<PAGE> 1
1933 Act File No. 2-87072
1940 Act File No. 811-3875
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
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Post-Effective Amendment No. 16 X
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REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 14
SENTRY VARIABLE ACCOUNT II
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(Exact Name of Registrant)
SENTRY LIFE INSURANCE COMPANY
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(Name of Depositor)
1800 North Point Drive
Stevens Point, Wisconsin 54481
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(Address of Depositor's Executive Offices and Zip Code)
Telephone (715) 346-6000
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(Depositor's Telephone Number, Including Area Code)
William M. O'Reilly
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
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(Name and Address of Agent for Service)
Copy to:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
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X on May 1, 1996, pursuant to paragraph (b) of Rule 485
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60 days after filing pursuant to paragraph (a)(i) of Rule 485
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on (date) pursuant to paragraph (a)(i) of Rule 485
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If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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Pursuant to Investment Company Act Rule 24f-2 under the Investment Company Act
of 1940, the Registrant has registered an indefinite number or amount of
securities under the Securities Act of 1933. The Rule 24f-2 Notice for the
year ended December 31, 1995, was filed with the Securities and Exchange
Commission on or about February 27, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
(Required by Rule 495)
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
<S> <C>
PART A
1 Cover Page ................................................... Cover Page
2 Definitions .................................................. Definitions
3 Synopsis or Highlights ....................................... Synopsis
4 Condensed Financial Information .............................. Condensed Financial
Information
5 General Description or Registrant,
Depositor, and Portfolio Companies ........................... The Company; The Variable
Account; Neuberger & Berman
Advisers Management Trust
6 Deductions ................................................... Charges and Deductions
7 General Description of Variable
Annuity Contracts ............................................ The Contracts
8 Annuity Period ............................................... Annuity Provisions
9 Death Benefit ................................................ The Contracts; Annuity
Provisions
10 Purchases and Contract Value ................................. Purchases and Contract Value
11 Redemptions .................................................. Purchases and Contract Value
12 Taxes ........................................................ Taxes
13 Legal Proceedings ............................................ Legal Proceedings
14 Table of Contents of the Statement
of Additional Information .................................... Table of Contents of the
Statement of Additional
Information
PART B
15 Cover Page ................................................... Cover Page
16 Table of Contents ............................................ Table of Contents
17 General Information and History .............................. The Company
18 Services ..................................................... Not Applicable
19 Purchase of Securities Being Offered ......................... Not Applicable
20 Underwriters ................................................. Distribution of Contracts
21 Calculation of Performance Data .............................. Yield Calculation for Liquid
Asset Sub-Account
22 Annuity Payments ............................................. Amount of Annuity Payments
23 Financial Statements ......................................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement
<PAGE> 3
PART A
<PAGE> 4
Sentry Variable Account II
THE PATRIOT
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
APPLICATION AND PROSPECTUS
MAY 1, 1996
SENTRY LIFE INSURANCE COMPANY
<PAGE> 5
TABLE OF CONTENTS
PAGE
----
Definitions .................................................... 4
Synopsis ....................................................... 5
Fee Table ...................................................... 6
Condensed Financial Information ................................ 8
Yield Calculation for Liquid Asset Sub-Account ................. 8
Performance Information ........................................ 8
Financial Statements ........................................... 9
The Company .................................................... 9
The Variable Account ........................................... 9
Neuberger & Berman Advisers Management Trust ................... 9
AMT Liquid Asset Investments .................................. 9
AMT Growth Investments ........................................ 10
AMT Limited Maturity Bond Investments ......................... 10
AMT Balanced Investments ...................................... 10
Variable Account Voting Rights ................................ 10
Substitution of Securities .................................... 11
Charges and Deductions ......................................... 11
Contingent Deferred Sales Charge .............................. 11
Reduction or Elimination of Contingent Deferred Sales Charge .. 12
Deduction for Mortality and Expense Risk Premium .............. 12
Deduction for Contract Maintenance Charge ..................... 12
Deduction for Premium Taxes and Other Taxes ................... 13
Other Deductions and Charges .................................. 13
The Contracts .................................................. 13
Transfers ..................................................... 13
Change in Purchase Payments ................................... 14
No Default .................................................... 14
Modification of the Contract .................................. 14
Contract Value ................................................ 14
Ownership ..................................................... 14
Assignment .................................................... 15
Beneficiary ................................................... 15
Annuity Provisions ............................................. 15
Income Date and Settlement Option ............................. 15
Change in Income Date ......................................... 15
Change in Settlement Option ................................... 15
Settlement Options ............................................ 16
Mortality and Expense Guarantee ............................... 16
Frequency of Annuity Payments ................................. 16
Annuity Unit .................................................. 16
Amount of Annuity Payments .................................... 16
Additional Provisions ......................................... 17
2
<PAGE> 6
TABLE OF CONTENTS (CONTINUED)
PAGE
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Death Benefit ........................................................... 17
Death of the Annuitant ................................................. 17
Death of the Contract Owner ............................................ 17
Purchases and Contract Value ............................................ 18
Purchase Payments ...................................................... 18
Allocation of Net Purchase Payments .................................... 18
Accumulation Units ..................................................... 18
Distribution of Contracts .............................................. 19
Surrenders .............................................................. 19
Limitations on Withdrawals from 403(b) Annuities ....................... 19
Texas Optional Retirement Program ...................................... 20
Taxes ................................................................... 20
General ................................................................ 20
Diversification ........................................................ 20
Multiple Contracts ..................................................... 21
Contracts Owned by Other than Natural Persons .......................... 21
Tax Treatment of Assignments ........................................... 21
Income Tax Withholding ................................................. 22
Tax Treatment of Withdrawals - Non-Qualified Contracts and
Section 457 Contracts ................................................ 22
Qualified Plans ........................................................ 22
Tax Treatment of Withdrawals - Qualified Contracts ..................... 23
Tax Sheltered Annuities - Withdrawal Limitations ....................... 24
Section 457 - Deferred Compensation Plans .............................. 24
Legal Proceedings ....................................................... 24
Table of Contents of Statement of Additional Information ................ 25
3
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DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate
Contract Values prior to the Income Date.
ANNUITANT - The person upon whose continuation of life any annuity payment
involving life contingencies depends.
ANNUITY UNIT - An accounting unit of measure used to calculate annuity
payments after the Income Date.
COMPANY - Sentry Life Insurance Company at its Annuity Service Office.
CONTINGENT DEFERRED SALES CHARGE - The sales charge that may be applied
against amounts surrendered.
CONTINGENT OWNER - The Contingent Owner, if any, must be the spouse of the
Contract Owner named in the application.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of the
Contract.
CONTRACT OWNER - The Contract Owner is named in the application, unless
changed, and has all rights under the Contract.
CONTRACT VALUE - The dollar value as of any Valuation Date of all amounts
accumulated under the Contract.
CONTRACT YEAR - Any period of twelve (12) months commencing with the
Effective Date and each Contract Anniversary thereafter.
EFFECTIVE DATE - The date shown as the Effective Date on the Contract Data
Page of the Contract.
ELIGIBLE MUTUAL FUND - A mutual fund designated on the Contract Data Page
of the Contract.
INCOME DATE - The date on which annuity payments are to commence.
NON-QUALIFIED CONTRACTS - Contracts issued under Non-Qualified Plans.
NON-QUALIFIED PLANS - Retirement plans that do not receive favorable tax
treatment under Sections 403, 408 or 457 of the Internal Revenue Code.
PORTFOLIO - A segment of an Eligible Mutual Fund that constitutes a
separate and distinct class of shares.
QUALIFIED CONTRACTS - Contracts issued under Qualified Plans.
QUALIFIED PLANS - Retirement plans that receive favorable tax treatment
under Sections 403, 408 or 457 of the Internal Revenue Code.
VALUATION DATE - Each day that the New York Stock Exchange is open for
business which is Monday through Friday, except for New Year's Day, President's
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day.
VALUATION PERIOD - The period commencing at the close of business on the
New York Stock Exchange on each Valuation Date and ending at the close of
business for the next succeeding Valuation Date as well as any other day when
the Variable Account is valued because there was a sufficient degree of trading
in the Variable Account so that the net asset value of the Accumulation Unit
and Annuity Unit was materially affected.
VARIABLE ACCOUNT - A separate investment account of the Company,
designated as Sentry Variable Account II, into which Net Purchase Payments will
be allocated.
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SYNOPSIS
THE CONTRACTS
The Individual Flexible Purchase Payment Deferred Variable Annuity
Contracts (the "Contracts") described in this Prospectus provide for
accumulation of Contract Values and payment of monthly annuity payments on a
variable basis. The Contracts are designed for use by individuals in retirement
plans on a Qualified or Non-Qualified basis. (See "Definitions" and
"Taxes.")
THE VARIABLE ACCOUNT
Purchase Payments for the Contracts will be allocated to a segregated
investment account of Sentry Life Insurance Company (the "Company") which
account has been designated Sentry Variable Account II (the "Variable
Account"). The Variable Account invests in shares of Neuberger & Berman
Advisers Management Trust at their net asset value. (See "Neuberger & Berman
Advisers Management Trust.") Contract Owners bear the investment risk for all
amounts allocated to the Variable Account.
CONTINGENT DEFERRED SALES CHARGE
There are no deductions made from Purchase Payments for sales charges at
time of purchase. However, a Contingent Deferred Sales Charge may be deducted
in the event of a surrender. The Contingent Deferred Sales Charge is intended
to reimburse the Company for expenses incurred that relate to Contract sales.
The Contingent Deferred Sales Charge, if any, is based on a graded table of
charges but in no event will the aggregate charges exceed 6% of the total
Purchase Payments made. (See "Charges and Deductions - Contingent Deferred
Sales Charge.")
TEN-DAY FREE LOOK
Within 10 days (or longer in states where required) of the day the
Contract is received, it may be returned to the Company or to the agent through
whom it was purchased. When the Contract is received by the Company it will be
voided as if it had never been in force. The Purchase Payments will then be
refunded in full.
MORTALITY AND EXPENSE RISK PREMIUM
A Mortality and Expense Risk Premium is deducted from the Variable Account
on a daily basis which is equal on an annual basis to 1.20% of the daily net
asset value of the Variable Account. (See "Charges and Deductions - Deduction
for Mortality and Expense Risk Premium.")
CONTRACT MAINTENANCE CHARGE
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value by cancelling Accumulation Units to reimburse it for
administrative expenses relating to maintenance of the Contract. Prior to the
Income Date, the Company does not guarantee the amount of the Contract
Maintenance Charge, and there is no guarantee that it will not be changed in
the future. After the Income Date, the amount of the Contract Maintenance
Charge will not be changed from the amount of the annual Contract Maintenance
Charge in effect during the Contract Year immediately preceding the Income
Date. After the Income Date, the Contract Maintenance Charge will be collected
on a monthly basis and will result in a reduction of the monthly benefit. (See
"Charges and Deductions - Deduction for Contract Maintenance Charge.")
PREMIUM TAXES
Premium Taxes payable to a state or other governmental entity will be
charged against the Contract Value. Currently such Premium Taxes range from 0%
to 4.0%. (See "Charges and Deductions - Deduction for Premium Taxes and Other
Taxes.")
TAX PENALTY UPON SURRENDER
There is a ten percent (10%) federal income tax penalty applied to the
income portion of any distribution from Non-Qualified Contracts. However, the
penalty is not imposed on amounts received (a) after the taxpayer reaches age
59 1/2; (b) after the death of the Contract Owner; (c) if the taxpayer is
totally disabled (for this purpose, disability is as defined in Section
72(m)(7) of the Internal Revenue Code of 1986); (d) in a series of
substantially equal periodic payments made not less frequently than annually
for the life (or life expectancy) of the taxpayer or for the joint lives (or
joint life expectancies) of the taxpayer and his or her beneficiary; (e) under
an immediate annuity; or (f) which are allocable to purchase payments made
prior to August 14, 1982. The Contracts provide that upon the death of the
Annuitant prior to the Income Date, the Death Benefit will be paid to the
Beneficiary. Such payments made upon the death of the Annuitant who is not the
Contract Owner do not qualify for the death of owner exception described above
and will be subject to the 10% distribution penalty unless the Beneficiary is
age 59 1/2 or one of the other
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<PAGE> 9
exceptions to the penalty applies. For federal income tax purposes, withdrawals
are deemed to be on a last-in-first-out basis. This discussion also applies to
Qualified Contracts issued pursuant to plans qualified under Section 457 of the
Internal Revenue Code but does not apply to Qualified Contracts issued pursuant
to plans qualified under Sections 401, 403(b) or 408 of the Internal Revenue
Code. Separate tax withdrawal penalties and restrictions apply to such
Qualified Contracts. For a further discussion of the taxation of the Contracts,
see "Taxes."
See "Tax Status - Diversification" for a discussion of Contract Owner
control of the underlying investments in a variable annuity contract.
LIMITATIONS ON WITHDRAWALS FROM 403(B) ANNUITIES
The Internal Revenue Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b) (11) of the Code) to the following events: the Contract Owner
attains age 59-1/2, separates from service, dies or becomes disabled (within the
meaning of Section 72(m) (7) of the Code), or when there is a case of hardship.
However, withdrawals for hardship are restricted to the portion of the Contract
Owner's Contract Value which represents contributions made by the Contract
Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989, and apply only to salary
reduction contributions made after December 31, 1988, to income attributable to
such contributions and to income attributable to amounts held as of December
31, 1988. The limitations on withdrawals do not affect rollovers or transfers
between certain Qualified Plans. Tax penalties may also apply. (See "Taxes -
Tax Treatment of Withdrawals - Qualified Contracts.") Contract Owners should
consult their own tax counsel or other tax adviser regarding any distributions.
(See "Taxes - Tax Sheltered Annuities -Withdrawal Limitations.")
MULTIPLE CONTRACTS
The Internal Revenue Code provides that multiple annuity contracts which
are issued within a calendar year to the same Contract Owner by one company or
its affiliates are treated as one annuity contract for purposes of determining
the tax consequences of any distribution. Such treatment may result in adverse
tax consequences including more rapid taxation of the distributed amounts from
such combination of contracts. Contract Owners should consult a tax adviser
prior to purchasing more than one annuity contract in any calendar year.
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge (see explanation 3 below)
(as a percentage of purchase payments)
<TABLE>
<CAPTION>
TIME BETWEEN RECEIPT OF ALLOCATED
PURCHASE PAYMENT AND DATE OF SURRENDER PERCENTAGE
- ---------------------------------------------------------- -------------------------
<S> <C>
Less than 1 year ................................. 6%
At least 1 year but less than 2 years ............ 5%
At least 2 years but less than 3 years ........... 4%
At least 3 years but less than 4 years ........... 3%
At least 4 years but less than 5 years ........... 2%
At least 5 years but less than 6 years ........... 1%
At least 6 years ................................. 0%
Contract Maintenance Charge $30 per Contract per year
</TABLE>
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of daily net asset value)
Mortality and Expense Risk Premium 1.20%
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST'S ANNUAL EXPENSES(1)
(as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
INVESTMENT
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO AND ADMINISTRATION FEES EXPENSES EXPENSES
- -------------------------------- -------------------------------- ---------------------- ------------
<S> <C> <C> <C>
Liquid Asset(2) 0.30% 0.71% 1.01%
Balanced 0.85% 0.19% 1.04%
Growth 0.84% 0.10% 0.94%
Limited Maturity Bond 0.65% 0.10% 0.75%
</TABLE>
6
<PAGE> 10
(1) The trust is divided into seven portfolios ("Portfolios"), four of
which are available through the Variable Account. Each Portfolio invests all of
its net investable assets in a corresponding series ("Series") of Advisers
Managers Trust. Expenses in the table reflect expenses of the Portfolios and
include each Portfolio's pro rata portion of the operating expenses of each
Portfolio's corresponding Series. The Portfolios pay Neuberger & Berman
Management, Inc., the Trust's investment manager and administrator ("N&B
Management"), an administration fee based on the Portfolio's net asset value.
Each Portfolio's corresponding Series pays N&B Management a management fee
based on the Series' average daily net assets. Accordingly, this table combines
management fees at the Series level and administration fees at the Portfolio
level in a unified fee rate. See "Expenses" in the Trust's Prospectus.
(2) N&B Management has undertaken to reimburse the Liquid Asset Portfolio
for certain operating expenses including the compensation of N&B Management and
excluding certain other expenses that exceed 1% of the Portfolio's average
daily net asset value. Absent such reimbursement, the "Total Annual Expenses"
for the year ended December 31, 1995 would have been 1.36% for the Liquid Asset
Portfolio. N&B Management may cease to reimburse the Liquid Asset Portfolio for
its operating expenses upon 60 days written notice.
EXAMPLES
A Contract Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
a) upon surrender at the end of each time period;
b) if the Contract is not surrendered.
<TABLE>
<CAPTION>
TIME PERIODS
1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------- ------- ------- --------
<S> <C> <C> <C> <C>
Growth Portfolio a) $72.00 $ 98.00 $129.00 $256.00
b) $22.00 $ 68.00 $119.00 $256.00
Liquid Asset Portfolio a) $73.00 $100.00 $132.00 $264.00
b) $23.00 $ 70.00 $122.00 $264.00
Limited Maturity Bond Portfolio a) $70.00 $ 92.00 $119.00 $236.00
b) $20.00 $ 62.00 $109.00 $236.00
Balanced Portfolio a) $73.00 $101.00 $133.00 $265.00
b) $23.00 $ 71.00 $123.00 $265.00
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the above Table is to assist the Contract Owner in
understanding the various costs and expenses that a Contract Owner will incur,
directly or indirectly. The Table reflects expenses of the Variable Account as
well as the Trust. For additional information, see "Charges and Deductions"
in this Prospectus and "Management of the Trust - The Investment
Adviser/Sub-Adviser."
2. Premium taxes are not reflected. Premium taxes may apply. See "Charges and
Deductions - Deduction for Premium Taxes and Other Taxes."
3. The Examples do not reflect the fact that after the first Contract Year, a
Contract Owner may, not more than once annually on a non-cumulative basis, make
a surrender per Contract Year of up to 10% of aggregate Purchase Payments (less
any withdrawals) free from a Contingent Deferred Sales Charge provided the
Contract Value prior to the surrender exceeds $10,000.
4. Neither the Fee Table nor the Examples include a Transfer Fee. Currently,
the Company does not impose any charge for effecting transfers; however, it
does reserve the right to assess a Transfer Fee in the future. (See "The
Contracts - Transfers.")
5. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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CONDENSED FINANCIAL INFORMATION
ACCUMULATION UNIT VALUES
The following table includes Accumulation Unit Values for the periods
indicated. This data has been taken from the Variable Account's financial
statements. The Variable Account's financial statements for all periods have
been audited by Coopers & Lybrand L.L.P., independent accountants, whose report
thereon is included in the Statement of Additional Information. This
information should be read in conjunction with the Variable Account's financial
statements and related notes thereto included in the Statement of Additional
Information.
<TABLE>
<CAPTION>
YEAR ENDED
1995 1994 1993 1992 1991 1990
-------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
LIQUID ASSET PORTFOLIO
Beginning of Period $ 15.653 $ 15.311 $ 15.127 $14.825 $14.207 $13.368
End of Period 16.247 15.653 15.311 15.127 14.825 14.207
Number of Accum.
Units Outstanding 162,165 217,211 270,994 414,153 544,747 646,044
GROWTH PORTFOLIO
Beginning of Period $ 28.257 $ 30.098 $ 28.524 $26.357 $20.558 $22.662
End of Period 36.783 28.257 30.098 28.524 26.357 20.558
Number of Accum.
Units Outstanding 938,909 1,049,256 1,156,057 1,231,668 1,363,149 1,375,719
LIMITED MATURITY BOND
PORTFOLIO
Beginning of Period $ 20.381 $ 20.653 $ 19.607 $18.867 $17.147 $16.026
End of Period 22.342 20.381 20.653 19.607 18.867 17.147
Number of Accum.
Units Outstanding 384,749 460,025 527,775 624,082 696,573 765,968
BALANCED PORTFOLIO
Beginning of Period $ 13,382 $ 14.010 $ 13.323 $12.480 $10.288 $10.000
End of Period 16.367 13.382 14.010 13.323 12.480 10.288
Number of Accum.
Units Outstanding 550,216 618,542 654,955 565,977 284,777 164,053
<CAPTION>
YEAR ENDED
1989 1988 1987 1986 1985
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
LIQUID ASSET PORTFOLIO
Beginning of Period $12.459 $11.820 $11.325 $10.832 $10.243
End of Period 13.368 12.459 11.820 11.325 10.832
Number of Accum.
