Effective Date of the [policy is stated in the Data Section. Such rate shall apply to any debt to us on/this policy until the rate is changed by us. We may change the Loan Interest Rate only on a Policy Anniversary, after which the changed rate will apply |to any new or existing debt to us on the policy. The Loan Interest Rate is subject to a minimum annual ‘interest rate of 3.00% and shall not exceed the Maximum Rate allowed. The Maximum Rate allowed is the greater of: 1. the’ Published Monthly Average for the. months before the calendar month in which the Policy Anniversary occurs; or | 2. the yearly Accumulated Value Interest Rate/shown in the Data Section plus 1%. The Published Monthly Average shall be the Moody’s Corporate Bond Yield Average - Monthly Average Corporates, as published by Moody’s Investors Service, Inc., or any successor to it. If at any time that Published Monthly Average is no longer published, a substantially similar average, established under the law of the state where this policy was delivered, shall be used. If on any Policy Anniversary the Maximum Rate then allowed is at least 0.50% per year less than the Loan Interest Rate in effect for this policy during the prior Policy Year, we will decrease the Loan Interest Ra for this policy. If on any Policy Anniversary the Maximum Rate then allowed is at least 0.50% per year more than the Loan Interest Rate in effect on this policy during the prior Policy Year, we may increase such Loan Interest Rate. If in¢reased, it shall be increased to a rate not-greater than the Maximum Rate then owed. We will give to the Owner: 1. notice of the Loan Interest Rate in effect for this policy at the time a loan is made; and : 2, at least 30 days’ advance notice of any increase in the Loan Interest _ Rate, if there is any debt to us on this policy Life Insuranc Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermpnt 05604 * (800} 732-8939 Home Office: 1300 West Mockingbird\Lane * Dallas, Texas 75247 Page 19. In no event shall the Loan Interest Rate exceed the highest loay interest rate- allowed by law of the state in which this policy is delivered. GENERAL LoAN TERMS After the loan is made, loan interest shall be due on the next and all later Policy - Anniversaries. If any interest is not paid when due, it shail be add d tc the ican and bear interest on the same terms. The debt seoned by this policy includes ices, unpaid loan interest and accrued loan interest not otherwise due. Ail or any part of the debt may be paid to us at any time prior to: 1: the death of the Insured; and. 2. surrender of the policy. However, during a Grace Period the debt may not be repaid. Unless the Owner _ Specifies, any payment to us shall be deemed a premium payment and not payment of the debt. At the death of the Insured or upon the nder of the policy, all debt shall become due at once. It shall be paid from the policy values. We may defer any policy loan, other than one to pay premiums on our policies, for not more than six months. PAYMENT OPTIONS In lieu of a lump sum settlement, all or part of the proceeds of this policy may be applied under a Payment Option. When proceeds are apptied under a Payment Option, all other rights and benefits under this policy shal] cease. In addition to the following options, other payment options may bel available. OPTION EFFECTIVE DATE The Option Effective Date is the date the proceeds hecome payable Life Insurance Company of the Southaven Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 73. Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305} GENERAL PAYMENT © OPpTion TERMS If the proceeds to be placed under a Payment Option are less than $5,000, we - may pay them in one sim to the payee who otherwise would receive the first payment under the option. If any payments would Jess than $100, we will change the frequency to provide payments of at least/$100. If the proceeds are assigned on the Option Effective Date, we will pay the assignee’s share in one sum anid place only the balance under the option. After the Option Effective Date neither the payments nor the remaining value may be assigned or encumbered. To the extent the law permits, they are not subject to any claims against the payee. We may require proof to our satisfaction that any payee is alive on the date any payment is due. CHOICE OF OPTION Choice of an option may be made: 1. by the Owner if the Insured is living; or 2. by the Beneficiary if the Insured is not liv effect. ng and if no option is in Equivalent payments for 12-, 6-, ss or 1-month intervals mey be chosen. The options are described in terms of monthly payments. We will quote the amount of other payments on request. CHANGE OF We may issue a document stating the terms of the " ion. PayMENT OPTION The right to change Payment Options exists under Dptions 1, 2, and 4. At the time of change the remaining value under the old option shall become the proceeds to be placed under the new option. Lump Sum REMOVAL OF. PROCEEDS APPLIED UNDER A PAYMENT OPTION : Lump sum payments may be taken from the remaining proceeds placed under Payment Options 1, 2, and 4. : Under Options 1 and 4 all or any part of the remaining value may be taken at any time, though no more than four transactions | may be made during any calendar year. Life Insuranc Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermpnt 05604 * (800) 732-8939 . Home Office: 1300 West Mockingbird|Lane * Dailas, Texas 75247 Page 23 8212CA(0305) OPTION 1 -~-PAYMENT OF INTEREST ONLY OPTION 2 ~PAYMENTS FOR A SYATED TIME Life Insurance Company of the Sonthwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * { Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305) Under Option 2 the entire remaining value may be taken at any ti No lump sum removal of proceeds may be made under Options 3, Interest at a rate of 1.50% per year shall be paid either for: 1. the life of a chosen human being; or 2. a chosen period. ‘We may pay more interest in any given year. Upon the earlier of the death of the chosen human being or the end of the chosen period, any remaining value will be paid. The first payment shal] be made one month the Option Effective Date. If the payee is not a human being, payments may) not continue for more than 30 years. Equal monthly payments shall be made for a stated number of years. The first payment shall be made on the Option Effective Date. The unt of each monthly payment is shown in the table. The monthly payments interest rate of 1.50% per year. We may pay more interest in any year. 800} 732-8939 Page 22 OPTION 3 ~PAYMENTS FOR Life Option 3. Table on request. Option 2 Table Monthly Payments for Each $1,000 of Stated Number of Years Monthly Payments Equal monthly payments shall be made for any gu thereafter during the life of a chosen human being.| The first payment shall be made on the Option Effective Date. The amount|of each monthly payment depends on the age and sex of the chosen human being on the Option Effective Date and on any guaranteed period chosen. We |may require proof to our satisfaction of such age. We may require like proof that such human being is ~ alive on the date any payment is due. The guaranteed period may be five or ten . years or a Refund period. A Refund period extends until the sum of the payments is equal to the proceeds placed under| the option. The monthly payments are based on an interest rate of 1.50% per year. We may pay more interest in any year during the guaranteed period. We will quote the amount of monthly payments for lower ages and guaranteed periods not shown in the Life Insurance Comparty of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermpnt 05604 * (800) 732-8939 8212CA(0305) Home Office: 1300 West Mockingbird |Lane * Dallas, Texas 75247 Page 23 eam Option 3 Table Nanihty Payments for Each $1,000 of Proceeds {Amounts shown are for the age nearest birthday on the Option Effective Date) Male Age None 10 Years 36 $3.24 ” $3.22 Si 3.31 3.29 52 3.39 3.36 53 3.47 3.44 — 54 . 