Units Outstanding 502,722 484,760 508,546 151,524 61,754
GROWTH PORTFOLIO
Beginning of Period $17.711 $14.226 $15.124 $13.320 $10.332
End of Period 22.662 17.711 14.226 15.124 13.320
Number of Accum.
Units Outstanding 1,503,684 1,481,380 1,758,913 1,408,039 508,627
LIMITED MATURITY BOND
PORTFOLIO
Beginning of Period $14.639 $13.823 $13.592 $12.076 $10.672
End of Period 16.026 14.639 13.823 13.592 12.076
Number of Accum.
Units Outstanding 837,082 885,951 827,125 698,875 176,861
BALANCED PORTFOLIO
Beginning of Period No Accumulation Unit Values for this period.
End of Period Sales of the Contracts in connection with this
Portfolio commenced on September 14, 1990.
Number of Accum.
Units Outstanding
</TABLE>
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT
For the seven calendar days ended December 31, 1995, the annualized yield
for the sub-account funded by the Liquid Asset Portfolio was 3.60%.
PERFORMANCE INFORMATION
Periodically, the Company may advertise performance data for the various
sub-accounts under the Contracts. Such data will show the percentage change in
the value of an Accumulation Unit based on the performance of an investment
medium over a period of time, usually a calendar year, determined by dividing
the increase (decrease) in value for that Unit by the Accumulation Unit value
at the beginning of the period. This percentage figure will reflect the
deduction of any asset-based charges and any applicable Contract Maintenance
Charges under the Contracts, but will not reflect the deduction of any
Contingent Deferred Sales Charge. The deduction of any Contingent Deferred
Sales Charge would reduce any percentage increase or make greater any
percentage decrease.
Any advertisement will also include total return figures calculated as
described in the Statement of Additional Information. The total return figures
reflect the deduction of any applicable Contract Maintenance Charges and
Contingent Deferred Sales Charges, as well as any asset-based charges.
In addition, the Company may distribute sales literature which compares
the percentage change in Accumulation Unit values for any of the Portfolios
against established market indices such as the Standard & Poor's 500 Composite
Stock Price Index, the Dow Jones Industrial Average or other management
investment companies which have investment objectives similar to the Portfolio
being compared.
The Balanced Portfolio of the Trust was made available for investment in
connection with the Contracts on September 14, 1990. In order to demonstrate
how the actual investment performance of the Balanced Portfolio affects
Accumulation Unit Values, the Company may advertise hypothetical performance
information based on the historical experience of the Balanced Portfolio from
February 28, 1989 (the date on which the Balanced Portfolio commenced
operations).
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<PAGE> 12
FINANCIAL STATEMENTS
There are no financial statements contained in this Prospectus. Financial
statements for the Company and the Variable Account are found in the Statement
of Additional Information.
THE COMPANY
Sentry Life Insurance Company (the "Company") is a stock life insurance
company incorporated in 1958 pursuant to the laws of the State of Wisconsin.
Its home office is located at 1800 North Point Drive, Stevens Point, Wisconsin.
It is licensed to conduct life, annuity, and accident and health insurance
business in the District of Columbia and in all states, except New York. The
Company is a wholly-owned subsidiary of Sentry Insurance a Mutual Company
("SIAMCO"). SIAMCO is a mutual insurance company incorporated under the laws
of Wisconsin with headquarters at 1800 North Point Drive, Stevens Point,
Wisconsin. SIAMCO owns and controls directly, or through subsidiary companies,
a group of insurance and related companies, including Sentry Life Insurance
Company of New York and Sentry Equity Services, Inc.
THE VARIABLE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Wisconsin insurance law on August 2, 1983.
This segregated asset account has been designated "Sentry Variable Account
II" (the "Variable Account"). The Company has caused the Variable Account to
be registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940. Such
registration does not involve supervision of the management of the Variable
Account or the Company by the Securities and Exchange Commission.
The assets of the Variable Account are the property of the Company. The
assets of the Variable Account, equal to the reserves and other contract
liabilities with respect to the Variable Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. The
Company does not guarantee the investment performance of the Variable Account.
The Contract Value and the amount of variable annuity payments will vary with
the value of the assets which underlie the Variable Account.
The Variable Account meets the definition of a "separate account" under
federal securities laws.
Income, gains and losses, whether or not realized, are, in accordance with
the Contracts, credited to or charged against the Variable Account without
regard to other income, gains or losses of the Company. Company obligations
arising under the Contracts are general corporate obligations of the Company.
The assets of the Variable Account are segregated by Portfolio, thus
establishing a series of sub-accounts within the Variable Account.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust (the "Trust" ) is the
funding vehicle for the Contracts. Each Portfolio of the Trust invests all of
its net investable assets in its corresponding series (each a "Series") of
Advisers Managers Trust ("Managers Trust"), an open-end management investment
company. All Series of Managers Trust are managed by Neuberger & Berman
Management Incorporated ("N&B Management"). Each Series invests in securities
in accordance with an investment objective, policies, and limitations identical
to those of its corresponding Portfolio. This "master/feeder fund" structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. For more information regarding
this structure, see the Trust's prospectus. There are seven Portfolios, four of
which are currently available in connection with the Contracts. In that the
investment objective of each Portfolio matches that of its corresponding
Series, the following information is presented in terms of the applicable
Series of Managers Trust. The investment objective of each Series follows:
AMT Liquid Asset Investments. The investment objective of AMT Liquid
Asset Investments is to provide the highest current income consistent with
safety and liquidity. The Series invests in high quality U.S.
dollar-denominated money market instruments of U.S. and foreign issuers,
including governments and their agencies and instrumentalities, banks and other
financial institutions, and corporations, and may invest in repurchase
agreements with respect to these instruments. An investment in the Liquid Asset
Portfolio is neither insured nor guaranteed by the U.S. Government.
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<PAGE> 13
AMT Growth Investments. AMT Growth Investments seeks capital appreciation
without regard to income by investing in securities believed to have the
maximum potential for long-term capital appreciation. It does not seek to
invest in securities that pay dividends or interest, and any such income is
incidental. The Series expects to be almost fully invested in common stocks,
often of companies that may be temporarily out of favor in the market.
AMT Limited Maturity Bond Investments. The investment objective of AMT
Limited Maturity Bond Investments is to provide the highest current income
consistent with low risk to principal and liquidity; and secondarily, total
return. The Series invests in a diversified portfolio of fixed and variable
rate debt securities and seeks to increase income and preserve or enhance total
return by actively managing average portfolio maturity in light of market
conditions and trends. These are short-to-intermediate term debt securities.
The Series' dollar-weighted average portfolio maturity may range up to five
years.
AMT Balanced Investments. The investment objective of AMT Balanced
Investments is long-term capital growth and reasonable current income without
undue risk to principal. The investment adviser anticipates that the Series'
investments will normally be managed so that approximately 60% of the Series'
total assets will be invested in common stocks and the remaining assets will be
invested in debt securities. However, depending on the investment adviser's
view regarding current market trends, the common stock portion of the Series'
investments may be adjusted downward to as low as 50% or upward to as high as
70%. At least 25% of the Series' assets will be invested in fixed-income senior
securities.
VARIABLE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, the Company will
vote the shares of the Trust held in the Variable Account at special meetings
of the shareholders of the Trust in accordance with instructions received from
persons having a voting interest in the Variable Account. The Company will vote
shares for which it has not received instructions in the same proportion as it
votes shares for which it has received instructions. The Company will vote
shares that it owns in the same proportion as it votes shares for which it has
received instructions. The Trust does not hold regular meetings of
shareholders. (For a further discussion of voting, see the Prospectus for the
Trust.)
However, if the Investment Company Act of 1940 or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote the
shares of the Trust in its own right, it may elect to do so.
The person having the voting interest under a Contract shall be the
Contract Owner. During the annuity payment period after the Income Date, the
votes attributable to a Contract Owner decrease as the reserves underlying the
Contract decrease.
The number of shares that a person has a right to vote will be determined
as of a date to be chosen by the Company not more than 60 days prior to the
meeting of the Trust. Voting instructions will be solicited by written
communication at least 14 days prior to such meeting.
Each person having a voting interest in the Variable Account will receive
periodic reports relating to the Trust and/or Portfolio in which he or she has
an interest, proxy material, and a form with which to give voting instructions
with respect to the proportion of the shares held in the Variable Account
corresponding to his or her interest in the Variable Account.
Shares of the Trust are issued and redeemed in connection with investment
in and payments under variable contracts issued through separate accounts of
the life companies which may or may not be affiliated with the Trust. Shares of
the Balanced Portfolio are also offered directly to qualified pension and
retirement plans ("Qualified Plans"). Shares of the Trust are purchased and
redeemed at net asset value. The Boards of Trustees of the Trust and Managers
Trust have undertaken to monitor the Trust and Managers Trust, respectively,
for the existence of any material irreconcilable conflict between the interests
of the variable contract owners of the life companies and to determine what
action, if any, should be taken in the event of a conflict. The life companies
and N&B Management are responsible for reporting any potential or existing
conflicts to the Boards. Due to differences of tax treatment and other
considerations, the interests of various variable contract owners participating
in the Trust and Managers Trust and the interests of Qualified Plans investing
in the Trust and Managers Trust may conflict. If such a conflict were to occur,
one or more life company separate accounts or Qualified Plans might withdraw
their investment in the Trust. This might force Managers Trust to sell
portfolio securities at disadvantageous prices.
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SUBSTITUTION OF SECURITIES
If the shares of any of the Eligible Mutual Funds, or any Portfolio within
an Eligible Mutual Fund, should no longer be available for investment by the
Variable Account or, if in the judgment of the Company's Board of Directors,
further investment in such Eligible Mutual Fund shares should become
inappropriate in view of the purpose of the Contract, the Company may
substitute shares of another mutual fund for fund shares already purchased or
to be purchased in the future by Purchase Payments under the Contract. No
substitution of securities in any sub-account may take place without prior
approval of the Securities and Exchange Commission and under such requirements
as it may impose.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
The Contracts are offered without the imposition of a sales charge
deduction at time of sale. However, the Contracts contain a provision which
imposes a deferred sales charge on surrenders of Purchase Payments within six
years after their being made. Thereafter the charge is equal to zero. The
charge is referred to as a Contingent Deferred Sales Charge and is intended to
reimburse the Company for expenses incurred that relate to Contract sales. To
the extent such charge is insufficient to cover all distribution costs, the
Company may use the Mortality and Expense Risk Premium to make up any
difference.
If all or a portion of the Contract is surrendered (see "Surrenders"), a
Contingent Deferred Sales Charge will be calculated at the time of the
surrender and will be deducted from the Contract Value. In calculating the
Contingent Deferred Sales Charge:
(a) Purchase Payments will be allocated to the amount surrendered on a
first-in-first-out basis.
(b) In no event will the aggregate Contingent Deferred Sales Charges
exceed 6% of the total Purchase Payments made.
The amount of the Contingent Deferred Sales Charge is calculated by:
(a) allocating Purchase Payments to the amount surrendered; and
(b) multiplying each such allocated Purchase Payment by the appropriate
percentage determined on the basis of the table below; and
(c) adding the products of each multiplication in (b) above.
<TABLE>
<CAPTION>
TIME BETWEEN RECEIPT OF ALLOCATED
PURCHASE PAYMENT AND DATE OF SURRENDER PERCENTAGE
----------------------------------------- ----------
<S> <C>
Less than 1 year ........................ 6%
At least 1 year but less than 2 years ... 5%
At least 2 years but less than 3 years .. 4%
At least 3 years but less than 4 years .. 3%
At least 4 years but less than 5 years .. 2%
At least 5 years but less than 6 years .. 1%
At least 6 years ........................ 0%
</TABLE>
For a partial surrender, the Contingent Deferred Sales Charge will be
deducted from the remaining Contract Value, if sufficient; otherwise it will be
deducted from the amount surrendered. The Contingent Deferred Sales Charge
percentage will be applied against the amount requested for a partial
surrender. The amount deducted from the Contract Value will be determined by
cancelling Accumulation Units from each applicable sub-account in the ratio
that the value of each sub-account bears to the total Contract Value. The
Contract Owner must specify in writing in advance which units are to be
cancelled if other than the above method of cancellation is desired.
After the first Contract Anniversary, a Contract Owner may, not more
frequently than once annually on a non-cumulative basis, make a surrender per
Contract Year of up to 10% of aggregate Purchase Payments (less any
withdrawals) free from Contingent Deferred Sales Charges provided the Contract
Value prior to the surrender exceeds $10,000. No Contingent Deferred Sales
Charge will be deducted from Purchase Payments which have been held under the
Contract for more than six years or from distributions made upon death or as
annuity payments. The Company may also periodically waive the Contingent
Deferred Sales Charges under the Company procedures then in effect. (See
"Charges and Deductions -- Reduction or Elimination of Contingent Deferred
Sales Charge" below.)
For purposes of determining the Contingent Deferred Sales Charge,
surrenders will be attributed
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<PAGE> 15
to Purchase Payments on a first-in-first-out basis. Contract Owners should note
that this is contrary to the allocation method that will be used for
determining tax obligations. (See "Taxes - General.")
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The amount of the Contingent Deferred Sales Charge on the Contracts may be
reduced or eliminated when sales of the Contracts are made to individuals or to
a group of individuals in a manner that results in savings of sales expenses.
The entitlement to such a reduction in the Contingent Deferred Sales Charge
will be determined by the Company in the following manner:
1. The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less than
for a smaller group because of the ability to issue large numbers of
Contracts with fewer sales contacts.
2. The total amount of Purchase Payments to be received will be
considered. Per Contract sales expenses are likely to be less on larger
Purchase Payments than on smaller ones.
3. Any prior or existing relationship with the Company will be
considered. Per Contract sales expenses are likely to be less when there is a
prior or existing relationship because of the likelihood of issuing the
Contract with fewer sales contacts.
4. There may be other circumstances of which the Company is not
presently aware that could result in reduced sales expenses.
If, after consideration of the foregoing factors, the Company determines
that there will be a reduction in sales expenses, the Company may provide for a
reduction in the Contingent Deferred Sales Charge.
The Contingent Deferred Sales Charge may be eliminated when the Contracts
are issued to an officer, director or employee of the Company or any of its
affiliates (including an employee's spouse and children under 21 years of age).
In no event will a reduction or elimination of the Contingent Deferred
Sales Charge be permitted where such reduction or elimination will be unfairly
discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK PREMIUM
Although variable annuity payments will vary in accordance with the
performance of the investments of the Variable Account, they will not be
affected by the mortality experience (death rate) of persons receiving such
payments or of the general population nor will such payments be affected by any
increases in expenses. The Company deducts a Mortality and Expense Risk Premium
from the daily net asset value of the Variable Account. This Premium
compensates the Company for providing the mortality guarantees, the death
benefit, the expense guarantee after the Income Date and the waiver of the
Contingent Deferred Sales Charge, if any, upon the death of the Annuitant.
After the Income Date, the Company guarantees that the amount of annuity
payments will not be adversely affected by variations in mortality experience
or increases in expenses to administer the Contract. In the event that the
Contingent Deferred Sales Charge is insufficient to cover distribution costs,
the Mortality and Expense Risk Premium will be used to make up the difference.
This charge is also used to defray some of the Company's expected costs that
are not reimbursed from the Contract Maintenance Charge. These costs include
compensation for internal personnel and overhead expenses attributable to such
personnel, such as rent, supplies, telephones, furniture and equipment.
The Mortality and Expense Risk Premium is deducted on a daily basis and is
equal on an annual basis to 1.20% of the daily net asset value of the Variable
Account. Of this charge, .80% will be for mortality risks and .40% will be for
the expense risks. If this amount is insufficient to cover the actual costs,
the loss will be borne by the Company; conversely, if the amount deducted
proves more than sufficient, the excess will be a profit to the Company.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
The Company deducts an annual Contract Maintenance Charge of $30 from the
Contract Value by cancelling Accumulation Units to reimburse it for
administrative expenses relating to maintenance of the Contract. The Contract
Maintenance Charge will be deducted from the Contract Value on each Contract
Anniversary the Contract is in force. The number of Accumulation Units to be
cancelled will be from each applicable sub-account in the ratio that the value
of each sub-account bears to the total Contract Value. The Contract Maintenance
Charge will be deducted whether or not Purchase Payments are made. The Company
will not realize a profit from this Charge.
When the Contract is surrendered for its full Surrender Value, on other
than the Contract Anniversary,
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<PAGE> 16
the Contract Maintenance Charge will be deducted at the time of the surrender.
Prior to the Income Date, the Company does not guarantee the amount of the
Contract Maintenance Charge and there is no guarantee that it will not be
changed in the future. After the Income Date, the amount of the Contract
Maintenance Charge will not be changed from the amount of the annual Contract
Maintenance Charge in effect during the Contract Year immediately preceding the
Income Date. After the Income Date, the Contract Maintenance Charge will be
collected on a monthly basis and will result in a reduction of the monthly
benefit.
DEDUCTION FOR PREMIUM TAXES AND OTHER TAXES
Any premium tax payable to any governmental entity as a result of the
existence of the Contracts or the Variable Account will be charged against the
Contract Value. Premium taxes currently imposed by certain states range from 0%
to 4.0%. Some states assess premium taxes at the time Purchase Payments are
made; others assess premium taxes at the time of annuitization. For Contracts
issued in those states assessing premium taxes at the time Purchase Payments
are made, the Company currently advances such premium taxes. The Company
currently deducts the premium taxes from a Contract Owner's Contract Value at
the time of annuitization or surrender. The applicable rates of states and
other governmental entities that impose premium taxes on annuity Purchase
Payments are subject to change or amendment by state legislatures,
administrative interpretations or judicial acts. Premium taxes will depend on,
among other things, the state of residence of the Contract Owner, the status of
the Company within the state and the insurance tax laws of the state.
The Company deducts from the Contract Owner's Contract Value any income
taxes resulting from the operation of the Variable Account. The Company does
not currently anticipate incurring any income taxes.
The Company will deduct any withholding taxes required by applicable law.
OTHER DEDUCTIONS AND CHARGES
There are other deductions from and expenses paid out of the assets of
Neuberger & Berman Advisers Management Trust which are described in the
accompanying Trust Prospectus.
THE CONTRACTS
In accordance with the selection made by the Contract Owner, Net Purchase
Payments applied to the Variable Account will be invested in one or more of the
Portfolios of Neuberger & Berman Advisers Management Trust at net asset value
in accordance with the selection made by the Contract Owner in the application
subject to the terms and conditions imposed on such selection by the Company.
The assets of the Variable Account are segregated by Portfolios, thus
establishing a series of sub-accounts within the Variable Account. The Company
may, from time to time, add new mutual funds and, when appropriate, portfolios
within a mutual fund as Eligible Mutual Funds. Contract Owners may change their
investment selection prospectively without fee, penalty or other charge upon
advance written notice to the Company.
TRANSFERS
The Contract Owner may direct the transfer of all or part of the Contract
Value between Eligible Mutual Fund(s) or Portfolio(s) no more than four times
in any Contract Year prior to the Income Date and no more than one time in any
Contract Year after the Income Date, subject to the following conditions:
(1) The Contract Owner will pay the Company any Transfer Fee due.
Currently, the Company does not impose a fee for effecting transfers;
however, it does reserve the right to assess a Transfer Fee in the future. In
the event the Company does impose such a fee, it will notify all Contract
Owners in advance. The Transfer Fee is not guaranteed and may be changed by
the Company at any time. The Transfer Fee will be deducted from the amount
which is transferred.
(2) The minimum amount which may be transferred from an Eligible Mutual
Fund or Portfolio is (a) $250; or, (b) if less, the remaining Contract Value
in such Eligible Mutual Fund or Portfolio.
(3) No partial transfer shall be made if the Contract Owner's remaining
Contract Value for each Eligible Mutual Fund or Portfolio will be less than
$250.
(4) Transfers shall be effected using the values determined as of the
next Valuation Period following receipt by the Company of a written transfer
direction (containing all required information). However, no such transfer
may be made effective within 7 calendar days of the date on which the first
annuity payment is due; and no initial Purchase Payment nor any amounts
previously transferred including increments thereon, may be transferred until
30 days after receipt of such initial Purchase
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<PAGE> 17
Payment; provided, however, the Contract Owner, during the 30-day period
prior to the date on which the first annuity payment is due, may direct an
additional transfer, to be effective no later than the seventh calendar day
prior to such due date.