3.85 3.51 55 3.63 3.60 S56 3.73 3.68 57 3.82 3.77 58 3.92 3.87. 59 4,03 3.97 60 4.15 4.07 61 4.27 4.19 62 4.40 4.30 63 4.54 - 4.42 64 4.69 4.55 65 4.85 - 4.69 66 3.02 4.83 67 3.20 4.98 68 5.39 5.13 69 5.60 5.29 70 5.82 SAS 71 6.05 5.62, 72 6.30 5.79 73 6.57 5.96 74 6.85 6.14 75 7.15 6.32 76 7.47 6.51 77. 7.82, 6.69 78 8.19 6.87 79 8.59 7.05 80 9.01 7.22 81 9.47 7.39 82 9.95 7.56 83 10.47 7.71 84 11.02 7.86 B5+ 11.64 8.00 Life Insurance Company of the Southwest Guaranteed Period Refund $3.02 $3.00 3.08 3.06 3.13 3.13 3.19 | 3.19 3.25 3.26 3.31 3.34 3.38 3.41 3.45 3.56 3.52 3.58 3.60 3.68 3.67 3.78 (3.76 3.88 3.84 3.99 3.93 4.11 4.02 4.23 4.2 4.37 4.23 4.51 4.33 4.66 4.45 4.83 4.57 5.00 4,70 - $19 4,82 5.39 4.96 5.61 5.11 5.85 5.25 6.11 5.41 6.39 3.59 6.69 5.75 7.01 5.33 7.36 6.14 7.74 6.34 8.16 6.55 8.60 6.77 9.09 7.80 ‘9.61 7.25 10.18 7.52 10. 79 + Higher ages the same ~ Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8212CA(0305) Home Office: 1300 West a Lene * Dallas, Texas 75247 Page 24 OPTION 4 — -PAYMENTS OF A STATED AMOUNT OPTION 5 - LIFE ANNUITY OPTION 6 - JOINT AND Two-THIRDS ANNUITY Equal monthly payments of a stated amount shali he made until the proceeds, with interest at 1.50% per year on the. unpaid balance, are used up. The first payment shall be made on the Option Effective Da be at least $10 per month for each $1,000 of p 's placed under this option. We may add more-interest to the unpaid balance in any year, which will extend the number of payments. The last payment will be for the balance only. Equal monthly payments shall be made in the same er as Option 3 except: 1. the amount of each payment shall be based on our current settlement rates on the Option Effective Date; and 2. no additional interest shall be paid. Equal monthly payments shall be made while two chosen human beings are both living. Upon’ the death of either, two-thirds of the amount of such payments shall continue during the life of the survivor. The first payment shall be made on the Option Effective Date. The amount of each monthly payment depends on the ages and sexes of the chosen huinan beings on the Option Effective Date. We may require proof to our satisfaction of their ages. We may . The amount chosen must require like proof that any chosen human being is alive on the date any payment © conditioned on the life of such human being is due.|The initial amount of each monthly payment is shown in the table. We will q the amount of monthly payments for any other age combination on request.) The monthly paymicnts are based on an interest rate of 1.50% per year. No additional interest shall be paid. Life Insur Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Verinprt 05604 * (800) 732-8939 212CA(0305) Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 25 OPTION 7 - 50% SURVIVOR ANNUITY Life Insurance Company of the Southwest 7 ; _ Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800} 734- Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8212CA(0305) Option 6 Table Monthly Payments for Each $1,000 of Proceeds One Male Ages and of One Female Both $2.97 68 3.03 69 3.09 70 3.16 71 3.22 72 3.23 - 73 3.37 74 3.48 75 3.53 76 3.62 | 77 3.72 78 3.82 79 3.92 80 4.04 $1 4,16 82 4,28 83 442 84 4.57 85+ + Higher ages the same Equal monthly payments shall be made during the life of the chosen primary human being. Upon the death of the chosen primary human being, 50% of the amount of such payments shall contime during the life of the chogen secondary human being. The first payment shall be made on the Option Effective Date. The amount of cach monthly payment depends on the ages andj sexes of the chosen human beings on the Option Effective Date. We may reqhire proof to our satisfaction of their ages. We may require like proof that any chosen human being is alive on the date any payment conditioned on the life off such human being is due. The initial amount of each monthly payment is showy in the table. We will quote the amount of monthly payments for any other age combination on request. The monthly payments are based on an interest rate £ 1.50% per year. No additional interest shall be paid. a Monthly Payments for Each $1,000 of Proceeds Option 7 Table (Amounts shown are for the age nearest birthday on the Option! Effective Date) ‘Administrative Office: One National Life Drive * Montpelier, Verm 8212CA{0305) Male Primary Female Secondary $2.96 ° . 301 - ' 3.07 3.14 3.20 3.27 3.35 3.43 - 3.51 3.60 3.69 3.79 3.89 4.00 4,12 4.24 4.33 4.52 Female ale - Female Primary Ages imary Primary Male of male Male Secondary Both Secondary Secondary $2.85 68 4.67 $4.44 2.90 69 4.83 4.60 2.96 70 5-00 4.76 3.02 71 5.19 4,93 3.08 - 72 5.38 5.12 3.15 73 5.59 3.32 3.22 74 5.82 §.53 3.29 75 6.06 5.77 3.37 76 6.31 6.01 3.45 77 6.59 6.28 3.53 78 6.88 6.57 3.62 79 7.20 6.89 3.72 80 7.54 7.22, 3.82 81 7.90 7.59 3.93 82 8.29 7.98 4.05 3 8.71 8.40 — 4.17 84 9.16 8.86 4.30 85+ 9.64 9.34 + Higher ages the same Life Insurance Company of the Southwest Home Office: 1300 West Mockingbird ne * Dailas, 05604 * {800} 732-8933 Texas 75247 Page 27 -1--Filed-1.0/29/1.0...Rage-56-0f.99.-Page 1D-#: Frxep Net Cost LoAN ENDORSEMENT This endorsement introduces a Fixed Net Cost Loan option into the policy to which it is attached. The following text is added to the Policy Loans section of the policy: — “Fixed Net Cost Loan As an alternative to loans on which interest is charged as described within the Loan Interest Rate provision of this policy, a loan may be taken which has 2 ~ fixed net cost known in advance. When a Fixed Net Cost Loan is made, Accumulated Value in the amount of the joan and any unpaid loan interest will be removed from the Interest Crediting Strategies in the following order: . first, from the Basic Strategy until exhausted; . second, from the Fixed-Term Strategy until exhausted; third, from the Equity Indexed Strategy 2 until exhausted; and . fourth, from the Equity Indexed Strategy 1 until exhausted. PWN me _ If the Fixed-Term Strategy and/or the Equity Indexed Strategies have multiple segments, deductions will be made in the reverse order in which the segments were created. The Accumulated Value removed from the Interest Crediting Strategies will be held apart from other Accumulated Value in this policy in a collateral account where it will be credited the same interest rate that will be charged on the Fixed Net Cost Loan. Repayments of a Fixed Net Cost Loan, including payments of loan interest, will be. applied to the outstanding loan balance, and the amount repaid will be deposited into the Basic Strategy. The amount of Accumulated Value held in the collateral account will alsa be reduced by the amount of the repayment. This option may not be selected until the beginning of the tenth policy year. Any outstanding Policy Loans made prior to that time must be repaid before a Fixed Net Cost Loan can be taken. The policy may not have a Fixed Net Cost Loan on it at the same time that a non-Fixed Net Cost Loan is in effect.” The second paragraph of the Accumulated Value provision of this policy has been revised as follows: © “The Accumulated Value on any other date is equal to the sum of the values of the Basic Strategy, the Fixed-Term Strategy, the Equity Indexed Strategy 1, the Equity Indexed Strategy 2, and the value of any loan collateral account.” ; Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247. 8314(0206) Page 1 Signed for Life Insurance Company of the Southwest at Dallas, Texas, by Secretary Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800} 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8314{0206) *” Page 2 INDEX SECTION PAGE OVERLOAN PROTECTION RIDER 1 - EXERCISE OF RIDER interest Crediting Strategies 1 Effect on Policy Loans i Conditions of Rider Exercise 2 Cost OF THIS RIDER 2 GENERAL TERMS Reinstatement 2 Termination ; 2 Effective Date 3 aon, ' 8315(0206) —- ra bes OVERLOAN PROTECTION RIDER We, Life Insurance Company of the Southwest, agree to the exercise of this rider subject to the conditions stated below. In the absence of this Overloan Protection Rider, when the debt to us on the policy causes the policy to enter a Grace Period, additional premium must be paid or the policy will lapse. Alternatively, exercise of this rider before the policy lapses will maintain life insurance protection. This rider may be exercised, subject to the Conditions of Rider Exercise = below, if ail of the following conditions are met: 1. the Insured’s Attained Age is greater than or equal to 75; and 2. the policy to which this rider is attached must have been in force for at least fifteen years from the policy Effective Date; and 3. outstanding debt on the policy must exceed the total Face Amount of the policy; and 4. the outstanding debt to us divided by the excess of the Accumulated Value over the Surrender Charge must exceed 0.95. Notification will be sent to you when these conditions have been met. The rider must be exercised within sixty days of the date we mail notification. If not exercised within that sixty days, the rider will be terminated. EXERGISE oF RIDER Upon exercise of this rider, the policy to which it is attached will be modified as deseribed below. ; INTEREST CREDITING STRATEGIES The Index Earnings for = Equity Indexed Seomiene will be increased as necessary so that the annual rate of Index Earnings for the elapsed term of that segment is at least equal to 2.00%. All values from the Fixed Term Strategy and the Equity Indexed Strategies will then be transferred to the Basic Strategy. No further transfers from the Basic Strategy to any interest crediting strategy may be made. EFFECT ON POLicy | Loans Any Policy Loan which is not a Fixed: Net Cost Loan will be rewritten as a Fixed Net Cost Loan. No additional aad ioans may be made on the policy. Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8315(0206) Page 1 oe, CONDITIONS OF RmeER EXERCISE © The foliowing conditions will become effective: 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 Deduction will be terminated; and . the policy Death Benefit Option will be switched to Option A if Option -B is in effect. No further change in Death Benefit Option will be permitted. : Pw be “ COST OF THIS RIDER | When this rider is exercised, there will be a one time Exercise Charge. 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 at the time of exercise multiplied times the Accumulated Value of the policy. The Exercise Charge will be deducted from the Basic Strategy of the policy. GENERAL TERMS REINSTATEMENT If this rider is in force at the time of policy lapse, it may be reinstated upon policy reinstatement. TERMINATION This rider will terminate on the earliest of the following: 1. the date that the policy to which this rider is atrached terminates or © matures; or 2. sixty. days following our mailing of notification that the conditions for exercising this rider have been met; or 3. the Monthly Policy Date following the receipt of written request to terminate this rider. ‘Life Insurance Comparry of the Southwest : Administrative Office: Ong National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8315¢ 0206) Page 2 EFFECTIVE DaTE The effective date of this rider is the seis Effective Date unless a later date is - shown below. Signed for Life Insurance Company of the Southwest at Dallas, Texas, by Secretary Rider effective date if different from policy Effective Date: Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Hi ome Office: 1300 West Mockincetd Lane * Dallas, Texas 75247 . Page 3 8315(0206) ACCELERATED BENEFITS RIDER 1 BENEFIT ACCELERATED BENEFITS AMOUNT ACCELERATEB BENEFITS INTEREST RATE MAXIMUM AMO ONT This rider adds benefits to your policy. It is issued in consideration of the application and your request for coverage. There is no additional cost for this benefit. ‘We will pay the Accelerate Benefits Amount to the Owner during the lifetime of the Insured. Such benefit will be paid: 1, upon election by the Owner; and 2. in lien of payment of the full death benefit of the policy or Other Insured Rider upon death of the Insured; and 3. subject to the terms of this rider. The Accelerated Benefits Amount {(“Amount” ) will be determined when the Owner elects Accelerated Benefits. It will be determined as of the Election Date. The following factors may be used in the determination of the Amount: . the Cash Surrender Value of the policy or rider; and future premiums payable under the policy or rider; and future expected lifetime of the Insured; and . any administrative fee assessed; and . the Accelerated Benefits Interest Rate in effect. WR WN We will declare the Accelerated Benefits Interest Rate. It will not exceed the greater of: 4. the yield on 90-day U.S. Treasury Bills on the Election Date; and 2. the maximum adjustable policy loan interest rate allowed by law on the Election Date. The Amount will be paid in one lump sum. We reserve the right to set 2 maximum amount that we will pay under this and any other Accelerated Benefits Rider on the life of any insured person. If we do so, it will be no less than $500, nop. ; Life Insurance Company of the Southwest Adcepsieoneivs Office: One National Life Drive * Montpelier, Vermont 05604 * {800} 732-8939 8052(0798) Home Off ice: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 1 wk, Fury, ELECTION “PARTIAL ELECTION "TERMINAL ILLNESS PHYSICIAN Under a Full Election, the Amount will be paid in lieu of any future death benefit under this policy or rider. The Amount must first be applied to pay all debt to us on this policy or rider. The policy or rider to which this rider is attached will terminate on the Election Date. Under a Partial Election, the Amount will be paid in lieu of a portion of any future death benefit payable under this policy or rider. The Amount must first be applied on a pro rata share of any outstanding debt to us on this policy. A pro rata share of such debt will remain. The debt will be reduced by the percentage of the death benefit accelerated. The portion of the life insurance coverage that remains in force must not be less than our minimum issue limit for this plan of insurance. The new premiums and charges for the remaining portion will be as if the contract had been originally issued at the reduced amount. Accelerated Benefits can be elected only if the Insured is Terminally Il. Terminally Ii] means that the Insured under this rider has been certified by a- Physician as having an illness or chronic condition which can reasonably be expected to result in death in 24 months or less from the date of certification. A Physician is a duly licensed medical Physician who is recognized by the law of the state in which treatment is received. Physician does not include the Owner, _ the Insured, or a member of the Owner or the Insuted’s immediate families. DISPOSITION OF AppDED BENEFIT RIDERS Upon a Full Election, all riders attached to the policy will terminate as if the Insured