(5) Any transfer direction must clearly specify:
(a) the amount which is to be transferred; and
(b) the name(s) of the Eligible Mutual Fund(s) or Portfolio(s) which
are to be affected.
(6) Prior to the Income Date transfers may be made from the Liquid Asset
Portfolio or the Limited Maturity Bond Portfolio to the Growth Portfolio or
the Balanced Portfolio on a pre-authorized basis. Such transfers will be made
only upon written agreement between the Contract Owner and the Company.
Transfers will be made monthly with a minimum transfer amount of $250 per
month.
(7) The Company reserves the right to terminate, suspend or modify the
transfer privileges described above, at any time and without notice to any
party.
When new mutual funds or Portfolios are added, the Contract Owner may be
permitted to select the Eligible Mutual Funds or Portfolios as investments to
underlie the Contract. However, the right to make any selection will be limited
by terms and conditions imposed by the Company on such transactions.
Subject to the above-identified restrictions on transfers, a Contract
Owner may elect to effect transfers between Eligible Mutual Fund(s) or
Portfolio(s) by telephone by completing the applicable section of the
Application.
The Company will employ reasonable procedures to confirm that telephone
transfer requests are legitimate. If it does not, the Company may be liable for
any losses due to unauthorized or fraudulent practices. The Company will not be
liable for complying with telephone transfer requests it believes to be
legitimate and for which it followed reasonable procedures to ensure
legitimacy.
A telephone transfer may be effected by contacting the Annuity Service
Office identified on Page 1 and providing specific account information,
including the Contract Owner's name, Contract number, social security number
and/or date of birth. The Company may request additional information concerning
the account and/or Contract Owner to verify the validity of the request. The
Company maintains the right to reject any telephone transfer request.
Telephone transfer requests received on any business day before 3 p.m.,
Central Standard Time, will effect transfers as of that day. Telephone transfer
requests received after 3 p.m., Central Standard Time, will effect transfers on
the business day next following the request.
CHANGE IN PURCHASE PAYMENTS
The Contract Owner may elect to increase, decrease or change the frequency
or amount of Purchase Payments.
NO DEFAULT
Unless surrendered for the full Surrender Value, the Contract remains in
force until the Income Date and will not be in default even though no
additional Purchase Payments are made.
MODIFICATION OF THE CONTRACT
The Contract may not be modified by the Company without the consent of the
Contract Owner except as modifications may be required by applicable law.
CONTRACT VALUE
The Contract Value is the sum of the values for each sub-account. The
value of each sub-account is determined by multiplying the number of
Accumulation Units attributable to the sub-account by the value of an
Accumulation Unit for the sub-account.
OWNERSHIP
The Contract Owner has all rights and may receive all benefits under the
Contract. During the lifetime of the Annuitant and prior to the Income Date,
the Contract Owner shall be the person designated as such in the application,
unless changed. On and after the Income Date, the Contract Owner shall be the
Annuitant. On and after the death of the Annuitant, the Beneficiary shall be
the Contract Owner.
The Contract Owner may name a Contingent Owner or a new Contract Owner at
any time. However, the Contract Owner's spouse is the only person eligible to
be the Contingent Owner. If the Contract Owner dies, the Contingent Owner
becomes the Contract Owner. Any new choice of Contract Owner or Contingent
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<PAGE> 18
Owner will automatically revoke any prior choice of Contract Owner or
Contingent Owner. Any request for change must be (1) made in writing; and (2)
received by the Company. The change will become effective as of the date the
written request is signed. A new choice of Contract Owner or Contingent Owner
will not apply to any payment made or action taken by the Company prior to the
time a request for change is received. Contract Owners should consult a
competent tax adviser prior to changing Contract Owners.
For Non-Qualified Contracts, in accordance with Internal Revenue Code
Section 72(u), a deferred annuity contract held by a corporation or other
entity that is not a natural person is not treated as an annuity contract for
tax purposes. Income on the contract is treated as ordinary income received by
the owner during the taxable year. However, for purposes of Code Section 72(u),
an annuity contract held by a trust or other entity as agent for a natural
person is considered held by a natural person and treated as an annuity
contract for tax purposes. Tax advice should be sought prior to purchasing a
Contract which is to be owned by a trust or other non-natural person.
ASSIGNMENT
The Contract Owner may assign the Contract at any time during the lifetime
of the Annuitant prior to the Income Date. The Company will not be bound by any
assignment until written notice is received by the Company. The Company is not
responsible for the validity of any assignment. The Company shall not be liable
for any payment or other settlement made by the Company before receipt of the
assignment.
If the Contract is issued pursuant to a Qualified Plan, it may not be
assigned, pledged or transferred except under conditions set forth in the
applicable law.
Inasmuch as an assignment may be a taxable event, Contract Owners should
consult a competent tax adviser if they wish to assign their Contracts. (See
"Taxes - General.")
BENEFICIARY
The Beneficiary named in the application, unless changed, is entitled to
receive the benefits payable at the death of the Annuitant or Contract Owner,
as applicable.
Unless the Contract Owner provides otherwise, such benefits will be paid
in equal shares or all to the survivor as follows:
(1) to the primary Beneficiaries who survive the Annuitant's or Contract
Owner's (as applicable) death; or, if there are none,
(2) to the Contingent Beneficiaries who survive the Annuitant's or
Contract Owner's (as applicable) death; or, if there are none,
(3) to the Contract Owner, or to the estate of the Contract Owner.
The Contract Owner may change the Beneficiary or Contingent Beneficiary at
any time during the lifetime of the Annuitant. Any such change must be made in
writing on a form acceptable to the Company. The change will take effect as of
the date the notice is signed, but the Company shall not be liable for any
payment made or action taken before it records the change.
ANNUITY PROVISIONS
INCOME DATE AND SETTLEMENT OPTION
The Contract Owner selects an Income Date and Settlement Option at the
time of application. The Income Date must always be the first day of a calendar
month and must be at least one month after the Effective Date. The Income Date
may not be later than the first day of the calendar month following the
Annuitant's 85th birthday, unless the Contract has been issued pursuant to a
Qualified Plan that requires an earlier date.
CHANGE IN INCOME DATE
The Contract Owner may, upon at least 30 days' prior written notice to the
Company, change the Income Date. In no event shall the Income Date be other
than the first day of a calendar month. However, the Income Date may not be
deferred beyond the first day of the calendar month following the Annuitant's
85th birthday, unless the Contract has been issued pursuant to a Qualified Plan
that requires an earlier date.
CHANGE IN SETTLEMENT OPTION
The Contract Owner may, upon at least 30 days' written notice to the
Company, at any time prior to the Income Date, elect a different Settlement
Option or any other option satisfactory to the Company and the Contract Owner.
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<PAGE> 19
SETTLEMENT OPTIONS
The net proceeds payable upon settlement of the Contract may be paid under
one of the following options or any other option acceptable to the Company:
OPTION 1 - LIFE ANNUITY
An annuity payable monthly during the lifetime of the Annuitant. Payments
will cease at the death of the Annuitant. IT IS POSSIBLE UNDER THIS OPTION
TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE PAYEE DIES AFTER THE RECEIPT OF
THE FIRST PAYMENT, OR TO RECEIVE ONLY TWO PAYMENTS IF THE PAYEE DIES AFTER
RECEIPT OF THE SECOND PAYMENT, AND SO ON.
OPTION 2 - LIFE ANNUITY WITH 120 MONTHLY PAYMENTS GUARANTEED
An annuity payable monthly during the lifetime of the Annuitant with the
guarantee that, if at the death of the Annuitant, payments have been made
for less than 120 months, payments will be continued to the Beneficiary
for the remainder of the guarantee period.
If the Beneficiary does not desire payments to continue for the remainder
of the guarantee period, he or she may elect to have the present value of
the guaranteed annuity payments remaining, as of the date notice of death
is received by the Company, computed at the assumed investment rate of 4%,
and paid in a single sum within 7 days of receipt of such request.
OPTION 3 - JOINT AND LAST SURVIVORSHIP
An annuity payable monthly during the joint lifetime of the Annuitant and
a designated second person and continuing thereafter during the life of
the survivor. IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY
PAYMENT IF BOTH PAYEES DIE AFTER THE RECEIPT OF THE FIRST PAYMENT, OR TO
RECEIVE ONLY TWO ANNUITY PAYMENTS IF BOTH PAYEES DIE AFTER RECEIPT OF THE
SECOND PAYMENT, AND SO ON.
If no Settlement Option is elected, Option 1 will automatically be
applied.
MORTALITY AND EXPENSE GUARANTEE
The Company guarantees that the dollar amount of each annuity payment
after the first will not be affected by variations in mortality or expense
experience of the Company. The Company also guarantees certain death benefits.
FREQUENCY OF ANNUITY PAYMENTS
Annuity payments will be paid as monthly installments. However, if the net
amount available to apply under any Settlement Option is less than $5,000, the
Company shall have the right to pay such amount in a single lump sum. In
addition, if the payments would be or become less than $30, the Company shall
have the right to change the frequency of payments to such intervals as will
result in payments of at least $30.
ANNUITY UNIT
The value of an Annuity Unit when the first Eligible Mutual Fund shares
were purchased for each sub-account was arbitrarily set at $10. The value for
any later Valuation Period is determined as follows: the Annuity Unit value for
a sub-account for the last Valuation Period is multiplied by the Net Investment
Factor for the sub-account for the next Valuation Period and the result is
divided by the assumed investment factor for that Valuation Period. The Net
Investment Factor may be greater or less than one; therefore, the Annuity Unit
value may increase or decrease. (See "Net Investment Factor" in the Statement
of Additional Information.)
AMOUNT OF ANNUITY PAYMENTS
A Variable Annuity is an annuity with payments that (1) are not
predetermined as to dollar amount; and (2) will vary in amount with the net
investment results of the applicable sub-account(s) of the Variable Account. At
the Income Date, the Contract Value of the sub-accounts will be applied to the
applicable Annuity Tables contained in the Contract. The Annuity Table used
will depend on the Settlement Option chosen. The same Contract Value amount
applied to each Settlement Option may produce a different initial annuity
payment. If, as of the Income Date, the then current Settlement Option rate
applicable to this class of Contracts will provide a larger income than that
guaranteed for the same form of annuity under the Contracts offered hereby, the
larger amount will be paid.
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<PAGE> 20
The actual dollar amount of variable annuity payments is dependent upon
(1) the Contract Value at the time of annuitization; (2) the annuity table
specified in the Contract; (3) the Settlement Option selected; and (4) the
investment performance of the Portfolio selected.
The annuity tables contained in the Contract are based on a 4% assumed
investment rate. If the actual net investment rate exceeds 4%, payments will
increase. Conversely, if the actual rate is less than 4%, annuity payments will
decrease.
If a higher assumed interest rate were used, the initial payment would be
higher, but the actual net investment rate would have to be higher in order for
annuity payments to increase.
The Annuitant receives the value of the fixed number of Annuity Units each
month. The value of a fixed number of Annuity Units will reflect the investment
performance of the Portfolio selected, and the amount of each annuity payment
will vary accordingly. (See "Amount of Annuity Payments" in the Statement of
Additional Information for the calculation of the amount of the annuity
payment.)
ADDITIONAL PROVISIONS
The Company may require proof of the Annuitant's age before making any
life annuity payment provided for by the Contract. If the Annuitant's age has
been misstated, the amount payable will be the amount that the Purchase
Payments would have provided at the correct age. Once monthly life income
payments have begun, any underpayments will be made up in one sum with the next
annuity payment; overpayments will be deducted from the future annuity payments
until the total is repaid.
The Contract must be returned to the Company upon any settlement. Prior to
any settlement of a death claim, proof of the Annuitant's or Contract Owner's
death, as applicable, must be submitted to the Company.
Where any benefits under the Contract are contingent upon the recipient
being alive on a given date, the Company may require proof satisfactory to it
that such condition has been met.
The United States Supreme Court has determined that there may be a
violation of Title VII of the Civil Rights Act of 1964, as amended, under
certain circumstances when retirement benefits derived from contributions or
retirement payments made or to be made are determined on the basis of the sex
of the recipient. The Contracts offered by this Prospectus contain annuity
tables which are not based on the sex of the Annuitant.
DEATH BENEFIT
DEATH OF THE ANNUITANT
If an Annuitant who is not the Contract Owner dies prior to the Income
Date, the death benefit will be paid to the Beneficiary designated by the
Contract Owner. The value of the death benefit will be determined as of the
next Valuation Period following the date both proof of death and an election
for a single sum payment or Settlement Option are received by the Company. If a
single sum settlement is requested, the proceeds will be paid within seven days
of receipt of such election and proof of death. If a Settlement Option is
desired, election may be made by the Beneficiary during the 60-day period
commencing on the day notification of death is received; otherwise, a single
sum settlement will be made to the Beneficiary at the end of such 60-day
period. The amount of the death benefit will be the greater of (1) the sum of
all Purchase Payments made, less any amounts surrendered; or (2) the Contract
Value. Death benefits will be made in accordance with any applicable laws or
regulations governing payment of death proceeds. (See "Tax Status - Tax
Treatment of Withdrawals - Non-Qualified Contracts and Section 457
Contracts.")
If the Annuitant dies after the Income Date, the death benefit, if any,
will be paid as specified in the Settlement Option elected. The Company will
require proof of the Annuitant's death.
DEATH OF THE CONTRACT OWNER
In the event that the Contract is issued under a Non-Qualified Plan and
the Contract Owner, regardless if he or she is the Annuitant, dies prior to the
Income Date, the death benefit will be paid as follows:
1. If the Contract Owner dies before the Income Date, the entire
Contract Value must be distributed within five years of the date of death,
unless:
(a) it is payable over the lifetime of a designated Beneficiary with
distributions beginning within one year of the date of death; or
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(b) the Contingent Owner, if any, continues the Contract in his or
her own name.
2. The Contingent Owner must be the spouse of the Contract Owner.
If the Contract Owner is a non-natural person, then for purposes of the
Death Benefit, the Annuitant shall be treated as the Contract Owner and the
death of the Annuitant or a change of the Annuitant shall be treated as the
death of or a change of the Contract Owner.
PURCHASES AND CONTRACT VALUE
PURCHASE PAYMENTS
The Contracts may be purchased under a Flexible Purchase Payment Plan.
Purchase Payments are payable at the Annuity Service Office of the Company as
frequently and in the amount selected in the application by the Contract Owner.
The initial Purchase Payment is due on the Effective Date. The initial Purchase
Payment on both Non-Qualified and Qualified Contracts must be at least $1,000.
Subsequent Purchase Payments must be at least $100. However, for Purchase
Payments made under an employer-sponsored payroll deduction plan, the minimum
initial Purchase Payment is $50 for both Non-Qualified and Qualified Contracts.
The minimum subsequent Purchase Payment under an employer-sponsored payroll
deduction plan is $50 per month. The Company reserves the right to reject any
application or Purchase Payment. The Company also reserves the right to
establish administrative rules that may decrease the minimum Purchase Payment
requirements.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the appropriate sub-account within the
Variable Account. Upon allocation to the appropriate sub-account, Purchase
Payments are converted into Accumulation Units of the sub-account. Purchase
Payments allocated to a sub-account are divided by the value of an Accumulation
Unit for the particular sub-account for the Valuation Period during which such
allocation occurs to determine the number of Accumulation Units attributable to
the Purchase Payments. (See "Accumulation Units.") For initial Purchase
Payments, if the application for a Contract is in good order, the Company will
apply the Purchase Payment to the Variable Account and credit the Contract with
Accumulation Units within two business days of receipt. In addition to the
underwriting requirements of the Company, good order means that the Company has
received federal funds (monies credited to a bank's account with its regional
Federal Reserve Bank). If the application for a Contract is not in good order,
the Company will attempt to get it in good order or the Company will return the
application and the Purchase Payment within five business days. Once the
application is deemed to be in good order, the Company will apply the Purchase
Payment to the Variable Account and credit the Contract with Accumulation Units
within two business days from the time the application is deemed to be in good
order. For subsequent Purchase Payments, the Company will apply the Purchase
Payment to the Variable Account and credit the Contract with Accumulation Units
during the next Valuation Period following the Valuation Period in which the
Purchase Payment was received in good order.
ACCUMULATION UNITS
Purchase Payments are converted into Accumulation Units. This is done by
dividing each Purchase Payment by the value of an Accumulation Unit for the
Valuation Period during which the Purchase Payment is allocated to the Variable
Account. The Accumulation Unit Value for each sub-account was arbitrarily set
initially at $10. The Accumulation Unit Value for any later Valuation Period is
determined by subtracting (b) from (a) and dividing the result by (c) where:
(a) is the net result of
(1) the assets of the sub-account, i.e., the aggregate value of the
underlying Fund shares held at the end of such Valuation Period, plus or
minus
(2) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the investment operation
of the sub-account;
(b) is the cumulative unpaid charge for the mortality and expense risks;
and
(c) is the number of Accumulation Units outstanding at the end of such
Valuation Period.
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The Accumulation Unit Value may increase or decrease from Valuation Period
to Valuation Period and is affected by investment performance of the Portfolio,
expenses and deduction of certain charges. The Accumulation Unit Value is
determined Monday through Friday (except for Federal Holidays) as of 5:00 p.m.
Eastern Standard Time. The Federal Holidays are as follows:
New Year's Day Independence Day
President's Day Labor Day
Good Friday Thanksgiving Day
Memorial Day Christmas Day
DISTRIBUTION OF CONTRACTS
Sentry Equity Services, Inc. ("Principal Underwriter"), 1800 North Point
Drive, Stevens Point, Wisconsin, a wholly-owned subsidiary of SIAMCO, is the
principal underwriter of the Contracts. The Contracts are sold through licensed
insurance agents in those states where the Contracts may be lawfully sold. Such
agents are registered representatives of broker-dealers that are registered
under the Securities Exchange Act of 1934 and are members of the National
Association of Securities Dealers, Inc. Sentry Equity Services, Inc. will be
paid first-year and renewal commissions for its services in distributing the
Contracts, not to exceed 4.7% of Purchase Payments. Sentry Equity Services,
Inc. will, in turn, pay all or a portion of these amounts to a selling agent or
agency.
SURRENDERS
While the Contract is in force and before the earlier of the Income Date
or the death of the Annuitant, the Company will, upon written request by the
Contract Owner, allow the surrender of all or a portion of the Contract for its
Surrender Value. Surrenders will result in the cancellation of Accumulation
Units from each applicable sub-account in the ratio that the value of each
sub-account bears to the total Contract Value. The Contract Owner must specify
in writing in advance which units are to be cancelled if other than the
above-mentioned method of cancellation is desired. The Company will pay the
amount of any surrender within seven days of receipt of such request.
The Surrender Value shall be the Contract Value for the next Valuation
Period following the Valuation Period during which written request to the
Company for surrender is received reduced by the sum of:
(1) the total of any applicable premium taxes not previously deducted;
(2) any applicable Contract Maintenance Charge; and
(3) any applicable Contingent Deferred Sales Charge.
Because of the potential tax consequences of a surrender, including tax
penalties, Contract Owners should consult a competent tax adviser before making
a surrender. (See "Taxes" below.)
Election to surrender must be made in writing to the Company at its
Annuity Service Office. The Company may suspend the right of withdrawal or
delay payment more than seven days: (a) during any period when the New York
Stock Exchange is closed (other than customary weekend and holiday closings);
(b) when trading on the New York Stock Exchange is restricted; (c) when an
emergency exists as a result of which disposal of the Variable Account's or a
Portfolio's investments or determination of Accumulation Unit Value is not
reasonably practicable; or (d) when the Securities and Exchange Commission by
order so permits for protection of Contract Owners; provided that applicable
rules or regulations of the Securities and Exchange Commission will govern as
to whether the conditions in (b) and (c) exist.