had died on the election date. Upon a Partial Election, all riders will continue to be effective subject to the terms and conditions of each rider. Upon a Full Election or Accelerated Benefits for coverage under an Other Insured Rider, all riders providing additional benefits to the Other Insured will terminate as if the Other Insured had died on the election date. The policy and. all other attached riders will continue to be in force and effective subject to the terms and-conditions of the policy and the other riders. Life Insurance Company of the Southwest : Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8052(0798) Page.2 Upon a Partial Election of Accelerated Benefits for coverage under an Other Insured Rider, the policy and all the attached riders will continue to be in force and effective subject to the terms and conditions of the policy and the other tiders. - ELECTION DATE The Election Date is the date that the Application for Election of Accelerated Benefits is signed by the Owner of this policy. ELECTION To elect Accelerated Benefits, the Owner must complete an Application ‘for . Election of Accelerated Benefits. We. will provide this Application at the Owner’s request. The Owner must provide us with the written consent of any assignee and any irrevocable beneficiaries. We may request that the contract accompany the Application to our Administrative Office. : LEGAL REQUIREMENTS If the Owner is required by law to elect Accelerated Benefits to meet the claims of creditors, whether in bankruptcy or otherwise, Accelerated Benefits will not be available. ; If the Owner is required by a government agency to elect Accelerated Benefits to apply for, obtain, or keep a government benefit or entitlement, Accelerated Benefits will not be available. INCONTESTABILITY This rider is contestable on the same basis as the policy or rider to which it is attached. | PROOF OF TERMINAL ILLNESS We must receive written proof satisfactory to us that the Insured is Terminally Il. Such written proof must include.a statement from a Physician certifying that the Insured is Terminally Ill. We have the right to have the Insured examined by a physician of our own choice when and as often as we may reasonably require while an election of Accelerated Benefits is pending. Such examination will be made at our expense. Life Insurance Company of the Southwest National Life. Drive * Montpelier, Vermont 05604 * {800} 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 3 Administrative Office: One 8052(0798) TERMINATION OF ACCELERATED BENEFIT FOR EACH INSURED Coverage for each Insured under this rider shall terminate on the earliest of: 4. the Election Date for Accelerated Benefits of the Insured; or 2. the date the life coverage for the Insured terminates; or 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate the Insured’s coverage under this rider. TERMINATION OF RIDER This entire rider shall terminate on the earliest of 1. the Election Date for Accelerated Benefits of the last remaining covered Insured; or 2. the date the policy terminates; or . 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate this rider. EFFECTIVE DaTE The Effective Date of this rider is the policy’s Date of Issue or Other Insured Rider’s Effective Date unless a later date is shown in the policy’s Data Section. Qacgue cium (erie Secretary Life Insurance Company of the Southwest . Administrative Office: One National Life Drive * Montpelier, Vermant 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8052(6798} . Page 4. ACCELERATED BENEFITS RIDER 2 This rider adds benefits to your policy. It is issued in consideration of the application and your request for coverage. There is no additional cost for this benefit. BENEFITS TAXATION ACCELERATED BENEFITS AMOUNT We will pay the Accélerated Benefits Amount to the Owner during the lifetime of the Insured. Such benefit will be paid: 1. upon election by the Owner; and 2. in lieu of payment of ‘the full death benefit of the policy or Other Insured Rider upon death of the Insured; and 3. subject to the terms of this rider. The Accelerated Benefits provided under this rider may or may not qualify for favorable tax treatment under the Internal Revenue Code. Benefits that are used to pay for qualified long-term care services may qualify for favorable tax treatment. Certain benefits not exceeding a per diem limit specified in the internal Revenue Code may also qualify for favorable tax treatment. Accelerated Benefits that qualify for favorable tax treatment will be excludable from your income and not subject to federal taxation. Tax laws relating to Accelerated Benefits are complex. You are advised to consult with a qualified tax advisor about circumstances under which you could receive Accelerated Benefits excludable from income under federal law. The Accelerated Benefits Amount {“Amount” } will be determined when the Owner elects Accelerated Benefits. ft will be determined as of each Election Date. The following factors may be used in the determination of the Amount: . The Death Benefit accelerated; and . the Cash Surrender Value of the policy or rider; and . future premiums payable under the policy or rider; and _ future expected lifetime of the Insured; and any administrative fee assessed; and ; . the Accelerated Benefits Interest Rate in effect. DAD wp ps Each Amount will be paid in a lump sum. Life Insurance Company of the Southwest Administrative Office ice: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 © 8095(0399) _ Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 1 ACCELERATED BENEFITS INTEREST. RATE - We will declare the Accelerated Benefits Interest Rate. It will not exceed the preater of: 1. the yield on 90-day U.S. Treasury Bills on the Election Date; and 2, the maximum adjustable policy foan interest rate allowed by lew on each Election Date. MAXIMUM BENEFITS AMOUNT The maximum Death Benefit accelerated in any year is the lesser of 24% of the life insurance coverage on the initial Election Date or $240,000. This amount is . prorated over other periods of time for either Periodic or Final Elections. We reserve the right to set a maximum amount that we will pay under this and any other Accelerated Benefits Rider on the life of any insured person. If we do so, it will be no less than $500,000. PERIODIC ELECTIONS Under a Periodic Election, the Amount will be paid in lieu of a portion of any foture death benefit payable under this policy or rider. Periodic elections can not be made more frequently than ence each month. The Amount must first be applied on a pro rata share of any outstanding debe to us on this policy. A pro rata share of such debt will remain. If applicable, the Cash Value, Cash Surrender Value, Accumulated Value, and Surrender Charge will also be reduced by the percentage of the death benefit accelerated. ‘The portion of the life insurance coverage that remains in force may. be less than our minimum issue limit for this plan of insurance. The new premiums and charges for the remaining portion will be as if the contract had been originally issued at the reduced amount. . Frvaz ELEctTIon © Under a Final Election, the Amount will be paid in lieu of any remaining foture death benefit under this policy or rider. The Amount must first be applied to pay all debt to us on this policy or rider. The policy or rider to which this rider is attached will terminate on the Election Date. Life Insurance Comparry of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * {800} 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 2 8095(0399) CHRONICALLY ILL LICENSED HEALTH CARE PRACTITIONER LIMITATION ON PAYMENTS