LIMITATIONS ON WITHDRAWALS FROM 403(B) ANNUITIES
The Internal Revenue Code limits the withdrawal of amounts attributable to
contributions made pursuant to a salary reduction agreement (as defined in
Section 403(b) (11) of the Code) to the following events: the Contract Owner
attains age 59-1/2, separates from service, dies, or becomes disabled (within
the meaning of Section 72(m) (7) of the Code), or when there is a case of
hardship. However, withdrawals for hardship are restricted to the portion of
the Contract Owner's Contract Value which represents contributions made by the
Contract Owner and does not include any investment results. The limitations on
withdrawals became effective on January 1, 1989, and apply only to salary
reduction contributions made after December 31, 1988, to income attributable to
such contributions and to income attributable to amounts held as of December
31, 1988. However, these limitations will apply to all amounts (regardless of
when or how contributions were originally made) which are transferred or rolled
over from a custodial account (as defined in Section 403(b)(7)) into the
Contract Owner's account. The limitations on withdrawals
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do not affect rollovers or transfers between certain Qualified Plans. Tax
penalties may also apply. (See "Tax Treatment of Withdrawals - Qualified
Contracts.") Contract Owners should consult their own tax counsel or other tax
adviser regarding any distributions.
TEXAS OPTIONAL RETIREMENT PROGRAM
Any Contract issued to a participant in the Texas Optional Retirement
Program ("ORP") will contain an ORP endorsement that will amend the Contract
in two ways. First, if for any reason a second year of ORP participation is not
begun, the total amount of the State of Texas' first-year contribution will be
returned to the appropriate institution of higher education upon its request.
Second, no benefits will be payable, through surrender of the Contract or
otherwise, unless the participant dies, accepts retirement, terminates
employment in all Texas institutions of higher education or attains the age of
70 1/2. The value of the Contract may, however, be transferred to other
contracts or carriers during the period of ORP participation. A participant in
ORP is required to obtain a certificate of termination from the participant's
employer before a Contract can be redeemed.
TAXES
NOTE: The following description is based on the Company's understanding
of current federal income tax law applicable to annuities in general. The
Company cannot predict the probability that any changes in these laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of any changes. The Company does not guarantee the tax status of
the Contracts. Purchasers bear the complete risk that the Contracts may not be
treated as "annuity contracts" under federal income tax laws. It should be
further understood that the following discussion is not exhaustive and that
special rules not described in this Prospectus may be applicable in certain
situations. Moreover, no attempt has been made to consider any applicable state
or other tax laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended, ("Code")
governs taxation of annuities in general. A Contract Owner is not taxed on
increases in the value of a Contract until distribution occurs, either in the
form of a lump sum payment or as annuity payments under the Settlement Option
elected. For a lump sum payment received as a total surrender (total
withdrawal), the recipient is taxed on the portion of such payment that exceeds
the cost basis of the Contract. For Non-Qualified Contracts, this cost basis is
generally the Purchase Payments, while for Qualified Contracts there may be no
cost basis. The taxable portion of the lump sum payment is taxed at ordinary
income tax rates.
For annuity payments, a portion of each payment in excess of an exclusion
amount is includible in taxable income. The exclusion amount for payments based
on a variable settlement option is determined by dividing the cost basis of the
Contract (adjusted for any period certain or refund guarantee) by the number of
years over which the annuity is expected to be paid. Payments received after
the investment in the Contract has been recovered (i.e., when the total of the
excludable amount equals the investment in the Contract) are fully taxable. The
taxable portion is taxed at ordinary income tax rates. For certain types of
Qualified Plans there may be no cost basis in the Contract within the meaning
of Section 72 of the Code. Contract Owners, Annuitants and Beneficiaries under
the Contracts should seek competent financial advice about the tax consequences
of any distribution.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Variable Account is not a separate entity from
the Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Contract as an annuity contract would result in imposition of federal income
tax to the Contract Owner with respect to earnings allocable to the Contract
prior to the receipt of payments under the Contract. The Code contains a safe
harbor provision which provides that annuity contracts such as the Contracts
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than 55% of the total assets consist of cash, cash items,
U.S. Government securities and securities of other regulated investment
companies.
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On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5) which established diversification requirements for the investment
portfolios underlying variable contracts such as the Contracts. The regulations
amplify the diversification requirements for variable contracts set forth in
the Code and provide an alternative to the safe harbor provision described
above. Under the regulations, an investment portfolio will be deemed adequately
diversified if (1) no more than 55% of the value of the total assets of the
portfolio is represented by any one investment; (2) no more than 70% of the
value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these regulations, all securities of the same
issuer are treated as a single investment.
The Code provides that for purposes of determining whether or not the
diversification standards imposed on the underlying assets of variable
contracts by Section 817(h) of the Code have been met, "each United States
government agency or instrumentality shall be treated as a separate issuer."
The Company intends that all Eligible Mutual Funds underlying the
Contracts will be managed by the investment adviser(s) for the Eligible Mutual
Funds so as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification regulations
do not provide guidance regarding the circumstances in which Contract Owner
control of the investments of the Variable Account will cause the Contract
Owner to be treated as the owner of the assets of the Variable Account, thereby
resulting in the loss of favorable tax treatment for the Contract. At this time
it cannot be determined whether additional guidance will be provided and what
standards may be contained in such guidance.
The amount of Contract Owner control which may be exercised under the
Contract is different in some respects from the situations addressed in
published rulings issued by the Internal Revenue Service in which it was held
that the policy owner was not the owner of the assets of the separate account.
It is unknown whether these differences, such as the Contract Owner's ability
to transfer among investment choices or the number and type of investment
choices available, would cause the Contract Owner to be considered the owner of
the assets of the Variable Account resulting in the imposition of federal
income tax to the Contract Owner with respect to earnings allocable to the
Contract prior to receipt of payments under the Contract.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance is not considered to set
forth a new position, it may be applied retroactively resulting in the Contract
Owner being determined to retroactively be the owner of the assets of the
Variable Account.
Due to uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
The Code provides that multiple non-qualified annuity contracts that are
issued within a calendar year to the same Contract Owner by one company or its
affiliates are treated as one annuity contract for purposes of determining the
tax consequences of any distribution. Such treatment may result in adverse tax
consequences including more rapid taxation of the distributed amounts from such
combination of contracts. Contract Owners should consult a tax adviser prior to
purchasing more than one non-qualified annuity contract in any calendar year.
CONTRACTS OWNED BY OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on premiums for
the Contracts will be taxed currently to the Contract Owner if the Owner is a
non-natural person, e.g., a corporation, or certain other entities. Such
Contracts generally will not be treated as annuities for federal income tax
purposes. However, this treatment is not applied to Contracts held by a trust
or other entity as an agent for a natural person, nor to Contracts held by
Qualified Plans. Purchasers should consult their own tax counsel or other tax
adviser before purchasing a Contract to be held by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Contract may be a taxable event. Contract
Owners should consult a tax adviser before assigning or pledging their
Contracts.
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INCOME TAX WITHHOLDING
All distributions, or the portion thereof which is includible in the gross
income of the Contract Owner are subject to federal income tax withholding.
Generally, amounts are withheld from periodic payments at the same rate as
wages, and at the rate of 10% from non-periodic payments. However, Contract
Owners, in most cases, may elect not to have taxes withheld or to have
withholding done at a different rate.
Effective January 1, 1993, certain distributions from retirement plans
qualified under Section 401 or Section 403(b) of the Code that are not directly
rolled over to another eligible retirement plan or individual retirement
account or individual retirement annuity, are subject to mandatory 20%
withholding for federal income tax. The 20% withholding requirement generally
does not apply to:
(1) a series of substantially equal payments made at least annually for
the life or life expectancy of the participant or joint and last survivor
expectancy of the participant and a designated beneficiary, or distributions
for a specified period of 10 years or more; or
(2) distributions that are required minimum distributions; or
(3) the portion of the distributions that is not includible in gross
income (i.e., the return of any after-tax contributions).
Participants should consult their own tax counsel or other tax advisor
regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS AND SECTION 457
CONTRACTS
Section 72 of the Code governs treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate
purchase payments made, any amount withdrawn will be treated as coming first
from the earnings and then, only after the income portion is exhausted, as
coming from the principal. Withdrawn earnings are includible in gross income.
It further provides that a 10% penalty will apply to the income portion of any
distribution. However, the penalty is not imposed on amounts received (a) after
the taxpayer reaches age 59-1/2; (b) after the death of the Contract Owner; (c)
if the taxpayer is totally disabled (for this purpose, disability is as defined
in Section 72(m)(7) of the Code); (d) in a series of substantially equal
periodic payments made not less frequently than annually for the life (or life
expectancy) of the taxpayer or for the joint lives (or joint life expectancies)
of the taxpayer and his or her Beneficiary; (e) under an immediate annuity; or
(f) that are allocable to purchase payments made prior to August 14, 1982.
The Contracts provide that if the Annuitant dies prior to the Income Date,
the Death Benefit will be paid to the Beneficiary. Such payments made upon the
death of an Annuitant who is not the Contract Owner do not qualify for the
death of owner exception described above and will be subject to the 10%
distribution penalty unless the Beneficiary is age 59-1/2 or one of the other
exceptions to the penalty applies.
The above information applies to Qualified Contracts issued pursuant to
Section 457 of the Code, but does not apply to other Qualified Contracts.
However, separate tax withdrawal penalties and restrictions may apply to such
other Qualified Contracts. (See "Tax Treatment of Withdrawals - Qualified
Contracts.")
QUALIFIED PLANS
The Contracts offered by this Prospectus are designed to be suitable for
use under various types of Qualified Plans. Taxation of participants in each
Qualified Plan varies with the type of Plan and terms and conditions of each
specific Plan. Contract Owners, Annuitants and Beneficiaries are cautioned that
benefits under a Qualified Plan may be subject to the terms and conditions of
the Plan, regardless of the terms and conditions of the Contracts issued
pursuant to the Plan. Some retirement plans are subject to distribution and
other requirements that are not incorporated into the Company's administrative
procedures. Contract Owners, participants and beneficiaries are responsible for
determining that contributions, distributions and other transactions with
respect to the Contracts comply with applicable law. Following are general
descriptions of the types of Qualified Plans with which the Contracts may be
used. These descriptions are not exhaustive and are for general informational
purposes only. The tax rules regarding Qualified Plans are very complex and
will have differing applications depending on individual facts and
circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described
in this Prospectus. Generally, Contracts issued pursuant to Qualified Plans are
not transferable except upon surrender or annuitization. Various penalty and
excise taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Qualified Contracts. (See "Tax
Treatment of Withdrawals - Qualified Contracts.")
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The Contracts are no longer being offered in connection with H.R. 10 Plans
and Corporate Pension and Profit-Sharing Plans. The information provided below
with respect to such Plans is being included herein for purposes of providing
such disclosure to Contract Owners who have previously purchased Contracts in
connection with H.R. 10 Plans and Corporate Pension and Profit-Sharing Plans.
(1) H.R. 10 Plans
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the Plan for the
benefit of the employees will not be included in the gross income of the
employees until distributed from the Plan. The tax consequences to
participants may vary depending upon the particular Plan design. However, the
Code places limitations and restrictions on all Plans including on such items
as amount of allowable contributions; form, manner, and timing of
distributions; transferability of benefits; vesting and nonforfeitability of
interests; nondiscrimination in eligibility and participation; and the tax
treatment of distributions, withdrawals and surrenders. (See "Tax Treatment
of Withdrawals - Qualified Contracts.") Purchasers of Contracts for use with
an H.R. 10 Plan should obtain competent tax advice as to the tax treatment
and suitability of such an investment.
(2) Tax Sheltered Annuities
Section 403(b) of the Code permits the purchase of "tax sheltered
annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Code. These
qualifying employers may make contributions to the Contracts for the benefit
of their employees. Such contributions are not includible in the gross income
of the employees until the employees receive distributions from the
Contracts. The amount of contributions to the tax-sheltered annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals. (See "Tax Treatment of
Withdrawals - Qualified Contracts.") An employee should obtain competent tax
advice as to the tax treatment and suitability of such an investment.
(3) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be
contributed to an IRA which will be deductible from the individual's gross
income. These IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. (See "Tax Treatment of Withdrawals -
Qualified Contracts.") Under certain conditions, distributions from other
IRAs and other Qualified Plans may be rolled over or transferred on a
tax-deferred basis into an IRA. Sales of Contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to persons
desiring to establish an IRA. Purchasers of Contracts to be qualified as IRAs
should obtain competent tax advice as to the tax treatment and suitability of
such an investment.
(4) Corporate Pension and Profit-Sharing Plans
Sections 401(a) and 401(k) of the Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
Plan. Contributions to the Plan for the benefit of employees will not be
includible in the gross income of the employees until distributed from the
Plan. The tax consequences to participants may vary depending upon the
particular plan design. However, the Code places limitations and restrictions
on all plans, including on such items as amount of allowable contributions;
form, manner and timing of distributions; transferability of benefits;
vesting and nonforfeitability of interests; nondiscrimination in eligibility
and participation; and the tax treatment of distributions, withdrawals and
surrenders. (See "Tax Treatment of Withdrawals - Qualified Contracts.")
Purchasers of Contracts for use with Corporate Pension or Profit-Sharing
Plans should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal under a Qualified Contract, a ratable portion
of the amount received is taxable, generally based on the ratio of the
individual's cost basis to the individual's total accrued benefit under the
retirement plan. Special tax rules may be available for certain distributions
from a Qualified Contract. Section 72(t) of the Code imposes a 10% penalty tax
on the taxable portion of any distribution
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from qualified retirement plans, including Contracts issued and qualified
under Code Sections 401 (H.R. 10 and Corporate Pension and Profit-Sharing
Plans), 403(b) (Tax Sheltered Annuities) and 408(b) (IRAs). To the extent
amounts are not includible in gross income because they have been rolled over
to an IRA or to another eligible Qualified Plan, no tax penalty will be
imposed. The tax penalty will not apply to the following distributions: (a)
distributions made on or after the date on which the Contract Owner or
Annuitant (as applicable) reaches age 59-1/2; (b) distributions following the
death or disability of the Contract Owner or Annuitant (as applicable) (for
this purpose disability is as defined in Section 72(m)(7) of the Code); (c)
after separation from service, distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life (or
life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his or her designated Beneficiary; (d) distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service
after age 55; (e) distributions made to the Contract Owner or Annuitant (as
applicable) to the extent such distributions do not exceed the amount allowable
as a deduction under Code Section 213 to the Contract Owner or Annuitant (as
applicable) for amounts paid during the taxable year for medical care; and (f)
distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The exceptions stated in items (d), (e) and (f) above do not apply in the
case of an IRA. The exception stated in (c) above applies to an IRA without the
requirement that there be a separation from service.
Generally, distributions from a qualified plan must commence no later than
April 1 of the calendar year following the year in which the employee attains
age 70-1/2. Required distributions must be over a period not exceeding the life
expectancy of the individual or the joint lives or life expectancies of the
individual and his or her designated beneficiary. If the required minimum
distributions are not made, a 50% penalty tax is imposed on the amount not
distributed. In addition, distributions in excess of $150,000 per year may be
subject to an additional 15% excise tax unless an exemption applies.
TAX SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
The Code limits the withdrawal of amounts attributable to contributions
made pursuant to a salary reduction agreement (as defined in Section 403(b)(11)
of the Code) to the following events: the Contract Owner attains age 59-1/2,
separates from service, dies, or becomes disabled (within the meaning of
Section 72(m)(7) of the Code), or when there is a case of hardship. However,
withdrawals for hardship are restricted to the portion of the Contract Owner's
Contract Value which represents contributions made by the Contract Owner and
does not include any investment results. The limitations on withdrawals became
effective on January 1, 1989, and apply only to salary reduction contributions
made after December 31, 1988, to income attributable to such contributions and
to income attributable to amounts held as of December 31, 1988. The limitations
on withdrawals do not affect rollovers or transfers between certain Qualified
Plans. Tax penalties may also apply. (See "Tax Treatment of Withdrawals -
Qualified Contracts," above.) Contract Owners should consult their own tax
counsel or other tax adviser regarding any distributions.
SECTION 457 - DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish deferred compensation plans, which may invest in
annuity contracts, for the benefit of their employees. The Code, as with
Qualified Plans, establishes limitations and restrictions on eligibility,
contributions and distributions. Under these Plans, contributions made for the
benefit of the employees will not be includible in the employees' gross income
until distributed from the Plan. However, under a Section 457 Plan, the plan
assets remain solely the property of the employer, subject only to the claims
of the employer's general creditors, until such time as made available to the
participant or beneficiary.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account or the
Principal Underwriter is a party. The Company is engaged in various kinds of
routine litigation which, in the opinion of the Company, are not material in
relation to the total capital and surplus of the Company.
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
ITEM PAGE
---- ----
THE COMPANY ..................................... 3
DISTRIBUTION OF CONTRACTS ....................... 3
CUSTODIAN ....................................... 3
ACCOUNTANTS ..................................... 3
LEGAL OPINIONS .................................. 3
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT .. 3
PERFORMANCE INFORMATION ......................... 4
AMOUNT OF ANNUITY PAYMENTS ...................... 5
Net Investment Factor ......................... 6
FINANCIAL STATEMENTS ............................ 6
25
<PAGE> 29
PART B
<PAGE> 30
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
ISSUED BY
SENTRY VARIABLE ACCOUNT II
AND
SENTRY LIFE INSURANCE COMPANY
THIS IS NOT A PROSPECTUS. THIS STATEMENT OF ADDITIONAL INFORMATION SHOULD BE
READ IN CONJUNCTION WITH THE PROSPECTUS FOR THE INDIVIDUAL FLEXIBLE PURCHASE
PAYMENT DEFERRED VARIABLE ANNUITY CONTRACTS WHICH ARE REFERRED TO HEREIN.
THE PROSPECTUS CONCISELY SETS FORTH INFORMATION THAT A PROSPECTIVE INVESTOR
OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS CALL OR WRITE THE
COMPANY AT: 1800 NORTH POINT DRIVE, STEVENS POINT, WISCONSIN 54481, (800)
533-7827.
THIS STATEMENT OF ADDITIONAL INFORMATION AND THE PROSPECTUS ARE DATED MAY 1,
1996.
<PAGE> 31
TABLE OF CONTENTS
ITEM PAGE
---- ----
THE COMPANY ..................................... 3
DISTRIBUTION OF CONTRACTS ....................... 3
CUSTODIAN ....................................... 3
ACCOUNTANTS ..................................... 3
LEGAL OPINIONS .................................. 3
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT .. 3
PERFORMANCE INFORMATION ......................... 4
AMOUNT OF ANNUITY PAYMENTS ...................... 5
Net Investment Factor ......................... 6
FINANCIAL STATEMENTS ............................ 6
2
<PAGE> 32
THE COMPANY
Sentry Life Insurance Company (the "Company") is a stock life insurance
company incorporated in 1958, pursuant to the laws of the State of Wisconsin.
Its home office is located at 1800 North Point Drive, Stevens Point, Wisconsin.
It is licensed to conduct life, annuity and accident and health insurance
business in the District of Columbia and in all states, except New York. The
Company is a wholly-owned subsidiary of Sentry Insurance a Mutual Company
("SIAMCO"). SIAMCO is a mutual insurance company incorporated under the laws
of Wisconsin with headquarters at 1800 North Point Drive, Stevens Point,
Wisconsin. SIAMCO owns and controls directly, or through subsidiary companies,
a group of insurance and related companies, including Sentry Life Insurance
Company of New York and Sentry Equity Services, Inc.
The Company and Sentry Life Insurance Company of New York each contributed
$100,000 to Neuberger & Berman Advisers Management Trust (the "Trust"). The
companies do not intend to remove those assets from the Trust at this time.
The Company is rated A+ (superior) by A.M. Best, an independent analyst of
the insurance industry. The financial strength of the Company may be relevant
insofar as the ability of the Company to make fixed annuity payments from its
general account.
DISTRIBUTION OF CONTRACTS
Sentry Equity Services, Inc. ("Principal Underwriter"), 1800 North Point
Drive, Stevens Point, Wisconsin, a wholly-owned subsidiary of SIAMCO, serves as
the principal underwriter of the Contracts. The Contracts are sold through
licensed insurance agents in those states where the Contracts may be lawfully
sold. The agents are registered representatives of broker-dealers that are
registered under the Securities Exchange Act of 1934 and are members of the
National Association of Securities Dealers, Inc. Sentry Equity Services, Inc.
will be paid first-year and renewal commissions for its services in
distributing the Contracts, not to exceed 4.7% of Purchase Payments. Sentry
Equity Services, Inc. will, in turn, pay all or a portion of these amounts to a
selling agent or agency. The Contracts are sold on a continuous basis.
Sentry Equity Services, Inc. acts as principal underwriter for Sentry
Fund, Inc., an open-end management investment company. Sentry Equity Services,
Inc. was paid underwriter commissions in the aggregate for the years 1993, 1994
and 1995 of $274,280, $287,619 and $293,144, respectively. Of those amounts it
retained $174,659, $237,626 and $238,582, respectively.
CUSTODIAN
The Custodian of the assets of the Variable Account is State Street Bank
and Trust Company, a state chartered trust company having its principal office
located at 225 Franklin Street, Boston, Massachusetts.
ACCOUNTANTS
The statutory financial statements of the Company as of December 31, 1995
and 1994, and for the years then ended, and the financial statements of the
Variable Account as of December 31, 1995 and 1994, and for each of the two
years in the period then ended, have been audited by Coopers & Lybrand L.L.P.,
203 North LaSalle Street, Chicago, Illinois, independent accountants, whose
reports thereon appear herein, and have been so included in reliance upon their
authority as experts in accounting and auditing.
LEGAL OPINIONS
Legal matters in connection with the Contracts described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT
The Liquid Asset sub-account of the Variable Account will calculate its
current yield based upon the seven days ended on the date of calculation. For
the seven calendar days ended December 31, 1995, the annualized yield for the
Liquid Asset sub-account 3.60%.
3
<PAGE> 33
The current yield of the Liquid Asset sub-account is computed by
determining the net change (exclusive of capital changes) in the value of a
hypothetical pre-existing Contract Owner account having a balance of one
Accumulation Unit of the sub-account at the beginning of the period,
subtracting the Mortality and Expense Risk Premium and Contract Maintenance
Charge, dividing the difference by the value of the account at the beginning of
the same period to obtain the base period return and multiplying the result by
(365/7).
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield
of the Liquid Asset sub-account in the future since the yield is not fixed.
Actual yields will depend not only on the type, quality and maturities of the
investments held by the Liquid Asset sub-account and changes in the interest
rates on such investments, but also on changes in the Liquid Asset
sub-account's expenses during the period.
Yield information may be useful in reviewing the performance of the Liquid
Asset sub-account and for providing a basis for comparison with other
investment alternatives. However, the Liquid Asset sub-account's yield
fluctuates, unlike bank deposits or other investments which typically pay a
fixed yield for a stated period of time. The yield information does not reflect
the deduction of any applicable Contingent Deferred Sales Charge at the time of
the surrender. (See "Charges and Deductions - Contingent Deferred Sales
Charge" in the Prospectus.)
PERFORMANCE INFORMATION
The total return and average annual total return figures for the one-
five- and ten-year periods to December 31, 1995, are as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
TEN TEN
ONE YEAR FIVE YEARS YEARS ONE YEAR FIVE YEARS YEARS
---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Liquid Asset
Portfolio (1.47%) 11.47% 46.70% (1.47%) 2.26% 3.91%
Limited Maturity
Bond Portfolio 2.92% 20.36% 65.07% 2.92% 3.78% 5.14%
Growth Portfolio 24.56% 74.42% 161.11% 24.56% 11.77% 10.07%
Balanced Portfolio* 16.86% 56.81% 77.99% 16.86% 9.41% 8.79%
</TABLE>
*Date of inception is February 28, 1989. Ten-year column represents since
inception.
The above figures include the deduction of a 1.20% Mortality and Expense
Risk Premium, a $30 Contract Maintenance Charge and the Investment Management
and Administration Fees and other expenses paid by the Trust's Portfolios and
their corresponding series of Managers Trust. As of May 1, 1995, the fees paid
to the manager changed. Such fees and the Trust's operating expenses are
disclosed and explained in the Fee Table within the Prospectus. The returns
reported above also reflect the deduction of the Contract's Contingent Deferred
Sales Charge from each Portfolio's one year total return, when such charge
equals 5% of a surrendered Purchase Payment, and from each Portfolio's five
year total return, when such charge equals 1% of a surrendered Purchase
Payment.
The Balanced Portfolio of the Trust was made available for investment in
connection with the Contracts on September 14, 1990. If the Balanced Portfolio
had been available in connection with the Contracts from February 28, 1989, the
date on which it commenced operations, the total return and average total
return quotation figures for the Balanced Portfolio under the Contracts would
have been as shown above.
The hypothetical value of a Contract purchased for the time periods
described above is determined by using the actual Accumulation Unit values for
an initial $1,000 Purchase Payment, and deducting any applicable Contract
Maintenance Charges and any applicable Contingent Deferred Sales Charge
4
<PAGE> 34
to arrive at the ending hypothetical value. The average annual total return is
then determined by computing the fixed interest rate that a $1,000 Purchase
Payment would have to earn annually, compounded annually, to grow to the
hypothetical value at the end of the time periods described above, as the case
may be. The formula used in these calculations is:
n
P (1 + T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the one- five- and ten year
periods to December 31, 1995 (or fractional portion thereof), of a
hypothetical $1,000 payment made at the beginning of each period
presented to December 31, 1995.
The calculation of the total return for the Portfolios under the Contract
issued by the Company is not subject to a standardized formula. The
hypothetical value of a Contract purchased for the time periods described above
is determined by using the actual Accumulation Unit values for an initial
$1,000 Purchase Payment and deducting any applicable Contract Maintenance
Charge and any applicable Contingent Deferred Sales Charge to arrive at the
ending hypothetical value. The total return percentage is then determined by
subtracting the initial investment from the ending hypothetical value and
dividing the difference by the initial investment and expressing the result as
a percentage.
The total return quotation figures were calculated using the following
assumptions:
(a) The one-year figure assumes that values based on a $1,000 payment made on
December 31, 1994, were redeemed on December 31, 1995;
(b) The five-year figure assumes that values based on a $1,000 payment made on
December 31, 1990, were redeemed on December 31, 1995;
(c) For the Liquid Asset, Growth and Limited Maturity Bond Portfolios, the
ten-year figures assume that values based on a $1,000 payment made on December
31, 1985, were redeemed on December 31, 1995. For the Balanced Portfolio, the
figures for the period since inception assume that values based on a $1,000
payment on February 28, 1989, were redeemed on December 31, 1995.
ALL QUOTATION FIGURES ABOVE REPRESENT PAST PERFORMANCE OF EACH INVESTMENT
OPTION. THE TOTAL RETURN FIGURES FLUCTUATE DAILY, SO THE ABOVE QUOTATIONS ARE
NOT REPRESENTATIVE OF FUTURE RESULTS.
AMOUNT OF ANNUITY PAYMENTS
The dollar amount of annuity payments after the first is determined as
follows:
(1) The dollar amount of the first annuity payment is divided by the
value of an Annuity Unit as of the Income Date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units
remains fixed during the annuity payment period, subject to any transfers.
(2) The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month for
which the payment is due. This result is the dollar amount of the payment.
The total dollar amount of each Variable Annuity payment is the sum of all
sub-account Variable Annuity payments less any applicable Contract Maintenance
Charge.
The sub-account Annuity Unit value at the end of any Valuation Period is
determined by multiplying the sub-account Annuity Unit value for the
immediately preceding Valuation Period by the quotient of (a) and (b), where:
(a) is the Net Investment Factor for the Valuation Period for which the
sub-account Annuity Unit value is being determined; and
5
<PAGE> 35
(b) is the assumed investment factor for such Valuation Period. The
assumed investment factor adjusts for the interest assumed in determining the
first Variable Annuity payment. Such factor for any Valuation Period shall be
the accumulated value of $1.00 deposited at the beginning of such period at
the assumed investment rate of 4.0%.
NET INVESTMENT FACTOR
The Net Investment Factor for any sub-account for any Valuation Period is
determined by dividing (a) by (b) and subtracting (c) from the result where:
(a) is the net result of:
(1) the net asset value per share of the Eligible Mutual Fund or
Portfolio held in the sub-account determined as of the current Valuation
Period; plus
(2) the per share amount of any dividend or capital gain distribution
made by the Eligible Mutual Fund or the Portfolio held in the sub-account if
the "ex-dividend" date occurs during the current Valuation Period; plus or
minus
(3) a per share charge or credit, which is determined by the Company,
for changes in tax reserves resulting from investment operations of the
sub-account;
(b) is the net result of:
(1) the net asset value per share of the Eligible Mutual Fund or
Portfolio held in the sub-account determined as of the immediately preceding
Valuation Period; plus or minus
(2) the per share charge or credit for any changes in tax reserve for
the immediately preceding Valuation Period; and
(c) is the percentage factor representing the Mortality and Expense Risk
Premium.
The Net Investment Factor may be greater or less than one; therefore, the
Annuity Unit value may increase or decrease.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Contracts.
6
<PAGE> 36
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
7
<PAGE> 37
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE ACCOUNT II:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of the Liquid Asset Portfolio, Growth Portfolio, Limited
Maturity Bond Portfolio and Balanced Portfolio of the Sentry Variable Account
II as of December 31, 1995, and the related statements of operations and
changes in contract owners' equity for each of the two years in the period then
ended. These financial statements are the responsibility of Sentry Life
Insurance Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Liquid Asset Portfolio,
Growth Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio of the
Sentry Variable Account II as of December 31, 1995, and the results of their
operations and the changes in their contract owners' equity for each of the two
years in the period then ended in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 9, 1996
8
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 2,624,851
shares (cost $2,624,851) $ 2,624,851
Growth Portfolio, 1,335,543
shares (cost $28,869,666) 34,537,132
Limited Maturity Bond Portfolio, 584,401
shares (cost $8,118,289) 8,596,533
Balanced Portfolio, 513,994
shares (cost $7,609,383) 9,005,176
-----------
Total investments 54,763,692
Dividends receivable 10,757
-----------
Total assets 54,774,449
LIABILITIES:
Accrued expenses 2,856
-----------
CONTRACT OWNERS' EQUITY (NET ASSETS) $54,771,593
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE> 39
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
------------------------- -----------------------
1995 1994 1995 1994
----------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Dividends $148,465 $124,657 $71,275 $170,811
Expenses:
Mortality and expense risk 36,040 45,814 400,743 376,544
---------- ---------- ----------- -----------
Net investment income (loss) 112,425 78,843 (329,468) (205,733)
---------- ---------- ----------- -----------
Realized net investment gain -- -- 1,608,647 1,203,944
Unrealized appreciation (depreciation), net -- -- 6,319,592 (7,090,027)
Capital gain distributions received -- 4,577 955,092 3,999,827
---------- ---------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- 4,577 8,883,331 (1,886,256)
---------- ---------- ----------- -----------
Net increase (decrease) in contract owners'
equity from operations 112,425 83,420 8,553,863 (2,091,989)
---------- ---------- ----------- -----------
Purchase payments 139,601 120,645 1,288,052 1,061,228
Transfers between subaccounts, net 105,468 691,753 351,441 (473,402)
Withdrawals (1,111,786) (1,796,074) (5,232,234) (4,944,874)
Contract maintenance fees (4,820) (5,538) (48,549) (51,704)
Surrender charges (6,123) (10,578) (25,366) (40,880)
Asset transfer due to VA merger (Note 7) -- 167,162 -- 1,395,045
---------- ---------- ----------- -----------
Net decrease in contract owners'
equity derived from principal transactions (877,660) (832,630) (3,666,656) (3,054,587)
---------- ---------- ----------- -----------
Total increase (decrease) in contract
owners' equity (765,235) (749,210) 4,887,207 (5,146,576)
Contract owners' equity at beginning of year 3,399,935 4,149,145 29,648,763 34,795,339
---------- ---------- ----------- -----------
Contract owners' equity at end of year $2,634,700 $3,399,935 $34,535,970 $29,648,763
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE> 40
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
----------------------- ------------------------ -------------------------
1995 1994 1995 1994 1995 1994
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$501,148 $394,726 $157,249 $131,376 $878,137 $821,570
107,118 117,735 106,166 102,528 650,067 642,621
---------- ----------- ---------- ---------- ----------- -----------
394,030 276,991 51,083 28,848 228,070 178,949
---------- ----------- ---------- ---------- ----------- -----------
112,466 217,759 300,179 201,009 2,021,292 1,622,712
319,897 (694,494) 1,348,677 (836,053) 7,988,166 (8,620,574)
-- 58,478 50,544 217,057 1,005,636 4,279,939
---------- ----------- ---------- ---------- ----------- -----------
432,363 (418,257) 1,699,400 (417,987) 11,015,094 (2,717,923)
---------- ----------- ---------- ---------- ----------- -----------
826,393 (141,266) 1,750,483 (389,139) 11,243,164 (2,538,974)
---------- ----------- ---------- ---------- ----------- -----------
159,828 161,670 711,656 622,501 2,299,137 1,966,044
4,170 (378,618) (461,079) 160,267 -- --
(1,752,030) (1,861,013) (1,250,692) (1,422,567) (9,346,742) (10,024,528)
(10,934) (13,301) (11,256) (11,837) (75,559) (82,380)
(7,177) (10,027) (11,734) (16,769) (50,400) (78,254)
-- 718,133 -- 158,997 -- 2,439,337
---------- ----------- ---------- ---------- ----------- -----------
(1,606,143) (1,383,156) (1,023,105) (509,408) (7,173,564) (5,779,781)
---------- ----------- ---------- ---------- ----------- -----------
(779,750) (1,524,422) 727,378 (898,547) 4,069,600 (8,318,755)
9,375,663 10,900,085 8,277,632 9,176,179 50,701,993 59,020,748
---------- ----------- ---------- ---------- ----------- -----------
$8,595,913 $ 9,375,663 $9,005,010 $8,277,632 $54,771,593 $50,701,993
========== =========== ========== ========== =========== ===========
</TABLE>
11
<PAGE> 41
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Account II (the Variable Account) is a segregated
investment account of the Sentry Life Insurance Company (the Company) and is
registered with the Securities and Exchange Commission as a unit investment
trust pursuant to the provisions of the Investment Company Act of 1940. The
Variable Account was established by the Company on August 2, 1983 and
commenced operations on May 3, 1984. Accordingly, it is an accounting entity
wherein all segregated account transactions are reflected.
The assets of the Variable Account are invested in one or more of the
portfolios of Neuberger & Berman Advisers Management Trust (the Trust) at the
portfolio's net asset value in accordance with the selection made by the
contract owners.
A copy of the Neuberger & Berman Advisers Management Trust Annual Report is
included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are based
on the daily closing prices of the underlying securities in the Trust's
portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order to
buy and sell is executed). Dividend income is recorded on the ex-dividend
date. The cost of investments sold and the corresponding capital gains and
losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable Account are part of the
total operations of the Company and are not taxed as a separate entity.
Under Federal income tax law, net investment income and net realized capital
gains of the Variable Account which are applied to increase contract owners'
equity are not taxed.
3. EXPENSES
A mortality and expense risk premium is deducted by the Company from the
Variable Account on a daily basis which is equal, on an annual basis, to 1.20%
(.80% mortality and .40% expense risk) of the daily net asset value of the
Variable Account. This mortality and expense risk premium compensates the
Company for assuming these risks under the variable annuity contract. The
liability for accrued mortality and expense risk premium amounted to $2,856 at
December 31, 1995.
The Company deducts, on the contract anniversary date, an annual contract
maintenance charge of $30, per contract holder, from the contract value by
canceling accumulation units. If the contract is surrendered for its full
surrender value, on other than the contract anniversary, the contract
maintenance charge will be deducted at the time of such surrender. This charge
reimburses the Company for administrative expenses relating to maintenance of
the contract.
12
<PAGE> 42
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
There are no deductions made from purchase payments for sales charges at the
time of purchase. However, a contingent deferred sales charge may be deducted
in the event of a surrender to reimburse the Company for expenses incurred
which are related to contract sales. Contingent deferred sales charges apply
to each purchase payment and are graded from 6% during the first contract year
to 0% in the seventh contract year.
Any premium tax payable to a governmental entity as a result of the existence
of the contracts or the Variable Account will be charged against the contract
value. Premium taxes up to 4% are currently imposed by certain states. Some
states assess their premium taxes at the time purchase payments are made;
others assess their premium taxes at the time of annuitization. In the event
contracts would be issued in states assessing their premium taxes at the time
purchase payments are made, the Company currently intends to advance such
premium taxes and deduct the premium taxes from a contract owner's contract
value at the time of annuitization or surrender.
4. INITIAL CAPITALIZATION
Initial capital of $100,000 was provided by the Company for the establishment
of the Variable Account. As an investor in the Variable Account, the Company
shares pro rata in the investment performance of the Variable Account and is
subject to the same valuation procedures and the same periodic charges as are
other contract owners in the Variable Account. The Company's investment, at
market value, was $270,496 at December 31, 1995.
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the related
Variable Account. At December 31, 1995 ownership of the Variable Account was
represented by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 162,165 $16.25 $ 2,634,700
Growth Portfolio 938,909 36.78 34,535,970
Limited Maturity Bond Portfolio 384,749 22.34 8,595,913
Balanced Portfolio 550,216 16.37 9,005,010
-----------
Total contract owners' equity $54,771,593
===========
</TABLE>
At December 31, 1994 ownership of the Variable Account was represented by the
following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 217,211 $15.65 $ 3,399,935
Growth Portfolio 1,049,256 28.26 29,648,763
Limited Maturity Bond Portfolio 460,025 20.38 9,375,663
Balanced Portfolio 618,542 13.38 8,277,632
-----------
Total contract owners' equity $50,701,993
===========
</TABLE>
13
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PURCHASES AND SALES OF SECURITIES
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$7,134,067 and $13,071,544, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $1,127,073 $3,829,670 $ 979,314 $1,198,010 $ 7,134,067
Proceeds on sales 1,887,956 6,871,957 2,191,308 2,120,323 13,071,544
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$10,806,035 and $14,575,256, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $2,030,380 $6,448,934 $ 814,591 $1,512,130 $10,806,035
Proceeds on sales 2,953,556 7,104,923 2,581,675 1,935,102 14,575,256
</TABLE>
7. MERGER OF VARIABLE ACCOUNT
Effective October 31, 1994 the Sentry Variable Account I of Sentry Investors
Life Insurance Company (SILIC VA) was merged into the Variable Account of the
Company. Prior to the merger the variable accounts invested in identical
securities and had the same accumulation unit value. Accumulation units of the
Variable Account were issued one for one in exchange for the accumulation
units of the SILIC VA. The aggregate net assets of the Variable Account and
the SILIC VA were $51,175,180 and $2,439,337 immediately before the merger.
The combined net assets of the Variable Account at October 31, 1994 were
$53,614,517. The results of operations and changes in contract owners' equity
of the SILIC VA are included with the Variable Account after October 31, 1994.
14
<PAGE> 44
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
15
<PAGE> 45
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Sentry Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Sentry Life
Insurance Company as of December 31, 1995 and 1994, and the related
statutory-basis statements of operations, changes in capital stock and surplus,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards; however, as discussed in the
following paragraph, we were not engaged to determine or audit the effects of
the variances between statutory accounting practices and generally accepted
accounting principles. Generally accepted auditing standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying
statutory-basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Insurance Department of the State of
Wisconsin. When statutory-basis financial statements are presented for purposes
other than for filing with a regulatory agency, generally accepted auditing
standards require that an auditor's report on them state whether they are
presented in conformity with generally accepted accounting principles. The
accounting practices used by the Company vary from generally accepted
accounting principles, as explained in Note 1, and the Company has not
determined the effects of these variances. Accordingly, we were not engaged to
audit, and we did not audit, the effects of these variances. Since the
financial statements referred to above do not purport to be a presentation in
conformity with generally accepted accounting principles, we are not in a
position to express, and do not express, an opinion on the financial statements
referred to above as to fair presentation of financial position, results of
operations or cash flows in conformity with generally accepted accounting
principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Wisconsin.