Accelerated Benefits can be elected under this rider only if the Insured is Chronically Hl. Chronically Ill means that the Insured has been certified, within the last 12 months, by 2 Licensed Health Care Practitioner as: 1. being unable to perform (without substantial assistance from another person) at least two Activities of Daily Living for a period of at least 90 consecutive days; or 2. requiring substantial supervision for a period of at least 90 consecutive days by another person to protect oneself from threats to health and safety due to Severe Cognitive Impairment. Activities of Daily Living are bathing, continence, dressing, eating, toileting, and transferring. © Severe Cognitive Impairment-means deterioration or loss in intellectual capacity that is measured by clinical evidence and standardized tests which reliably measure impairment in: 1. short-term or long-term memory; or 2. orientation to people, places, or time; or 3. deductive or abstract reasoning. A Licensed Health Care Practitioner is a duly licensed medical Physician, a registered professional nurse, or a licensed social worker and does not include the Owner, the Insured, or a member of the Owner or Insured’s immediate families. “Immediate Family” means a child, spouse, parent, grandparent, or grandchild of the Licensed Health Care Practitioner. During the first two years that this rider is in effect, we will not accept an Application for Election of Accelerated Benefits under this rider. Benefits will not be available under this rider if the Insured is eligible for Accelerated Benefits under another rider. Life Insurance Comparry of the Southwest Administrative Office: One National Life Drive * Martpelier, Vermont 05604 * (800} 732-8939 8095(0399) Home Office: 1300 West Mockingbird Lane * Datlas, Texas 75247 Page 3 of. 99... Page ID. #177 DISPOSITION OF AppbeED BENEFIT RIDERS Exection DATE ELECTION LEGAL REQUIREMENTS INCONTESTABILITY Upon 2 Periodic Election, all riders will continue to be effective subject to the terms and conditions of each rider. : Upon a Fina! Election, all riders attached to the policy will terminate as if the Insured had died on the election date. Upon a Periodic Election of Accelerated Benefits for coverage under an Other Insured Rider, the policy and all the attached riders will continue to be in force and effective ageet to the terms and conditions of the policy and the other riders. Upon a Final Blection of Accelerated Benefits for coverage under an Other Insured Rider, all riders providing additional benefits to the Other Insured will terminate as if the Other Insured had died on the election date. The policy and all the other attached riders will continue to be in force and effective subject to the terms and conditions of the policy and the other riders. The Election Date is the date that the Application for Election of Accelerated Benefits is signed by the Owner of this policy. To elect Accelerated Benefits, the Owner must complete an Application for Election of Accelerated Benefits. We will provide this Application at the Owner’s request. The Owner must provide us with the written consent of any assignee and any irrevocable beneficiaries. We may request that the contract accompany the Application to our Administrative Office. if the Owner is required by law to elect Accelerated Benefits to meet the claims of creditors, whether in bankruptcy or otherwise, Accelerated Benefits will not be available. . If the Owner is required by a government agency to elect Accelerated Benefits to apply for, obtain, or keep a government benefit or entitlement, Accelerated Benefits will not be available. This rider is deaiseatat on the same ‘Basis as the policy « of rider to which it is attached. . Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8095(0399) Page 4 PROOF OF CHRONIGALLY ILL We must receive written proof satisfactory to us that the Insured is Chronically ii, Such written proof must include a statement from a Licensed Health Care . Practitioner certifying that the Insured is Chronically Ili. We have the right to have the Insured examined by a Licensed Health Care Practitioner of our own choice when and as often as we may reasonably require while an election of Accelerated Benefits is pending. Such examinations will be made at our expense. TERMINATION OF ACCELERATED BENEFITS FOR Eacu INSURED Coverage for each Insured under this rider shall terminate on the earliest of: 4. the Final Blection Date for Accelerated Benefits of the Insured; or 2. the date the life coverage for the Insured terminates; or 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate the Insured’s coverage under this rider. TERMINATION OF RIDER This entire rider shall terminate on the earliest of: 1. the Final Election Date for Accelerated Benefits of the last remaining covered Insured; or 2. the date the policy terminates; or 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate this rider. EFFrective DATE The Effective Date of this rider is the policy’s Date of Issue or Other Insured Rider’s Effective Date unless a later date is shown in the policy’s Data Section. Qacgue ne Aart Secretary Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home: Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8095(0393} Page 5 SECTION ACCELERATED BENEFITS RIDER 3 Benefits Taxation Accelerated Benefits Amount Accelerated Beriefits Interest Rate Qualifying Event Maximum Death Benefit That May Be Accelerated ; Limitation on Payments | Claims , Full Election Partial Election Disposition of Added Benefit Riders Election Date Election _ Legal Requirements Incontestability Termination of Accelerated Benefits for Each Insured Termination of Rider Effective Date PAGE 1 1 1 2 2. Ann Aw he Bw Ww nA nN ACCELERATED BENEFITS RIDER 3 This idee adds benefits to your policy. It is issued in consideration of the application and your request for coverage. There is no additional cost for this benefit. BENEFITS We will pay the Accelerated Benefits Amount to the Owner during the lifetime of the Insured. Such benefit will be paid: 1. upon election by the Owner; and 2. in lieu of payment of the full death benefit of the policy or Other Insured Rider upon death of the Insured; and 3. subject to the terms of this rider. TAXATION The Accelerated Benefits provided under this rider may or may not be taxable. Tax laws relating to Accelerated Benefits are complex. You are advised to consult with a qualified tax advisor regarding the tax treatment of any benefit paid under this rider. ACCELERATED BENEFITs AMOUNT The Accelerated Benefits Amount (“Amount” ) will be determined by us when the Owner files a claim for Accelerated Benefits. It will be determined as of each Election Date. The following factors may be used by us in the determination of the Amount: the Death Benefit accelerated; and the Cash Surrender Value of the policy or rider; and future premiums payable under the policy or rider; and our assessment of the future expected lifetime of the Insured; and any administrative fee assessed; and . the Accelerated Benefits Interest Rate in effect. Sta BG Each Amount will be paid in a lump sum. The Amount paid will never exceed the Death Benefit accelerated. It will never be less than the Cash Surrender Value, if any, corresponding to the portion of the Death Benefit accelerated. iif aes Company of the Southwest Administrative Office ce: One National Life Drive * Montpelier, Vermont 05604 * {800} 732-8939 Home Office: 1300 West ———— Lane * Dallas, Texas 7§247 Page i $165{0703) thy, aati, ACCELERATED BENEFITS INTEREST RATE We will declare the Accelerated Benefits Interest Rare. Ir will not exceed the greater of 1. the yield on 90-day U.S. Treasury Bills on the Election Date; and ; 2. the maximum adjustable policy loan interest rate allowed by law on each Election Date. QUALIFYING EVENT An Accelerated Benefit can he elected under this rider only if the Insured experiences a Qualifying Event covered under this rider while the policy and this rider are in force. The Qualifying Events covered under this rider are: : 1. Heart Attack (myocardial infarction) - The death of a portion of the heart muscle resulting from inadequate blood supply to the relevant area. Heart Attack does not-include angina or the chance finding of electrocardiographic (EKG) changes indicative of a previous heart attack. The diagnosis of Heart Attack must be based on the presence of all of the following: a) Chest pain; b) Associated new EKG changes which support the diagnosis; and c}) Elevation of cardiac (heart) enzymes above standard laboratory levels. 2. Stroke - A cerebrovascular accident or infarction (death) of brain tissue caused by hemorrhage, embolism, or thrombosis lasting more than 24 hours and producing measurable neurological deficit which persists for at least 30 consecutive days following the occurrence of the Stroke. Stroke does not include transient ischernic attacks. 3. Diagnosis of Cancer. Cancer means a disease manifested by the presence of one or more malignant tumors and characterized by the uncontrolled growth and spread of malignant cells and the invasion of normal tissue. Cancer does not inchades a) Any skin cancer, except invasive malignant melanoma into the dermis or deeper} b) Pre-malignant lesions, benign rumors, or polyps; and — c} Carcinoma in-situ. 4, Diagnosis of End Stage Renal Failure. End Stage Renal Failure means the irreversible and total failure of both kidneys which requires the undergoing of renal transplantation or regular renal dialysis, _ Life Insurance Contparry of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8165(0703) Page 2 MaxImMuM DEATH BENEFIT THAT May Be ACCELERATED LIMITATION ON PAYMENTS 5. Major Organ Transplant - The receipt by transplant of any of the following organs or tissues: heart, hang, liver, kidney, pancreas, or bone marrow. . : , 6. Diagnosis of ALS(Amyotrophic Lateral Sclerosis) by a qualified Physician. 7. Blindness - The total and permanent loss of sight in both eyes asa result of disease or injury. Total loss of sight in an eye is defined as corrected vision of 20/200 or worse. The Owner may elect to accelerate alf or a portion of the Insured’s Death Benefit in force under the policy on the Election Date. We reserve the right fo set a maximum death benefit that may be accelerated under this and any other Accelerated Benefits Rider on the life of any insured person. If we do so, it will be no less than $500,000. No Accelerated Benefit will be paid under this rider for any Qualifying Event that occurs on or before the 30th day following the effective date of this rider unless such Qualifying Event directly resulted from accidental injury. No Accelerated Benefit will be paid under this rider for any Qualifying Event that directly results from self-inflicted injury or attempted suicide. Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8165(0703) Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 Page 3 CLAIMS Fu. ELECTION PARTIAL ELECTION You must send us a written request to file a claim under this rider utilizing a form provided by us. Any claim for benefits for a given Qualifying Event must he filed within 365 days following the occurrence of such Qualifying Event. Before any benefit can be paid under this rider, you must furnish us with written proof satisfactory to us that the Insured has experienced a Qualifying Event covered under this rider. Such proof will include but not be limited to: 1. A certification from a Physician that the Insured has experienced a Qualifying Event covered under this rider; and 2. Complete records of the Insured’s medical history, diagnoses, and treatments, We have the right to have the Insured examined by 2 Physician of our own choice when and as often as we may reasonably require while a claim for Accelerated Benefits is pending. Such examinations will be made at our expense. Physician means a doctor of medicine or osteopathy, practicing within the scope of his or her license issued by the jurisdiction in the United States of America in which his or her services are rendered. Physician does not include the Owner, the Insured, or a member of the Owner’s or the Insured’s Immediate ‘Families. Immediate Family means a person’s parents, stepparents, grandparents, spouse, children (adopted, natural, or step), siblings, grandchildren, or in-laws. Under a Full Election, the Amount will be paid in lien of any future death benefit under this policy or rider. The Amount must first be applied to pay all debt to us on this -policy or rider. The policy or rider to which this rider is attached will rerminate on the Election Date. Under a Partial Election, the Amount will be’ paid in lieu of a portion of any foture death benefit payable under this policy or rider. The Amount must first be applied to pay a pro rata share of any outstanding debt to us on this policy. Upon a Partial Election, the Insured’s life insurance Face Amount or Coverage Amount, and if applicable, the Cash Value, Cash Surrender Value, Accumulated Value, Surrender Charge, and outstanding debt under the policy will be reduced in the same proportion as the reduction in the Insured’s death benefit. > The portion of the life insurance coverage that remains in force may be less than our minimum issue limit for this plan of insurance. The new premiums and charges for the remaining portion will be as if the contract had been originally issued at the reduced amount. Life Insurance Company of the Southwest ; Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800} 732-8939 Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 8365(0703} Page 4 Ns DISPOSITION OF ADDED BENEFIT RIDERS ELECTION DATE ELECTION LEGAL REQUIREMENTS INCONTESTABILITY Upon a Partial Election, all riders will continue to be effective subject to the terms and conditions of each rider. Hf the Insured is eligible for periodic elections of Accelerated Benefits under another rider, the maximum death benefit that may be accelerated under future periodic elections under such other rider will be reduced in the same proportion as the reduction in the Insured’s death benefit upon a Partial Election of benefits under this rider. Upon a Full Election, all riders attached to the policy will terminate as if the Insured had died on the Election Date. ; The Election Date is the date that the Application for Election of Accelerated Benefits is sigued by the Owner of this policy. To elect Accelerated Benefits, the Owner must complete an Application for Election of Accelerated Benefits. We will provide this Application to the Owner once we determine that Accelerated Benefits are payable under this rider. To elect Accelerated Benefits, the Owner must complete this Application and return . it to us within 60 days following its receipt. The Owner must provide us with the written consent of any assignee and any irrevocable beneficiaries. We may request that the contract accompany the Application to our Administrative Office. If the Owner is required by law to elect Accelerated Benefits to meet the claims of creditors, whether in bankruptcy or otherwise, Accelerated Benefits will not be available. ¥f the Owner is required bya government agency to elect Accelerated Benefits to apply for, obtain, or keep a government benefit or entitlement, Accelerated