Our audit was conducted for the purpose of expressing an opinion on the
statutory financial statements taken as a whole. The Supplemental Schedule of
Assets and Liabilities is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic statutory financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic statutory financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 16, 1996
16
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------------------------------------ -------------- --------------
<S> <C> <C>
Investments:
Bonds ............................. $1,052,280,485 $ 994,836,423
Investments in subsidiaries ....... 9,802,566 12,480,135
Mortgage loans .................... 266,690 356,804
Policy loans ...................... 26,032,529 25,955,860
Cash and short-term investments ... 24,511,847 19,790,643
-------------- --------------
Total investments .............. 1,112,894,117 1,053,419,865
Accrued investment income .......... 17,081,696 16,617,943
Premiums deferred and uncollected .. 4,314,558 4,052,318
Due from affiliates ................ 3,137,723 784,098
Other assets ....................... 4,133,884 2,549,623
Assets held in separate accounts ... 353,150,081 297,679,331
-------------- --------------
Total assets ................... $1,494,712,059 $1,375,103,178
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
17
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
LIABILITIES 1995 1994
- --------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Future policy benefits:
Life ........................................................ $249,333,860 $243,390,197
Accident and health ......................................... 5,440,914 6,538,298
Annuity ..................................................... 144,504,621 143,462,137
Policy and contract claims .................................... 3,950,311 4,856,792
Premium and other deposit funds ............................... 592,383,093 525,216,191
Other policyholder funds ...................................... 9,770,566 10,434,913
Accounts payable and other liabilities ........................ 3,157,210 4,572,053
Federal income taxes accrued .................................. 10,055,993 9,588,259
Asset valuation reserve ....................................... 11,347,291 11,064,225
Interest maintenance reserve .................................. 8,755,251 10,523,368
Liabilities related to separate accounts ...................... 353,150,081 297,679,331
-------------- --------------
Total liabilities ..................................... $1,391,849,191 $1,267,325,764
============== ==============
CAPITAL STOCK AND SURPLUS
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1995 and 1994 ............. 3,161,780 3,161,780
Paid-in surplus ............................................... 43,719,081 43,719,081
Earned surplus, unappropriated ................................ 55,982,007 60,896,553
-------------- --------------
Total capital stock and surplus ....................... 102,862,868 107,777,414
-------------- --------------
Total liabilities, capital stock and surplus .......... $1,494,712,059 $1,375,103,178
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
18
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations ..................... $73,310,642 $74,979,487
Other fund deposits ..................................... 53,522,784 39,627,588
Commissions and expense allowances on
reinsurance ceded ..................................... 27,816,523 24,334,219
Net investment income ................................... 95,506,086 83,719,032
Other income ............................................ 7,337,287 7,441,791
------------ ------------
Total premiums and other income .................... 257,493,322 230,102,117
------------ ------------
Benefits and expenses:
Policyholder benefits and fund withdrawals .............. 139,196,562 141,216,295
Increase in future life policy benefits
and other reserves .................................... 74,648,971 45,952,969
Commissions ............................................. 15,210,518 12,497,493
Other expenses .......................................... 34,133,546 33,576,466
Transfers from separate accounts, net ................... (37,938,202) (24,934,339)
------------ ------------
Total benefits and expenses ........................ 225,251,395 208,308,884
------------ ------------
Income before federal income tax expense
and net realized gains (losses) on investments .......... 32,241,927 21,793,233
Federal income tax expense, less tax on net realized
(losses) gains and transfers to the IMR ........... 9,009,062 6,488,885
------------ ------------
Income before net realized gains (losses) on investments .. 23,232,864 15,304,348
Net realized gains (losses) on investments ......... (259,451) 6,430,844
------------ ------------
Net income ................................................ $22,973,414 $21,735,192
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
19
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Capital stock, beginning and end of year ........ $ 3,161,780 $ 3,161,780
------------ ------------
Paid-in surplus, beginning and end of year ...... 43,719,081 43,719,081
------------ ------------
Earned surplus, unappropriated:
Balance at beginning of year ................... 60,896,553 52,478,908
Net income ..................................... 22,973,414 21,735,192
Change in non-admitted assets .................. 28,536 18,706
Change in asset valuation reserve .............. (283,066) (425,824)
Dividend to stockholder ........................ (25,000,000) (8,000,000)
Change in net unrealized gains on investments .. (2,633,430) (4,910,429)
------------ ------------
Balance at end of year ......................... 55,982,007 60,896,553
------------ ------------
Total capital stock and surplus ........... $102,862,868 $107,777,414
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
20
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Premiums and annuity considerations ................... $73,042,879 $74,315,388
Other fund deposits ................................... 53,522,784 39,627,588
Other premiums, considerations and deposits ........... 417,089 204,773
Allowances and reserve adjustments received on
reinsurance ceded ................................... 26,569,280 28,044,934
Investment income received (excluding realized gains
and losses and net of investment expenses) .......... 91,417,021 79,022,876
Other income received ................................. 6,920,198 7,237,018
Life and accident and health claims paid .............. (22,360,188) (21,794,823)
Surrender benefits .................................... (72,363,693) (76,370,684)
Other benefits to policyholders paid .................. (45,839,143) (42,260,670)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) .................... (48,454,751) (45,821,611)
Net transfers from separate accounts .................. 38,008,886 25,048,188
Dividends to policyholders paid ....................... (317,157) (323,365)
Federal income taxes paid ............................. (6,917,151) (5,609,555)
Net increase in policy loans .......................... (76,668) (866,376)
------------ ------------
Net cash from operations ............................ 93,569,386 60,453,681
------------ ------------
Proceeds from investments sold, matured, or repaid:
Bonds ............................................... 95,892,606 153,338,441
Stocks .............................................. 383,095 13,075,468
Mortgage loans ...................................... 90,113 149,858
Real estate ......................................... 0 44,000
Tax on net capital gains ............................ (1,572,115) (4,971,389)
------------ ------------
Total investment proceeds ...................... 94,793,699 161,636,378
------------ ------------
Other cash provided ................................... 54,568 1,881,903
------------ ------------
Total cash provided ............................ 188,417,653 223,971,962
------------ ------------
Cost of investments acquired:
Bonds ............................................... 151,782,015 231,872,615
Stocks .............................................. 392,158 -
------------ ------------
Total investments acquired ..................... 152,174,173 231,872,615
Other cash applied:
Dividend to stockholder ............................. 25,000,000 8,000,000
Other applications, net ............................. 6,522,276 2,152,877
------------ ------------
Total cash applied ............................. 183,696,449 242,025,492
------------ ------------
Net change in cash and short-term investments .. 4,721,204 (18,053,530)
Cash and short-term investments:
Beginning of year ................................... 19,790,643 37,844,173
------------ ------------
End of year ......................................... $24,511,847 $19,790,643
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
21
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SIGNIFICANT STATUTORY-BASIS ACCOUNTING POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company (the Company) is a wholly-owned subsidiary of
Sentry Insurance a Mutual Company (SIAMCO). The accompanying statutory-basis
financial statements of the Company have been prepared in conformity with
the accounting practices prescribed or permitted by the Insurance Department
of the State of Wisconsin, which is a comprehensive basis of accounting
other than generally accepted accounting principles (GAAP).
The Company writes life and health insurance products in all states except
New York primarily through direct writers to market the Company's individual
life insurance, annuities and group health and pension products. The Company
also uses direct mail and third party administrators for the marketing of
its group life and health products.
Prescribed statutory accounting principles include a variety of publications
of the National Association of Insurance Commissioners (NAIC), as well as
state laws, regulations, and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not employ any material permitted practices in
the preparation of its statutory financial statements.
The accompanying statutory-basis financial statements have been prepared in
accordance with statutory accounting principles. The preparation of
financial statements in conformity with statutory accounting principles
requires management to make estimates and assumptions that affect the
reported assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the
National Association of Insurance Commissioners (NAIC). Bonds which
qualify for amortization are stated at amortized cost; bonds not
qualifying are carried at the lesser of amortized cost or NAIC market
values. For purposes of determining fair market disclosure,the market
value of bonds in these statutory financial statements is primarily
based on values supplied by independent pricing services. Under GAAP,
bonds would be classified as either trading, available for sale,
held-to-maturity. Bonds classified as trading or as available for sale
would be carried at market with unrealized gains and losses, net of
applicable taxes recognized as net income (trading securities) or as a
direct surplus adjustment (available for sale). Common stocks of the
Company's unconsolidated subsidiary is carried at its underlying
statutory capital and surplus. The change in the subsidiary's underlying
equity between years is reflected as a change in unrealized gains
(losses). Under GAAP, this entity's balance sheet and results of
operations would be consolidated with the Company. Mortgage loans on real
estate are carried at their aggregate unpaid principal balances. Policy
loans are carried at the aggregate of unpaid principal balances plus
accrued interest and are not in excess of cash surrender values of the
related policies.
Short-term investments are carried at amortized cost, which approximates
market value. Investment income is recorded when earned. Market value
adjustments are reflected in earned surplus as unrealized gains (losses)
on investments. Realized gains and losses are determined on the specific
identification method and are recorded directly in the statements of
operations, net of federal income taxes and after transfers to the
Interest Maintenance Reserve, as prescribed by the NAIC.
Income on mortgage-backed securities is recognized using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net
22
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
investment in the securities is adjusted to the amount that would have
existed had the new effective yield been applied since the acquisition of
the securities. This adjustment is reflected in net investment income.
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
The Company issues group annuity contracts both to affiliated companies
and others. The deposits received in connection with these contracts are
placed in deposit administration funds and in separate accounts. The
Company also issues variable annuity contracts and variable universal
life contracts. Deposits for those contracts are also placed in separate
accounts. A separate account is an accounting entity segregated as a
discrete operation within an insurance company. The stockholder of the
Company and its policyholders have no claim to assets held in the
separate accounts except for the Company's seed money investments. The
contract holders are the only persons having rights to any assets in the
separate accounts or to income arising from these assets. All separate
and variable accounts held by the Company are non-guaranteed and
represent funds where the benefit is determined by the performance of the
investments held in the separate account. Assets are carried at market
value and reserves are calculated using the cash value of the contract.
All reserves fall into the category allowing discretionary withdrawals at
market value. For the variable annuity, if the contract has been in
effect at least six years, there is no surrender charge. For the variable
life, there is a surrender charge through the ninth year. The admitted
asset value of separate accounts consists primarily of common stock.
C. NON-ADMITTED ASSETS
For statutory accounting purposes, certain assets designated as
"non-admitted" (principally certain receivables) have been excluded
from the statutory-basis balance sheets and charged to earned surplus.
Under GAAP, such assets would be recognized at net realizable value.
Non-admitted assets totaled $11,396 and $39,932 at December 31, 1995 and
1994, respectively.
D. POLICY BENEFITS
Liabilities for traditional life and limited-payment life contracts are
computed using methods, mortality and morbidity tables and interest rates
which conform to the valuation laws of the State of Wisconsin. The
liabilities are primarily calculated on a modified reserve basis. The
effect of using a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy benefit
reserve increase in the first policy year which is less than the reserve
increase in renewal years.
Future policy benefits for life policies and contracts were primarily
determined using the Commissioner's reserve valuation method with
interest rates ranging from 3% to 6%.
Future policy benefits for annuity contracts, primarily for individual
and group deferred annuities, were primarily determined using the
Commissioner's annuity reserve valuation method with interest rates
ranging from 3% to 11%. Future policy benefits for accident and health
policies consist primarily of a rate credit reserve.
Reserves for universal life-type and investment contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future
benefit payments when such payments are guaranteed.
GAAP reserves are based on mortality, lapse, withdrawal and interest rate
assumptions that are based on Company experience.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized capital gains and losses on fixed income investments
attributable to interest rate changes are deferred in the IMR account.
The IMR is recorded as a liability and amortized into investment income
over the approximate remaining maturities of the bonds sold. This policy
23
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
for recognition of such realized gains and losses is prescribed by the
NAIC in order to alter the impact of such activity on the Company's
surplus. For GAAP purposes, there is no such reserve.
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets including
bonds, mortgage loans, real estate, and other invested assets. The AVR is
recorded as a liability and changes are charged or credited directly to
earned surplus. For GAAP purposes, a valuation allowance is established
on an individual asset basis for those securities whose cost exceeds
market value and is considered a decline other than temporary.
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and limited-payment
contracts are taken into income over the premium paying periods of the
policies. For investment contracts without mortality risk (such as
deferred annuities and immediate annuities with benefits paid for a
period certain) and contracts that permit the insured to make changes in
the contract terms (such as universal life products), deposits are
recorded as revenue when received. Under GAAP, deposits are recorded as
increases to liabilities and revenue is recognized as mortality and other
assessments are made to policyholders.
As the Company has no direct employees and does not own equipment, it
utilizes services provided by employees and equipment of SIAMCO and
occupies space in SIAMCO's office building. Accordingly, the Company
participates in an expense allocation system with certain affiliated
companies. Expenses of the Company consist of direct charges incurred and
an allocation of expenses (principally salaries, salary-related items,
rent, and data processing services) between certain affiliated companies.
The Company recognized expenses of $34,643,002 and $34,007,634 for 1995
and 1994, respectively, under this allocation agreement.
H. ACQUISITION COSTS
Costs directly related to the acquisition of insurance premiums, such as
commissions and premium taxes, are charged to operations as incurred.
Under GAAP, acquisition costs would be capitalized and amortized over the
policy periods.
I. FEDERAL INCOME TAX
The Company is included in the consolidated federal income tax return of
SIAMCO. Income taxes payable or recoverable are determined on a separate
return basis by the Company in accordance with a written tax allocation
agreement. Deferred federal income taxes are not provided for temporary
differences between tax and financial reporting as they would be under
GAAP. Additionally, federal income taxes are not provided for unrealized
appreciation or depreciation on investments.
J. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially
all of their employees. Generally, the companies' funding and accounting
policies are to make the maximum contribution required under applicable
regulation and to charge such contributions to expense in the year they
are deductible for tax purposes. GAAP periodic net pension expense is
based on the cost of incremental benefits for employee service during the
period, interest on the projected benefit obligation, actual return on
plan assets and amortization of actuarial gains and losses.
In addition to providing the pension benefits, the Company, with SIAMCO
and its affiliated subsidiaries, provides certain health care, dental and
life insurance benefits to retired employees and their dependents.
Substantially all of the employees may become eligible for those benefits
if they reach normal retirement age while working for the Companies. The
24
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
expected costs of providing those benefits to employees and the
employees' beneficiaries and covered dependents are accounted for on an
accrual basis during the years that employees render service in
accordance with NAIC policy. SIAMCO is amortizing its transition
obligation, created upon the inital valuation of post retirement
benefits, over a period of twenty years and a portion of the annual
expense is allocated to the Company.
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1995 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $47,003,017 $4,227,481 $(369) $51,230,129
Obligations of states and
political subdivisions 436,311 102,552 - 538,863
Corporate securities 681,937,726 64,330,054 (2,076,597) 744,191,183
Mortgage-backed securities 322,903,431 28,207,436 (68,731) 351,042,136
-------------- ----------- ----------- --------------
Total $1,052,280,485 $96,867,523 $(2,145,697) $1,147,002,311
============== =========== =========== ==============
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1995 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ----------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $287,561,584 $1,975,746 $(16,396,669) $273,140,661
Obligations of state and political
subdivisions 434,704 100,296 - 535,000
Bonds issued by foreign
governments 28,000 - (6,662) 21,338
Corporate securities 648,947,035 6,334,786 (43,310,172) 611,971,649
Mortgage-backed securities 57,865,100 3,239,787 (391,643) 60,713,244
-------------- ----------- ------------ --------------
Total $994,836,423 $11,650,615 $(60,105,146) $946,381,892
============== =========== ============ ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1995, by
contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain issuers have the right to
call or prepay obligations with or without call or prepayment
penalties. Because most mortgage-backed securities provide for periodic
payments throughout their lives, they are listed below in a separate
category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- ---------
<S> <C> <C>
Due in one year or less $ 3,143,843 $ 3,168,990
Due after one year through five years 56,295,732 60,229,804
Due after five years through ten years 143,409,451 152,722,275
Due after ten years 526,528,028 579,839,106
-------------- --------------
Subtotal 729,377,054 795,960,175
Mortgage-backed securities 322,903,431 351,042,136
-------------- --------------
Total $1,052,280,485 $1,147,002,311
============== ==============
</TABLE>
25
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1995 is summarized as follows:
<TABLE>
<S> <C>
Aaa 36%
Aa 4%
A 36%
Baa 22%
Ba & below and not rated 2%
----
100%
</TABLE>
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1995 and 1994, including maturities and
calls, were $95,892,606 and $153,338,441, respectively. In 1995 and 1994,
respectively, gross gains of $1,063,112 and $5,384,867, and gross losses of
$1,915,551 and $3,413,602 were realized on these sales before transfer to
the IMR liability.
At December 31, 1995 and 1994, investments carried at $4,512,880 and
$4,004,601, respectively, were on deposit with various governmental agencies
as required by law.
(3) UNCONSOLIDATED SUBSIDIARIES
The Company wholly owned Sentry Life Insurance Company of New York (SLONY)
during 1995 and 1994. Sentry Investors Life Insurance Company (SILIC), which
was wholly owned during 1994, was sold November 1, 1994 (Note 12).
Condensed financial information regarding SLONY and SILIC is shown as
follows:
<TABLE>
<CAPTION>
SLONY SILIC
------------------------- -------------
1995 1994 1994
------------ ----------- -------------
<S> <C> <C> <C>
Investments $37,758,583 $40,421,036
Total assets 41,821,067 43,976,947
Policy reserves and benefits 19,714,180 19,607,826
Total liabilities 32,018,501 31,496,812
Statutory capital and surplus 9,802,566 12,480,135
Premium income 9,462,202 8,118,040 193,156
Net investment income 3,341,559 3,224,214 991,307
Benefits and expenses 11,066,418 8,980,353 4,475,788
Net income 1,283,176 1,677,305 637,589
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1995 and 1994 are as follows:
<TABLE>
1995 1994
---------- ----------
<S> <C> <C>
Dividends received from affiliates $ 4,000,000 $ 1,837,588
Interest:
Bonds 87,815,295 78,371,213
Short-term investments 1,190,421 912,312
Other investments 1,743,892 1,706,969
Amortization of IMR 1,218,220 1,342,494
----------- -----------
Total investment income 95,967,828 84,170,576
Investment expense 461,742 451,541
----------- -----------
Net investment income $95,506,086 $83,719,032
=========== ===========
</TABLE>
26
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The components of net realized gains (losses) and changes in net unrealized
gains (losses) on investments which are reflected in the accompanying
statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
----------------------- -------------------------
1995 1994 1995 1994
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Bonds $(852,439) $1,971,264 $44,139 $(7,588)
Stocks (8,971)
Less deferred realized gains
(losses) 845,995 (1,971,264)
Common stock of
unconsolidated subsidiaries 7,328,807 (2,677,569) (4,902,841)
Real estate 0 (15,795)
Less related federal income tax (244,036) (882,168) -- --
--------- ---------- ----------- -----------
$(259,451) $6,430,844 $(2,633,430) $(4,910,429)
========= ========== =========== ===========
</TABLE>
(5) INCOME TAXES
Federal income tax expense in the statutory-basis statements of operations
differs from that computed based on the federal statutory corporate income
tax rate of 35%. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1995 1994
------------- ---------------
<S> <C> <C>
Federal income tax calculated at statutory rate
before net realized gains (losses) on investments $11,284,674 $ 7,627,632
Changes in liability for dividends (296,979) (150,118)
Accrual of bond discount (398,747) (272,882)
Adjustment for tax deferred acquisition costs 86,902 243,359
Dividends received from subsidiaries (1,400,000) (643,156)
Other, net (266,788) (315,950)
----------- ------------
$ 9,009,062 $ 6,488,885
=========== ============
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of a life
insurance company's "gain from operations" was not subject to current income
taxation but was accumulated, for tax purposes, in a memorandum account
designated as the "policyholders' surplus account." The amounts included in
this account are includable in taxable income of later years at rates then
in effect if the life insurance company elects to distribute tax basis
policyholders' surplus to stockholders as dividends or takes certain other
actions. Any distributions are first made from another tax memorandum
account known as the "stockholders' surplus account." The accumulation in
the tax policyholders' surplus and stockholders' surplus accounts of the
Company were $5,605,000 and $58,005,000, respectively, at December 31, 1995.
Federal income tax returns of SIAMCO have been examined through 1988. During
1995, the Company and the Internal Revenue Service reached agreement on all
issues relating to 1988 and prior years. Additionally, agreement was reached
on certain issues realting to 1989 and 1990. The Company and the Internal
Revenue Service are currently attempting to resolve all other remaining
issues. In the opinion of management, the Company has adequately provided
for the possible effect of future assessments related to prior years.
(6) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Values of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheets, for which it is practicable to
estimate those values. SFAS 107 defines fair value of a financial instrument
as the amount at which that instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidated
sale.
The fair values presented on the next page represent management's best
estimates and may not be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instruments. Certain financial instruments and all nonfinancial instruments
are exempt from the disclosure requirements of SFAS 107. Financial
instruments which are exempt include life policy benefits with mortality or
morbidity risk. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
27
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
For cash and short-term investments and accrued investment income, the
carrying amount approximates fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
BONDS
Estimated fair value is generally based on quotes provided by independent
pricing services. If a quoted market price is not available, fair value is
estimated by management based on the quoted market price of comparable
instruments.
POLICY LOANS
Policy loans have no stated maturity dates; therefore, no reasonable estimate
of fair value can be made. Interest rates range from 5 to 8 percent.
SEPARATE ACCOUNTS
The fair value of the assets held in separate accounts and offsetting
liabilities are estimated based on the fair value of the underlying
assets.
AGGREGATE RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of investment-type insurance contracts is estimated by
reducing the policyholder liability for applicable surrender charges.
STRUCTURED SETTLEMENTS
The fair value of the liability for structured settlements is estimated by
discounting future cash flows using the current rates being offered for
similar settlements.
LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The fair value for contracts with stated maturities is estimated by
discounting future cash flows using current rates being offered for similar
contracts. For those contracts with no stated maturity, the fair value is
estimated by calculating the surrender value.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1995 VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Assets:
Bonds $1,052,280,485 $1,147,002,311
Assets held in separate accounts 353,150,081 353,150,081
Liabilities:
Aggregate reserves for
investment-type contracts 91,340,270 90,337,319
Structured settlements 46,564,331 51,072,172
Liability for premium and
other deposit funds 592,383,093 591,225,611
Liabilities related to
separate accounts 353,150,081 353,150,081
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1995 VALUE FAIR VALUE
---------- ----------
<S> <C> <C>
Assets:
Bonds $994,836,423 $946,381,892
Assets held in separate accounts 297,679,331 297,679,331
Liabilities:
Aggregate reserves for
investment-type contracts 94,223,013 92,985,237
Structured settlements 44,521,474 53,183,174
Liability for premium and
other deposit funds 525,216,191 512,422,720
Liabilities related to separate accounts 297,679,331 297,679,331
</TABLE>
28
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(7) PENSION AND 401K PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated companies
in a defined benefit pension plan which covers substantially all of their
employees. The benefits are based on years of service, the average of the
three highest of the last fifteen years of an employee's compensation and
primary social security benefits, as defined in the plan. The Company is not
a separately assignable entity for purposes of allocation of accumulated
plan benefits or assets. The Company was allocated pension expense by SIAMCO
of approximately $1,256,000 and $637,000 in 1995 and 1994, respectively.
The Company participates with SIAMCO and its affiliated subsidiaries in a
qualified 401k Plan. Employees who meet certain eligibility requirements may
elect to participate in the Plan. Participants must contribute at least one
percent but no more than 16 percent of base compensation. Highly compensated
employees may contribute a maximum of 10 percent on a pre-tax basis. For
non-highly compensated employees, the entire 16% may be deposited on a
pre-tax basis. The Company matches up to 25% of employee contributions up to
the first 6 percent of base salary deposited by an employee. The Company may
make additional annual contributions to the Plan based on operating profit.
The Company was allocated approximately $474,000 and $461,000 by SIAMCO for
401k Plan benefits in 1995 and 1994, respectively.
In addition to the above-mentioned benefits, the Company, with SIAMCO and
its affiliated subsidiaries, provides certain health care, dental and life
insurance benefits to retired employees and their covered dependents. The
retiree health care benefits allocated to the Company by SIAMCO were
approximately $588,000 for 1995 and $776,000 for 1994.
(8) REINSURANCE
The Company had entered into reinsurance contracts for participation in
reinsurance pools and surplus protection for its wholly-owned subsidiaries.
Assumed life in-force amounted to approximately 29% and 32% of total
in-force (before ceded reinsurance) at December 31, 1995 and 1994,
respectively.
The Company has entered into reinsurance ceded contracts to limit the net
loss potential arising from large risks. Generally, life benefits in excess
of $250,000 and all group health liabilities, except for certain rate credit
reserves, are ceded to reinsurers. The group health liabilities are ceded
to SIAMCO.
The Company cedes insurance to other insurers under various contracts which
cover individual risks or entire classes of business. Although the ceding of
insurance does not discharge the Company from its primary liability to
policyholders in the event any reinsurer might be unable to meet the
obligations assumed under the reinsurance agreements, it is the practice of
insurers to reduce their balances for amounts ceded. The amounts included in
the accompanying statutory-basis financial statements for reinsurance,
exclusive of the assumptive reinsurance, were as follows:
<TABLE>
<CAPTION>
1995
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
---------- ----- ------------ -----
<S> <C> <C> <C> <C>
Premiums $289 $101,267 $7,289 $3,819
Benefits 585 89,339 7,236 2,058
Commissions 5 27,213 (6) 604
Future Policy Benefits:
Life & Annuities 37 - 29 1,130
Accident & Health - 226,669 386 79
</TABLE>
29
<PAGE> 59
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
---------- ----- ------------ -----
<S> <C> <C> <C> <C>
Premiums $280 $90,058 $7,506 $3,628
Benefits 561 69,714 7,440 2,656
Commissions 10 23,906 1 428
Future Policy Benefits:
Life & Annuities 40 - 30 1,099
Accident & Health - 219,713 241 81
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various legal actions and
proceedings pending against the Company. In the opinion of management and
counsel, the ultimate resolution of these matters will not have a material
adverse impact on the Company's statutory-basis financial statements.
State guaranty funds can assess the Company for losses of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company
believes that its accrual for these assessments is adequate.
(10) OTHER RELATED PARTY TRANSACTIONS
The Company is the direct writer of certain employee benefit plans for
SIAMCO. Premiums included in the accompanying statutory-basis statements of
operations (net of ceded premiums) are approximately $23,892,000 and
$18,872,000 in 1995 and 1994, respectively. Because of the existence of
experience return agreements, the effect of these plans on the Company's net
income is not significant.
The Company has provided coverage in the form of annuity contracts as
structured settlements for SIAMCO workers' compensation claims. Reserves for
future policy benefits at December 31, 1995 and 1994 included $46,564,331
and $44,521,474, respectively, relating to these contracts.
Also, see Notes 5, 7, 8, and 12 for other related party transactions.
(11) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposits of approximately $1,022.2 million and $906.2
million in 1995 and 1994, respectively, are subject to withdrawal at the
discretion of the annuity contract holders. Approximately 93% and 92%,
respectively, carry surrender charges.
(12) SALE OF SILIC
SILIC was sold November 1, 1994. In conjunction with the sale, the Company
entered into an assumption reinsurance agreement effective October 31, 1994
to assume liability for all of SILIC's policies. Reserves of $4.9 million
were transferred to the Company as well as deferred and uncollected and
policy loan assets, and all other insurance related balances. Cash and
investments equal to the net liabilities assumed were transferred,
therefore, the assumption reinsurance agreement had no impact on the
Company's earned surplus.
Immediately following this transfer, a distribution was made to the Company
for excess assets not included in the purchase agreement. The distribution
totaled $6,240,716, and was recorded as an income dividend of $637,588 and a
return of capital of $5,603,128.
30
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1995
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and
utilized by actuaries in the determination of reserves.
<TABLE>
<S> <C>
Investment Income Earned:
Government Bonds ................................................... $ 898,477
Other bonds (unaffiliated) ......................................... 86,916,818
Common stocks of affiliates ........................................ 4,000,000
Mortgage loans ..................................................... 34,857
Premium notes, policy loans and liens .............................. 1,708,708
Short-term investments ............................................. 1,190,421
Aggregate write-ins for investment income .......................... 327
--------------
Gross investment income ............................................ $ 94,749,608
==============
Mortgage Loans - Book Value:
Residential mortgages .............................................. $ 266,690
==============
Mortgage Loans By Standing - Book Value:
Good standing ...................................................... $ 266,690
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks ...................................................... $ 9,802,567
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ....................................... $ 16,114,158
Over 1 year through 5 years ....................................... 123,082,938
Over 5 years through 10 years ..................................... 230,415,126
Over 10 years through 20 years .................................... 310,935,495
Over 20 years ..................................................... 371,732,768
--------------
Total by Maturity ................................................. $1,052,280,485
==============
</TABLE>
31
<PAGE> 61
<TABLE>
<S> <C>
Bonds by Class - Statement Value
Class 1 .................................................. $ 776,648,620
Class 2 .................................................. 261,013,319
Class 3 .................................................. 11,121,211
Class 4 .................................................. 1,998,964
Class 5 .................................................. 1,498,371
Class 6 .................................................. 0
--------------------
Total by Class ........................................... $ 1,052,280,485
====================
Total Bonds Publicly Traded .............................. $ 927,542,629
====================
Total Bonds Privately Placed ............................. $ 124,737,856
====================
Short-Term Investments - Book Value ........................ $ 24,302,551
====================
Cash on Deposit ............................................ $ 209,296
====================
Life Insurance In Force (000's omitted):
Ordinary .................................................. $ 4,882,673
====================
Group Life ................................................ $ 3,422,254
====================
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ................................... $ 127,211
====================
Life Insurance Policies with Disability Provisions In Force:
Ordinary .................................................. $ 23,788
====================
Group Life ................................................ $ 164
====================
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ........................................ $ 253,411
====================
Income Payable ........................................... $ 524,977
====================
Ordinary - Involving Life Contingencies
Income Payable ........................................... $ 105,651
====================
</TABLE>
32
<PAGE> 62
<TABLE>
<S> <C>
Annuities:
Ordinary
Immediate - Amount of Income Payable ................... $ 1,435,140
============
Deferred - Fully paid account balance .................. $ 26,272,599
============
Deferred - Not fully paid account balance .............. $ 82,150,542
============
Group
Amount of income payable ............................... $ 5,562,356
============
Fully paid account balance ............................. $ 13,366,184
============
Not fully paid account balance ......................... $902,829,917
============
Accident and Health Insurance - Premiums In Force:
Ordinary ................................................ $ 300,067
============
Group ................................................... $102,084,084
============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ................ $ 325,204
============
Claim Payments 1995:
Group Accident and Health Year - Ended December 31, 199X
1995 ................................................... $ -
============
1994 ................................................... $ -
============
1993 ................................................... $ -
============
Other Accident & Health
1995 ................................................... $ 35,217
============
1994 ................................................... $ 23,499
============
1993 ................................................... $ 83,983
============
</TABLE>
33
<PAGE> 63
PART C
<PAGE> 64
PART C
OTHER INFORMATION
ITEM 24 Financial Statements and Exhibits
(a) Financial Statements of Sentry Variable Account II
Included in Part A:
Condensed Financial Information
Included in Part B:
Report of Independent Accountants
Statement of Assets, Liabilities and Contract Owners'
Equity, December 31, 1995
Equity for the years ended December 31, 1995 and 1994
Notes to Financial Statements, December 31, 1995 and
1994
Financial Statements of Sentry Life Insurance Company
Included in Part B:
Report of Independent Accountants
Statutory-Basis Balance Sheets, December 31, 1995 and
1994
Statutory-Basis Statements of Operations for the years
ended December 31, 1995 and 1994
Statutory-Basis Statements of Changes in Capital Stock
and Surplus for the years ended December 31, 1995 and
1994
Statutory-Basis Statements of Cash Flow for the years
ended December 31, 1995 and 1994
Notes to Statutory-Basis Financial Statements
<PAGE> 65
2
ITEM 24
(b) Exhibits
(1) Resolutions of the Board of Directors of Sentry Life
Insurance Company*
(2) Custodian Agreement**
(3) Principal Underwriter Agreement**
(4) (i) Individual Flexible Purchase Payment Deferred
Variable Annuity Contract**
(ii) Contract Amendment pursuant to Tax Reform Act of
1984***
(5) (i) Application Form+
(ii) Customer Account Information Form******
(6) (i) Articles of Incorporation of Sentry Life Insurance
Company*
(ii) Bylaws*
(7) Not Applicable
(8) (i) Service Agreement**
(ii) Assignment of Service Agreement****
(iii) Marketing Agreement****
(iv) Sales Agreement (Fund Participation Agreement)******
(v) Assignment and Modification Agreement
(9) Opinion and Consent of Counsel*****
(10) Consent of Independent Accountants Attached as Exhibit 10
(11) Not Applicable
(12) Agreement Governing Contribution to Sentry Variable
Account II*
(13) Calculation of Performance Information Attached as
Exhibit 13
(27) Financial Data Schedule
* Exhibits (1), (6)(i), (6)(ii) and (12) are incorporated herein by
reference to such exhibits in Registrant's Form N-8B-2 filed on or about
October 4, 1983.
** Exhibits (2), (3), and (4)(i) and (8)(i) are incorporated herein by
reference to such exhibits in Registrant's Pre-Effective Amendment No. 1
to Form S-6 filed on or about May 10, 1984.
*** Exhibit (4)(ii) is incorporated herein by reference to such exhibit in
Registrant's Post-Effective Amendment No. 1 to Form S-6 filed on or
about April 12, 1985.
**** Exhibits (8)(ii) and (iii) are incorporated herein by reference to such
exhibits in Registrant's Post-Effective Amendment No. 2 to Form S-6
filed on or about May 1, 1986.
***** Exhibit (9) is incorporated herein by reference to such exhibit in
Registrant's Post-Effective Amendment No. 6 to Form N-4 filed on or
about March 3, 1988.
****** Exhibits (5)(ii) and (8)(iv) are incorporated herein by reference to
such exhibits in Registrant's Post-Effective Amendment No. 11 to Form
N-4 filed on or about April 25, 1991.
+ Exhibit (5)(i) is incorporated herein by reference to such exhibit in
Registrant's Post-Effective Amendment No. 14 to Form N-4 filed on or
about April 25, 1994.
<PAGE> 66
3
ITEM 25 Directors and Officers of the Depositor
The following persons are the officers and directors of Sentry
Life Insurance Company. The principal business address for
each director and officer of the Depositor is 1800 North Point
Drive, Stevens Point, Wisconsin 54481.
Positions and Offices
Name with Depositor
--- --------------------
Larry C. Ballard Director, Chairman of the Board
and Chief Executive Officer
Dale R. Schuh Director, President and Chief
Operating Officer
Richard A. Huseby Vice President
Wayne R. Ashenberg Director and Treasurer
William M. O'Reilly Director, General Counsel and
Secretary
Steven R. Boehlke Director
Kenneth J. Erler Assistant Secretary
Thomas H. Weingarten Assistant Treasurer
ITEM 26 Persons Controlled By or Under Common Control With Depositor
The following is a description of all persons who might be considered to
be directly or indirectly controlled by or under common control with the
Depositor:
1. The Depositor, a Wisconsin corporation, is a wholly-owned subsidiary of
Sentry Insurance a Mutual Company ("Sentry Insurance"), a Wisconsin
corporation.
2. The following companies are also wholly-owned subsidiaries of Sentry
Insurance:
(a) Middlesex Insurance Company ("Middlesex"), a Wisconsin
corporation;
(b) Dairyland Insurance Company ("Dairyland"), a Wisconsin
corporation;
(c) Sentry Fund, Inc., a Maryland corporation;
(d) Parker Stevens Agency, Inc., a Wisconsin corporation;
(e) Parker Stevens Agency of Mass., Inc., a Massachusetts
corporation;
(f) Sentry Investment Management, Inc., a Delaware corporation;
(g) Sentry Equity Services, Inc., a Delaware corporation;
(h) Sentry Services, Inc., a Wisconsin corporation;
(i) Sentry Aviation Services, a Wisconsin corporation; and
(j) WAULECO, Inc., a Wisconsin corporation
3. Sentry Insurance is also affiliated with Sentry Insurance Foundation,
Inc., a Wisconsin corporation.
4. Sentry Insurance is also affiliated with Sentry Lloyd's of Texas, a Texas
Lloyd's corporation.
5. Patriot General Insurance Company, a Wisconsin corporation, is a
wholly-owned subsidiary of Middlesex.
6. Sentry Life Insurance Company of New York, a New York corporation, is a
wholly-owned subsidiary of the Depositor.
7. Dairyland County Mutual Insurance Company of Texas, a Texas corporation,
is affiliated with Dairyland.
<PAGE> 67
4
ITEM 27 Number of Contract Owners
As of April 1, 1996, there were 1,708 qualified contract owners
and 641 non-qualified contract owners.
ITEM 28 Indemnification
This item is incorporated herein by reference to such item in
Registrant's Post-Effective Amendment No. 5 to Form N-4 filed on or
about April 30, 1987.
ITEM 29 Principal Underwriter
(a) Sentry Equity Services, Inc., the Principal Underwriter for
the Contracts, also acts as principal Underwriter for:
Sentry Variable Account I
Sentry Variable Life Account I
Sentry Fund, Inc.
(b) The following persons are the officers and directors of Sentry
Equity Services, Inc. The principal business address
for each director and officer of the Principal Underwriter is
1800 North Point Drive, Stevens Point, Wisconsin 54481:
Positions and Offices
Name With Underwriter
---- ---------------------
Dale R. Schuh Chairman of the Board
John A. Stenger President
David M. Potts Vice President
William M. O'Reilly Secretary
Thomas H. Weingarten Treasurer
Larry C. Ballard Director
Wayne R. Ashenberg Director
(c)
<TABLE>
<CAPTION>
Name of Net Underwriting
Principal Discounts & Compensation On Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Sentry Equity
Services, Inc. $54,562.00 $ 0.00 $0.00 $293,144.00
</TABLE>
ITEM 30 Location of Accounts and Records
As required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder, Sentry
Equity Services, Inc. and Sentry Life Insurance Company maintain
physical possession of the accounts, books or documents of the
Separate Account at 1800 North Point Drive, Stevens Point, Wisconsin
54481.
ITEM 31 Management Services
Not Applicable.
<PAGE> 68
5
ITEM 32 Undertakings
------------
(a) Registrant hereby undertakes to file a Post-Effective
Amendment to this Registration Statement as
frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are
never more than sixteen (16) months old for so long as
payments under the variable annuity contracts may be
accepted.
(b) Registrant hereby undertakes to include either: (1) as
part of any application to purchase a contract offered
by the Prospectus, a space that an applicant can check
to request a Statement of Additional Information, or
(2) a postcard or similar written communication affixed
to or included in the Prospectus that the applicant can
remove to send for a Statement of Additional
Information.
(c) Registrant hereby undertakes to deliver any Statement
of Additional Information and any financial statement
required to be made available under this Form promptly
upon written or oral request.
REPRESENTATIONS
The Registrant hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88), and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each Registration Statement,
including the Prospectus, used in connection with the offer of the
contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in
connection with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
and
4. Obtain from each plan participant who purchases a Section 403(b)
annuity contract, prior to or at the time of such purchase, a signed
statement acknowledging the participant's understanding of: (1) the
restrictions on redemption imposed by Section 403(b)(11), and (2)
other investment alternatives available under the employer's Section
403(b) arrangement to which the participant may elect to transfer his
or her contract value.
<PAGE> 69
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Registration Statement and has caused
this Registration Statement to be signed on its behalf, in the City of Stevens
Points, State of Wisconsin, on the 22 day of April, 1996.
Sentry Variable Account II
---------------------------------------
Registrant
BY: Sentry Life Insurance Company
BY: s/Dale R. Schuh
----------------------------------
Dale R. Schuh, President, Chief
Operating Officer and Director
Sentry Life Insurance Company
---------------------------------------
Depositor
BY: s/Dale R. Schuh
----------------------------------
Dale R. Schuh, President, Chief
Operating Officer and Director
<PAGE> 70
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
s/Larry C. Ballard Chairman of the Board and April 22, 1996.
- ----------------------- Chief Executive Officer
Larry C. Ballard
s/Dale R. Schuh President, Chief Operating April 22, 1996.
- ----------------------- Officer and Director
Dale R. Schuh
s/Steven R. Boehlke Director April 22, 1996.
- -----------------------
Steven R. Boehlke
s/William M. O'Reilly Secretary, General Counsel April 22, 1996.
- ----------------------- and Director
William M. O'Reilly
s/Wayne R. Ashenberg Treasurer and Director April 22, 1996.
- -----------------------
Wayne R. Ashenberg
s/Richard A. Huseby Vice President April 22, 1996.
- -----------------------
Richard A. Huseby
<PAGE> 71
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 16
TO
FORM N-4
FOR
SENTRY VARIABLE ACCOUNT II
<PAGE> 72
INDEX TO EXHIBITS
Exhibit
- -------
99.B 8(v) Assignment and Modification Agreement
99.B 10 Consent of Independent Accountants
99.B 13 Calculation of Performance Information
99.B 27 Financial Data Schedule
<PAGE> 1
EXHIBIT 8(v)
ASSIGNMENT AND MODIFICATION AGREEMENT
<PAGE> 2
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger
& Berman Advisers Management Trust ("Successor Trust"), a Delaware business
trust, Advisers Managers Trust ("Managers Trust") and Sentry Life Insurance
Company ("Life Company"), a life insurance company organized under the laws of
the State of Wisconsin.