Benefits will not be available. This rider is contestable on the same basis as the policy or rider to which it is attached. : , Life Insurance Company of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800) 732-8939 8165(0703} ” Home Office: 1300 West Mockingbird Lane * Dallas, Texas 75247 ; Page S Home Office: 1300 West Mockingbird Lane * Dalias, Texas 75247 ‘TERMINATION OF ACCELERATED © BENEFITS FOR EACH INSURED Coverage for each Insured under this rider shall terminate on the earliest of 1. the Full Election Date for Accelerated Benefits of the Insured; ot 2. the date the life coverage for the Insured terminates; or 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate the Insured’s coverage under this rider. TERMINATION OF RIDER This entire rider shall terminate on the earliest of: 1. the Pull Election Date for Accelerated Benefits of the last remaining covered Insured: or ~ 2. the.date the policy terminates; or 3. the Monthly Policy Date following our receipt of the Owner’s written request to terminate this cider. EFFECTIVE DATE The Effective Date of this rider is the policy’s Date of Issue or Other Insured Rider’s Effective Date unless a later date is shown in the policy’s Data Section. Life Insurance Compary of the Southwest Administrative Office: One National Life Drive * Montpelier, Vermont 05604 * (800} 732-8939 3165(0703) Page 6 ~~ --Case-2:10-cv-09198-JVS-JDE- Document 5-1 Filed 10/29/10 Page 78 of 99 Page ID #:187 ‘EXHIBIT “B :.. Gase:2:10-ev-09198-JVS-JDE... Document.5-1__ Filed 10/29/10 -Page 79 of 99 Page 1ID-#:188- - LIFE AND ACCIDENT AND HEALTH COMPANIES . ASSOCIATION EDITION , ERE ANNUAL STATEMENT For the Year Ended Decembér 34, 2009 of ine Condition ard Affairs of the Life Insurance Company of the S outhwest — NAIC Group Cede....534, 634 NAIC Company Code... 65528 Employer's ID Nureber... 76-6953004 (Cosrent Period) (Por Pesce} : : ; Onganized under the Laws of Taxes State of Domicile or Port of Enky Texas Country oi Domicile US Incemporated/Organized..... March 7, 1955 Commenced Business... January 2, 1956 Statutory Home Office 1300 West Mockingbird Lane... Ballas. TX... 5247-402 - {Stectand Number} == [GBy ce Town, Stale ond Zip Cod) . Main Administativa Office 4300 West Mockingbird Lano..... Dalles _.. FX... S2ATAG21 214-638-7100 ; {Seat and Nembar) ~ {CBy ar Town, Sint ant Zp Cod} fare Coda) {Telephone Numted Matt Address P.O. Box 589080... Dallas... TX ..... PS3S6-H) ; (Steet and Numbers P.O, 20x} Ckyer Town, Siete and Zin Code) Primary Location ef Books and Records © 1210 West Mockingbird Lare,.... Dallas ... IX... 2474021. AAR {Stestend Number} (Ry ar Town, Stale and Zp One} tira Coda} (Teiopihona Number} laternat Web Ste Address veo Heofsouthweat.com Statutory Statement Contact Michele Renee Holltield Fg-B38-335 ; (rea Cade} {Tetephone Santer) Extensian} reholiifisii@netionalife.com ZiAE S140 EMail Adtresg} fPax Sumber} : OFFICERS. Nama Tile Rame - Bees 1. Wade Hampton Maya Fresziert & CEO 2 Jacque Lyon Cretord Secretary 3. Robdaxt Earl Cotten . ‘Freesurer 4, Craig Alan Smith VP & Appoiniad Actuary OTHER Geektey Samuel Bid F Vice President Thomas Hyde Breernal Sr. YP & Chiat Investmant Officar Sregory Henry Barents St. Vico President Maryann {ama} Elke Vive Prosiisnt Sichole Susan Satis Sxeoutive Vico President Jaycee RoomLaRosa # - Vice President Eric {(rann} Lopez Vice President Carl Jeseph Lutz Exucutive Vico President ‘Egeabeth Hil MacGowan Vice President” Donald Pad Messer # Vice Prosidant Etheard Jones Pany tt Executive Vice President Rusth Barra Smith Sr. Vise Presitert Misheel Cusran Ward Vico President Keith Willam Young ‘Vico President DIRECTORS OR TRUSTEES Hehran{nmn) Assadi ‘Thomas Hyde Brownell Cari Josaph Lutz Exkvand Jones Pasty Ht Wade Herspton Mayo Stafecf... Taxes Countyol.. Ballas Tha officers ¢f this reporting entity being duly seom, each dapose ard aay that thay ar tie deeedbed officers of sald aporting entity, and that on the reparfing perad stated above, all of he herein descdbed assets ware the absolute property of the said reporting entity, fee and cleer from any leas or claints heraon, except as herein stated, and thet this datement, ingether wih slated exhibits, schedules aad explanations therein covlained, annexad or toferted fp, is a fal and tue statement of sf the assets end flabiifies and of the condition anc affalts of the said reporting entity as of the reporting periad stated above, and of its Income and deductions therefrom for the peried ended, and have been completed in accordance witt the NAIC Annval Sistamect instucdons and Accounting Practices and Procedures’ acral except is the extent frat: {1} stele law may difer; ef, {2} thal stele mutes of requiations saquive dtferanees in reporting act selaisd fo acowunting prastioas and procedures, according to tha hast of thalr isformation, knowledge and belief, respectively, Fialhermore, the scope of this attestation by the described officers also ingiudes the related corresponding electronic filing with the NAIC, whan mepiired, that is an exact copy {axcani for formating differences dhe io electronic Bing) af the encosad slatemant. The electronic fing may be requested by various reguiators in feu of or in adiiten to the enclosed sixtemenL iSignetze) : Signature} - — Sigretee} Wade Hampton dfayo daca Lynn Crewtord Robe Fad Coton 4. Prated Nama} 2. Priabed Nas} 3, FretedHanes - President & CEO Secretary Traswrar (gp {ite} 3 (Filg} Subsosbed spd satin to Belpre ra a, 1s this sn csiginal fling? . Yes |X} Nof j This day of 20 & Hine 4, State tha amendment number Case 2:10-cv-09198-JVS-JDE Document'5-1 Filed 10/29/10 Page 80 of 99 Page ID #:189 ° Aniitomineewaote Life insurance Company of the Southwest i hp apes spats raps Adit Asal Bonds (Schedule Diesen sila hi ces ciesrsaepaissa neh tiseasasinsnsiines Stacks (Schedute D}: SA Pretend SO 5 ohio nechcananleca aieattsidamsittlannsitaat 22 COPEIOR SOS erence nrneeeernmnervan nein neumnrnnencunnscaniione misintanitenionnes 3 Morigage bans on axat estals Schedu's 5): ; BA FESR tenons 92 Otherthan S50end enue “& Realactetn (Schadkie Ar _ Ai Properins occupied by lhe company fless $0 SPOUMDIENCES) naenonnnains 42 Properties holt ter the production of Income feos 5.....8 DECIDE ir cas wan cic crac dtinoicsecand acinar oasis 43. Propories held er sela fess 3... encumbrances) ne nnennnnel. S. Cash {@....(6.097,561}, Sch. E-Patt 1}, cash equivelenta &..99,03,599, Sch, &-Part2} and shertdoms imesiments (5.35, 7703, Sh. DAR nn ennnnse & Contrast loans fincloding $0 premiums ORS} a nnn nennnnnnennvenrneirnn ners 7. Cthordwasted assets (Schedule BA). eeu nnneeannnie noe nmennnene 8, Renelvablas For sects em ie netseenci sangtioe eetentnsnenitennveene i) mt rary ote td (ined hr eePhnt Raley HERAE RON seimengore rns DS SO4 EST movnenrnes 1G S35, TES nnn 108, 192, 182 +0. Subzntsts, cash and invesiad assets neg 140 9) en neers 44, Tite plants lose $____0 charged off for Tite newer Gfly) en nnonennnnrenninen 42. lnvestnent inowme-cs and ScetHeth. npn nenmnrane Poetbdtedesnabansbef detedt Regattas he 3, Premiums and consklerations: 43.3 Uncollected premiums and agents’ balances in course of callectiog. wns #2 Dalemad premluma, agents’ balances and insisiiments booked but deferred ard not yet doe (includleg $.......0 earmied bui unbiied premiurng} a nnronee 43.3 Accued retossective Dremlums ee cnnnecestrneenrtemnennnnnninnenamnpe 14, Relsumnea: 44.4 Amounts recoverable from relasntets on penance nnenroninsmmmeanmniammanune | rennescraranann Ted tt rena eares en AE 1 TE $4.2 Sunds held by or deposed lth nelnsued COM GAMES enn eneneerenennernnae| ernannnrnened 72825 1 | pena nnnn 