WHEREAS, the Life Company has previously entered into a Sales Agreement
dated September 28, 1990 (the "Sales Agreement") with the Trust regarding the
purchase of shares of the Trust by Life Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the Successor
Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust
will transfer all of its assets to the corresponding Portfolio of the Successor
Trust ("Successor Portfolio") and each Successor Portfolio will invest all of
its net investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of
the Investment Company Act of 1940 ("'40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
"Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Sales Agreement; and
WHEREAS, the parties hereto desire to assign the Sales Agreement from
the Trust to the Successor Trust, to modify the Sales Agreement to include the
Conditions and to rename the Sales Agreement; and
WHEREAS, N&B Management and Managers trust will become parties to the
Sales Agreement as modified hereby, due to and for purposes of their
obligations under the Conditions.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management, Successor Trust, Managers Trust and Life Company agree as follows:
1
<PAGE> 3
1. The Sales Agreement is hereby assigned by the Trust to the
Successor Trust.
2. Pursuant to such assignment, the Successor Trust hereby accepts
all rights and benefits of the Trust under the Sales Agreement and agrees to
perform all duties and obligations of the Trust under the Sales Agreement. Upon
the effectiveness of this Assignment and Modification Agreement, the Trust will
be released from all obligations and duties under the Sales Agreement.
3. The Sales Agreement is hereby modified to include the Conditions
as follows:
Sections 8 and 9 of the Sales Agreement are replaced by the following:
8. a) The Board of Trustees of each of the Successor Trust and
Managers Trust (the "Boards") will monitor the Successor Trust and Managers
Trust, respectively, (collectively the "Funds") for the existence of any
material irreconcilable conflict between the interests of the contract owners
of all insurance company separate accounts investing in the Funds. A material
irreconcilable conflict may arise for a variety of reasons, including: (a)
state insurance regulatory authority action; (b) a change in applicable federal
or state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by variable
annuity and variable life insurance contract owners or by contract owners of
different participating insurance companies; or (f) a decision by a
participating insurance company to disregard voting instructions of contract
owners.
b) Life Company, will report any potential or existing
conflicts to the Boards. Life Company will be responsible for assisting the
appropriate Board in carrying out its responsibilities under the Conditions set
forth in the notice issued by the SEC for the Funds on April 12, 1995 (the
"Notice") by providing the Board with all information reasonably necessary for
it to consider any issues raised. This responsibility includes, but is not
limited to, an obligation by Life Company to inform the Board whenever variable
contract owner voting instructions are disregarded by Life Company. These
responsibilities will be carried out with a view only to the interests of the
contract owners.
c) If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the Life Company, Life Company, at its expense and
to the extent reasonably practicable (as determined by a majority of
disinterested trustees or directors), will take any steps necessary to remedy
or eliminate the irreconcilable material conflict, including: (a) withdrawing
the assets allocable to some or all of the separate accounts from the Funds or
any series thereof and reinvesting those assets in a different medium, which
2
<PAGE> 4
may include another series of the Successor Trust or Managers Trust, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected variable contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., variable
annuity or variable life contract owners of one or more Participants) that
votes in favor of such segregation, or offering to the affected variable
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of Life Company's decision to
disregard contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the Life Company may be
required, at the election of the relevant Fund, to withdraw its separate
account's investment in such Fund, and no charge or penalty will be imposed as
a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the contract owners.
For the purposes of this Section 8, a majority of the
disinterested members of the applicable Board shall determine whether or not any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the relevant Fund or N&B Management (or any other investment
adviser of the Funds) be required to establish a new funding medium for any
variable contract. Further, Life Company shall not be required by this Section
8(c) to establish a new funding medium for any variable contract if any offer to
do so has been declined by a vote of a majority of contract owners materially
affected by the irreconcilable material conflict.
(d) Any Board's determination of the existence of an
irreconcilable material conflict and its implications shall be made known
promptly and in writing to Life Company.
9. a) Life Company will provide pass-through voting privileges to
all contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for variable contract owners. This
condition will apply to UIT-separate accounts investing in the Successor Trust
and to managed separate accounts investing in Managers Trust to the extent a
vote is required with respect to matters relating to Managers Trust.
Accordingly, the Life Company, where applicable, will vote shares of a Fund
held in their separate accounts in a manner consistent with voting instructions
timely received from variable contract owners. Life Company will be responsible
for assuring that each of their separate accounts that participates in the
Funds calculates voting privileges in a manner consistent with other
Participants as defined in the Conditions set forth in this Notice. The
obligation to calculate voting privileges in a manner consistent with all other
separate accounts investing in the Funds will be a contractual obligation of
all Participants under the agreements governing participation in the Funds.
Each Participant will vote shares for which it has not received timely voting
instructions, as well as shares it owns,
3
<PAGE> 5
in the same proportion as its votes those shares for which it has received
voting instructions.
b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
order requested, then the Successor Trust, Managers Trust and/or the
Participants, as appropriate, shall take such steps as may be necessary to
comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted,
to the extent such Rules are applicable.
c) No less than annually, the Life Company shall submit to the
Boards such reports, materials or data as such Boards may reasonably request so
that the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more frequently
if deemed appropriate by the applicable Boards.
4. The Sales Agreement shall be renamed Fund Participation
Agreement.
5. This Assignment and Modification Agreement shall be effective on
May 1, 1995, the closing date of the conversion. In the event of a conflict
between the terms of this Assignment and Modification Agreement and the terms
of the Sales Agreement, the terms of this Assignment and Modification Agreement
shall control.
6. All other terms and conditions of the Sales Agreement remain in
full force and effect.
Executed this 1st day of May, 1995.
Neuberger & Berman Advisers
Management Trust
(a Massachusetts business trust)
Attest: Claudia A. Brandon By: Stanley Egener
-------------------------- ----------------------------
Stanley Egener, Chairman
4
<PAGE> 6
Neuberger & Berman Advisers
Management Trust
(a Delaware business trust)
Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener
----------------------------
Stanley Egener, Chairman
Advisers Managers Trust
Attest: /s/ Claudia A. Brandon By: /s/ Stanley Egener
----------------------------
Neuberger & Berman Management
Incorporated
Attest: /s/ Ellen Metzger By: /s/ Michael Fluin
----------------------------
Sentry Life Insurance Company
Attest: /s/ Susan Brock By: /s/ W. O'Reilly
----------------------------
William M. O'Reilly
Secretary
5
<PAGE> 1
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE> 2
EXHIBIT 10
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Sentry Life Insurance Company of New York
We consent to the inclusion in Post-Effective Amendment No. 16 to the
Registration Statement of Sentry Variable Account I on Form N-4 (File No.
2-87746) of our report dated February 9, 1996 on our audit of the financial
statements of Sentry Variable Account I and our report dated February 16,
1996, on our audits of the statutory financial statements of Sentry Life
Insurance Company of New York. We also consent to the reference to our Firm
under the captions "Condensed Financial Information" in the Prospectus and
"Accountants" in the Statement of Additional Information.
s/ Coopers & Lybrand L.L.P.
Chicago, Illinois
April 29, 1996
<PAGE> 1
EXHIBIT 13
CALCULATION OF PERFORMANCE INFORMATION
<PAGE> 2
SEC Rule 482 -- Total Return
SLIC Variable Annuity -- One Year
Original Purchase -- 12/30/94
Valuation Date 12/31/95
LIQUID ASSET
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/94 Purchase 1,000.00 15.652666 63.887 63.887 $1,000.00
09/10/95 Contract Fee (2.61) 16.064606 (0.162) 63.724 $1,023.71
12/31/95 Value before Surr. Chg. 16.247074 0.000 63.724 $1,035.34
12/31/95 Surrender Charge 0.05 (50.00) 16.247074 (3.077) 60.647 $985.34
12/31/95 Remaining Value 16.247074 0.000 60.647 $985.34
</TABLE>
GROWTH
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/94 Purchase 1,000.00 28.256936 35.390 35.390 $1,000.00
09/10/95 Contract Fee (6.37) 38.489914 (0.165) 35.224 $1,355.77
12/31/95 Value before Surr. Chg. 36.783095 0.000 35.224 $1,295.65
12/31/95 Surrender Charge 0.05 (50.00) 36.783095 (1.359) 33.865 $1,245.65
12/31/95 Remaining Value 36.783095 0.000 33.865 $1,245.65
</TABLE>
<PAGE> 3
BOND
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/94 Purchase 1,000.00 20.380777 49.066 49.066 $1,000.00
09/10/95 Contract Fee (16.56) 21.722485 (0.762) 48.303 $1,049.27
12/31/95 Value before Surr. Chg. 22.341625 0.000 48.303 $1,079.18
12/31/95 Surrender Charge 0.05 (50.00) 22.341625 (2.238) 46.066 $1,029.18
12/31/95 Remaining Value 22.341625 0.000 46.066 $1,029.18
</TABLE>
BALANCED
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/94 Purchase 1,000.00 13.382495 74.724 74.724 $1,000.00
09/10/95 Contract Fee (4.46) 16.661507 (0.268) 74.457 $1,240.56
12/31/95 Value before Surr. Chg. 16.366322 0.000 74.457 $1,218.58
12/31/95 Surrender Charge 0.05 (50.00) 16.366322 (3.055) 71.402 $1,166.58
12/31/95 Remaining Value 16.366322 0.000 71.402 $1,168.58
</TABLE>
<PAGE> 4
SLIC
VA SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/95
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 1.00 985 -1.47% -1.47%
Growth $1,000 1.00 1,246 24.56% 24.56%
Bond $1,000 1.00 1,029 2.92% 2.92%
Balanced $1,000 1.00 1,169 16.86% 16.86%
</TABLE>
<PAGE> 5
SEC Rule 482 -- Total Return
SLIC Variable Annuity -- Five Years
Original Purchase -- 12/31/90
Valuation Date 12/31/95
LIQUID ASSET
================
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- --------------- ------------------------ ---- -------- ---------- ----------- ---------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
12/30/90 Purchase 1,000.00 14.200073 70.422 70.422 $1,000.00
09/10/91 Contract Fee (3.72) 14.662450 (0.254) 70.168 $1,028.84
09/10/92 Contract Fee (3.12) 15.057642 (0.207) 69.961 $1,053.45
09/10/93 Contract Fee (2.80) 15.258026 (0.184) 69.778 $1,064.67
09/10/94 Contract Fee (2.70) 15.508169 (0.174) 69.604 $1,079.43
09/10/95 Contract Fee (2.61) 16.064606 (0.162) 69.441 $1,115.55
12/31/95 Value before Surr. Chg. 16.247074 0.000 69.441 $1,128.22
12/31/95 Surrender Charge 0.01 (10.00) 16.247074 (0.615) 68.826 $1,118.22
12/31/95 Remaining Value 16.247074 0.000 68.826 $1,118.22
</TABLE>
GROWTH
================
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- --------------- ------------------------ ---- -------- ---------- ----------- ---------- ---------
<C> <S> <C> <C> <C> <C> <C> <C>
12/30/90 Purchase 1,000.00 20.437886 48.929 48.929 $1,000.00
09/10/91 Contract Fee (7.80) 24.162236 (0.323) 48.606 $1,174.43
09/10/92 Contract Fee (7.42) 26.222802 (0.283) 48.323 $1,267.16
09/10/93 Contract Fee (7.01) 29.686989 (0.236) 48.087 $1,427.55
09/10/94 Contract Fee (6.74) 29.235922 (0.231) 47.856 $1,399.12
09/10/95 Contract Fee (6.37) 38.489914 (0.165) 47.691 $1,835.61
12/31/95 Value before Surr. Chg. 36.783095 0.000 47.691 $1,754.22
12/31/95 Surrender Charge 0.01 (10.00) 36.783095 (0.272) 47.419 $1,744.22
12/31/95 Remaining Value 36.783095 0.000 47.419 $1,744.22
</TABLE>
<PAGE> 6
BOND
================
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- --------------- ------------------------ ---- -------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/90 Purchase 1,000.00 17.120172 58.411 58.411 $1,000.00
09/10/91 Contract Fee (16.88) 18.039834 (0.936) 57.475 $1,036.84
09/10/92 Contract Fee (16.22) 19.677253 (0.824) 56.651 $1,114.73
09/10/93 Contract Fee (16.13) 20.708926 (0.779) 55.872 $1,157.04
09/10/94 Contract Fee (16.13) 20.446641 (0.789) 55.083 $1,126.26
09/10/95 Contract Fee (16.56) 21.722485 (0.762) 54.321 $1,179.98
12/31/95 Value before Surr. Chg. 22.341625 0.000 54.321 $1,213.61
12/31/95 Surrender Charge 0.01 (10.00) 22.341625 (0.448) 53.873 $1,203.61
12/31/95 Remaining Value 22.341625 0.000 53.873 $1,203.61
</TABLE>
BALANCED
================
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- --------------- ------------------------ ---- -------- ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/90 Purchase 1,000.00 10.235301 97.701 97.701 $1,000.00
09/10/91 Contract Fee (1.60) 11.539053 (0.139) 97.562 $1,125.78
09/10/92 Contract Fee (3.24) 12.638701 (0.256) 97.306 $1,229.82
09/10/93 Contract Fee (4.06) 13.887021 (0.292) 97.014 $1,347.23
09/10/94 Contract Fee (4.43) 13.714103 (0.323) 96.691 $1,326.03
09/10/95 Contract Fee (4.46) 16.661507 (0.268) 96.423 $1,606.55
12/31/95 Value before Surr. Chg. 16.366322 0.000 96.423 $1,578.09
12/31/95 Surrender Charge 0.01 (10.00) 16.366322 (0.611) 95.812 $1,568.09
12/31/95 Remaining Value 16.366322 0.000 95.812 $1,568.09
</TABLE>
<PAGE> 7
SLIC
VA SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/95
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 5.00 1,118 2.26% 11.82%
Growth $1,000 5.00 1,744 11.77% 74.42%
Bond $1,000 5.00 1,204 3.78% 20.36%
Balanced $1,000 5.00 1,568 9.41% 56.81%
</TABLE>
<PAGE> 8
SEC Rule 482 -- Total Return
SLIC Variable Annuity -- Ten Years
Original Purchase -- 12/31/85 (3/1/89 Balanced Portfolio)
Valuation Date 12/31/95
LIQUID ASSET
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/85 Purchase 1,000.00 10.826659 92.365 92.365 $1,000.00
09/10/86 Contract Fee (1.58) 11.201906 (0.141) 92.224 $1,033.08
09/10/87 Contract Fee (2.79) 11.647473 (0.240) 91.984 $1,071.38
09/12/88 Contract Fee (3.57) 12.225303 (0.292) 91.692 $1,120.96
09/11/89 Contract Fee (2.69) 13.104622 (0.205) 91.487 $1,198.90
09/10/90 Contract Fee (2.99) 13.950933 (0.214) 91.272 $1,273.34
09/10/91 Contract Fee (3.72) 14.662450 (0.254) 91.019 $1,334.56
09/10/92 Contract Fee (3.12) 15.057642 (0.207) 90.811 $1,367.41
09/10/93 Contract Fee (2.80) 15.258026 (0.184) 90.628 $1,382.80
09/10/94 Contract Fee (2.70) 15.508169 (0.174) 90.454 $1,402.77
09/10/95 Contract Fee (2.61) 16.064606 (0.162) 90.291 $1,450.50
12/31/95 Value before Surr. Chg. 16.247074 0.000 90.291 $1,466.97
12/31/95 Surrender Charge 0.00 16.247074 0.000 90.291 $1,466.97
12/31/95 Remaining Value 16.247074 0.000 90.291 $1,466.97
</TABLE>
GROWTH
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/85 Purchase 1,000.00 13.319127 75.080 75.080 $1,000.00
09/10/86 Contract Fee (19.65) 15.372282 (1.278) 73.802 $1,134.50
09/10/87 Contract Fee (8.65) 19.141253 (0.452) 73.350 $1,404.01
09/12/88 Contract Fee (9.02) 16.511644 (0.546) 72.804 $1,202.11
09/11/89 Contract Fee (6.48) 23.518002 (0.276) 72.528 $1,705.71
09/10/90 Contract Fee (6.15) 20.312947 (0.303) 72.225 $1,467.11
09/10/91 Contract Fee (7.80) 24.162236 (0.323) 71.902 $1,737.32
09/10/92 Contract Fee (7.42) 26.222802 (0.283) 71.619 $1,878.06
09/10/93 Contract Fee (7.01) 29.686989 (0.236) 71.383 $2,119.16
09/10/94 Contract Fee (6.74) 29.235922 (0.231) 71.153 $2,080.22
09/10/95 Contract Fee (6.37) 38.489914 (0.165) 70.987 $2,732.29
12/31/95 Value before Surr. Chg. 36.783095 0.000 70.987 $2,611.13
12/31/95 Surrender Charge 0.00 36.783095 0.000 70.987 $2,611.13
12/31/95 Remaining Value 36.783095 0.000 70.987 $2,611.13
</TABLE>
<PAGE> 9
BOND
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/85 Purchase 1,000.00 12.078999 82.788 82.788 $1,000.00
09/10/86 Contract Fee (8.77) 13.359991 (0.656) 82.132 $1,097.28
09/10/87 Contract Fee (18.55) 13.809750 (1.343) 80.789 $1,115.87
09/12/88 Contract Fee (17.42) 14.511242 (1.200) 79.588 $1,154.92
09/11/89 Contract Fee (13.33) 15.619823 (0.853) 78.735 $1,229.82
09/10/90 Contract Fee (12.65) 16.639546 (0.760) 77.975 $1,297.46
09/10/91 Contract Fee (16.88) 18.039834 (0.936) 77.039 $1,389.77
09/10/92 Contract Fee (16.22) 19.677253 (0.824) 76.215 $1,499.69
09/10/93 Contract Fee (16.13) 20.708926 (0.779) 75.436 $1,562.19
09/10/94 Contract Fee (16.13) 20.446641 (0.789) 74.647 $1,526.28
09/10/95 Contract Fee (16.56) 21.722485 (0.762) 73.884 $1,604.95
12/31/95 Value before Surr. Chg. 22.341625 0.000 73.884 $1,650.70
12/31/95 Surrender Charge 0.00 22.341625 0.000 73.884 $1,650.70
12/31/95 Remaining Value 22.341625 0.000 73.884 $1,650.70
</TABLE>
BALANCED
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
03/01/89 Purchase 1,000.00 8.975613 111.413 111.413 $1,000.00
09/11/89 Contract Fee (7.50) 10.376347 (0.723) 110.690 $1,148.56
09/10/90 Contract Fee (0.50) 10.074228 (0.050) 110.641 $1,114.62
09/10/91 Contract Fee (1.60) 11.539053 (0.139) 110.502 $1,275.09
09/10/92 Contract Fee (3.24) 12.638701 (0.256) 110.246 $1,393.36
09/10/93 Contract Fee (4.06) 13.887021 (0.292) 109.953 $1,526.92
09/10/94 Contract Fee (4.43) 13.714103 (0.323) 109.630 $1,503.48
09/10/95 Contract Fee (4.46) 16.661507 (0.268) 109.362 $1,822.14
12/31/95 Value before Surr. Chg. 16.366322 0.000 109.362 $1,789.86
12/31/95 Surrender Charge 0.01 (10.00) 16.366322 (0.611) 108.751 $1,779.86
12/31/95 Remaining Value 16.366322 0.000 108.751 $1,779.86
</TABLE>
<PAGE> 10
SLIC
VA SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/95
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 10.00 1,467 3.91% 46.70%
Growth $1,000 10.00 2,611 10.07% 161.11%
Bond $1,000 10.00 1,651 5.14% 65.07%
Balanced $1,000 6.84 1,780 8.79% 77.99%
(Since Inception)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 47,222,189
<INVESTMENTS-AT-VALUE> 54,763,692
<RECEIVABLES> 10,757
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<TOTAL-LIABILITIES> 2,856
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<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
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<DIVIDEND-INCOME> 878,137
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
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<APPREC-INCREASE-CURRENT> 7,988,166
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<EQUALIZATION> 0
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 210,144
<NUMBER-OF-SHARES-REDEEMED> 519,140
<SHARES-REINVESTED> 0
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<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>