22,828 44.3 Oneramounts necehabla andes relents LOAVEOS ennninnaaninecernese : : Ee] ERRER ROR, 3] SORE 15, Amounts receivable mlating ts uninsured plans ee enn ne nner 46.1 Current ederal and fovelge Income tox recnverable and interest thee nuneneenum 16.2 Het deferred fox A856b nenmmiurmesmeineeninmnsennnenunmyrcisamns sesame | 2 47. Qoseandy fonds recelvabia or on Gepost nine snerenumnien menennmpneiiimene 4B, Electroniodate processing equipment and SoMEFC.n cecum en ete ences freer en 89-259 19, Fiemfur and anainment, inducing health ore dadvery ceca ee Pe eeenrmeennnen 2 BSS 20, Not edjesiment in assets and Habiities due to foreleps exrhanga FaleSeeennennecnsee {on 24. Receivables trom parent, subsidlaiies apd alates — nan nnm ane nmeenorne f nmrnaee cB SB AG2 22 Health care ($0) ead ather smounts Tecahabl2.manennienninannarvronrant narnia 5 ST,002 23. Aggregate wite irs fee otter Bhan Invested 268089. a—-vnnarnnnmernanourrnnen enancrnat 428,205 | 24, ‘Total assets exctaiing Separate Accounts, Segregated Aceouns aad Proteciad Call Accounts filers 10) 45 23} a ree mrcnereriernee nc ne nena ninue ne Rena nee 2. From Separate Accounts, Segregated Accounts and Protected Cel AcegUIS oman. 2._ TOTALS {Linas 24 ard 25 win arnt ns ncnimandensnrnnsncmranmr anak mivinnnnna| anne Leo aT ATS : DEVSI.9 OF WRITEINS omen en B79 FEO 82 erinaninad SOFT ever OF DS HE 22 SAT PES 5] anno iB, 25D 581,773 nee Raa pang aaa C804, Sax options - forty SOSHIORS . wreeemenceisenenmeecrncrars rrcemer reesei HOR, FSR A RE ase ar enti css btti sneha shins sccerntereennreeseenncermmerinried POSTS, CDS Bok Wait Ae ncn neenenesenreraterseenanarncnansunsranetventbevettersatetsmannerineteh CaS, eenete remaireng wate-ins for Line S trom averiow PBR aneveverrenarennarsncananinsse treme Mahushssrer teerasatiehons anarareen nnernnaredt Case 2:10-cv-09198-JVS-JDF Document 5-1: Filed 10/29/10 Page 81-0f 99 Page ID #:190 - ji aiiacccceas Life Insurance Company of the Scuthwest : LIABILITIES. SURPLUS AND OTHER FUNDS —_ 7. Aggregate teense for Be ecnizacts $7,104,045 854 (exhibit 5, Line 56996003 focs $F Included in Line 6.5 Gaiduding 3... 882,208 Modo RES61V8bwnenn ausinnnennnmennnnnnnnennatnmnnmnrtinnmsnnn | mmaarunnnid JEG EOS | moet nnd SISA SO Aggregste raserve Sox accent and heath contiacts (Exhibits, Line 17, Col 1] fineinding 3._._6 Mode Reser. We TET AGS | penenn-nnemnnnenn TOOTS Liahity ior deposit-type canizacts (ExBR 7, Une 14, Col, £) fineluding $2 Modo Rese ¥a an emnnnnnmnenniine pararsnipmcsoann SD PST AUG | arceeinenernnenen $E96 OF Contac caine: 43 Lie Exhibit &, Port 1, He 4.4, Col 1 Jess summa? Gols. %, 10nd 19}. nnn nntenerenete nat stat stent ies enn panes nse SE TEE 42 Anddent anc hoslth (Euhiba 8, Part 1, Line 4.4, sumot Cals. 9, 0 and 19) ne er neeenrenricenminmennin | sensetnmetnnstnnZ$ SO 5, Polleghokden' dividends $___._.0 and couperts $___0 due and unpaid (200084, Line 10) ee 5, Provision for poficyhokisry’ dividends and coupons payable in iojowng celendar year - estimated emounis: 4 OlSdends apporianed for payment fisckiciag $F MOEap nrmecesrnnuninrenensrmuns eines canines cas cacscataacad sence 62 Dividends not yat apportioned tinedigting $8 Ca One nena er amnon etree cian oeeinincncnall anda 35 Coupons and singer benafils Gneluding $0 MOST) a arene nee nen annnentinetenaieninaiaemnmasanspennennentnns 7. Amust provisionally hel der devecred digend poliies not includ bt INE 6 nnn mann ncions nen eernernenee 8 Premaons and ennuly considerations for iis snd accident and heatth contracts meshed 1 advares estS. 8 ékeoenf, Syeluding $1,555 accdent and health pemiurs (Exhiba 1, Part 4, Col 4, sum of Les 4 ad Hee %. Contract labilities not inetudad eisewhere: SE Surrender yaloes on raced CONG CES necrae mentee nen reteset rae eehutnee thereto on tne ded 2.2 Prndsloe for-experience rating refimds, neuding $_____0 ancklent and health experience rating refs mewn | 93 Other ameonts payable on rmemezonce, inckaling $f sseumeed and $0 2d nnn meemnmenrnminnrtataefnavin ” 94 infarest Melnfenance Reserve GAR, Ling Bp a ateeenteinaneenenennnatattatatteat edna “40, ‘Comendssinns fo agers dive or acersed - life apd annelly contracts $__ 255,006, eceident and heath $._.8 ead deposit-type contaci funds $8... 14. Comsiseions and expanse alowenves payshie on reinsufenca 235024 ene 2 Generel expenses due or accrued {Exnibd 2, tna 12, Col. SL. 13. Transfers to Separate Accounts due or acorued {ref} Groluding $0 acomed Sr engense algwances ranognized in reserves, net of rainsured allawencas} 44, Taos, Ecenses and fees dus or acormed, axthiding Rdaral income fares (Exiaba 3, Line $08, 5p aro ommnnene mene mess 45.1 Curent lederal and foreign Income taves, retudng $,......) en tedlized capital gains $o9s26} neve mnietrrtroiminm 15.2 Netdefered tax Bablity.... 49. Uinesmad Invesimant Iecr 8. en nr nine caren nama neneiemeneerenchmeneterenvereiny tant henge taunenenenementnonee 47, Ameunts wahheld or setained by company as agart OF SUSAR ce nenenen cin mrnmitinreiminaes mpene crunenenenennne erenceemevemernd 18. Amaunis held ez agents ecouant, including $......d agents’ cred Dalerieta oo en nnenneneinmennaamneartnes | aspen cenanmaen Abad BT 49. Ramiftancas and Hews met 2890080 eece ney nueetineeeecreineennieadee tines mutnis mines aan unatstustamnermiaran snenacrreuneireencrsean | ecnmeoanmnans tt FOC |. 20, Mefadiustment ln-asects and fabilities dum 2 foralign chee GIES annem erntvntninstetnniaeseretersnemeiin ue atom nee xe peered eee nai adeinanetnin imate teal he Ret Bop MPs es berms pan nt, AE AEN PA IS HSU pT Fhe aR NL Hat NR rk 23. Miscetancous lishilies: 24,3 Assetyatvaton reserve {AVR Line 18, Col. 7}... 28.2 Remsurance in pecnsthorined Conyers none monenemsncrtestinn eaten ctaeannpnemacanaannrmtnr mares umemincimimessenttes | vemetenmarnmrtstarmmattrtata nurs netaninnanenteeerciminnanrenaanntctrnstansnstanwnenainerres | acanlebaripaiet mts AOE OES 24.3 Funds held under relnourance feates with unaatrorized relnsurers —nnnennmernsmiennteerenmion Casein suntan ail cciassamaitin Od SA | 24.4 Payable ts parent, stcbsidindas and afiiates.. jcptilaaniansia nisennin pit ies iets named 24.5 Drafts cubtesding. ne an astanabsnuhaet anapinsapemsgametapals hire nto bet 246 Lsbidy far amounts held ander uninsored plane... indecision cs mt mio sore cisiocnaniriaiata plac ot a7 ; nen TORE, ‘Tela Habits excluding Seperate Accounts business £5088 1 12 28h ennenncnnme nounnmmenrinamnnriwnctasinoa tent A From Separate Aooounts S14 re6ith an ann ernrensnsnnen nnsesnoun ninsh monennni mre rensnrasenentenhtedyteitnttineluteentnt aioe Scaa al “Total Rabilfies (Ene 2B.and 27} nee panenernenscinnnsnunnemanmnnninannimansnaneassomennunnininntmenemnememnennrns| sen 1T 520203 | Prabared RO etn serntner tnveteotietptte pla bandt itt dents pin lente AN Aggmgete wstis-ns fer othes thon special sumplis finds. eee nen ia cas sates as ling pig pct cars ance cec camel fc aenin Serre rte een aesenrneneneey neem nennnemnge sarneenesermnnes saa Gross paidin and contitated seapius (Page, bine 34, Cal, 2 plus Page 4, Line $4.7, 208 fh neon ne | mene Agpregate arta-ina fer spack! suvplus Amis. eee earners i: eee Unassigned Sins daw pi re) aa nnennsnnncesneetnetencutunrdctenenstanssensunsettnan Pomerrene) rer wnnenn ETE IAD | Less inaasury stock, 2 cost : 3.1 ....8508 shares common frelua Incloded in Use 28 i cadets tacncenn tencaneae incase ab ioicinnaninmasisnccrnarin | Soca sien fe cineca 382 0200 shares preferred {value included ip Une 30 $0 nn eesnsnee nee manntancermatnntenmtenet pmrentststmtcre | mpetaeeetceniet tment | banengneNtash tetany on A47,334 S57 aa.nen nen Rwermrerworens stat tt