<PAGE> 1
1933 Act File No. 33-85204
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. [ ]
-----
Post-Effective Amendment No. 3 [ x ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20 [ x ]
SENTRY VARIABLE ACCOUNT II
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
SENTRY LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
(Name of Depositor)
1800 North Point Drive
Stevens Point, Wisconsin 54481
- --------------------------------------------------------------------------------
(Address of Depositor's Executive Offices and Zip Code)
Telephone (715) 346-6000
- --------------------------------------------------------------------------------
(Depositor's Telephone Number, Including Area Code)
William M. O'Reilly
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
- --------------------------------------------------------------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on December 1,1999, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on , pursuant to paragraph (a)(1) of Rule 485
------------------
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Title of Securities Being Registered: Individual Variable Annuity Contracts
<PAGE> 2
CROSS REFERENCE SHEET
(Required by Rule 495)
Item No. Location
- -------- --------
PART A
1 Cover Page .............................. Cover Page
2 Definitions ............................. Definitions
3 Synopsis ................................. Summary
4 Condensed Financial Information ......... Condensed Financial Information
5 General Description of Registrant,
Depositor, and Portfolio Companies ....... The Company; The Variable
Account; Neuberger Berman
Advisers Management Trust
6 Deductions and Expenses ................. 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 ................................... Federal Tax Status
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
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 LIFE INSURANCE COMPANY LETTERHEAD]
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
ISSUED BY
SENTRY VARIABLE ACCOUNT II
AND
SENTRY LIFE INSURANCE COMPANY
The individual flexible purchase payment deferred variable annuity contract (the
"Contract") described in this Prospectus provides for accumulation of Contract
Values and monthly annuity payments on a variable basis. The Contract is
designed for use by individuals in retirement plans on a qualified or
non-qualified basis. The Contract may be purchased for retirement plans that
receive favorable tax treatment such as individual retirement annuities,
tax-sheltered annuities, pension and profit-sharing plans and deferred
compensation plans.
Your purchase payments will be allocated to a segregated investment account of
Sentry Life Insurance Company which has been designated Sentry Variable Account
II (the "Variable Account"). The Variable Account invests in shares of Neuberger
Berman Advisers Management Trust. Through the Variable Account, you may invest
in the following Portfolios of Neuberger Berman Advisers Management Trust:
- Growth Portfolio
- Liquid Asset Portfolio
- Limited Maturity Bond Portfolio
- Balanced Portfolio
As the Owner of the Contract, you bear the complete investment risk for amounts
you allocate to the Variable Account.
The Contract:
=> is not a bank deposit
=> is not federally insured
=> is not endorsed by any bank or government agency
=> is not guaranteed and may be subject to loss of principal
This Prospectus provides basic information you should know about the Contract
before investing. Please keep this Prospectus for future reference.
A Statement of Additional Information dated December 1, 1999, which is legally a
part of this Prospectus, contains further information about the Contract. It has
been filed with the Securities and Exchange Commission, along with this
Prospectus. You can obtain a copy of the Statement of Additional Information at
no charge by writing or calling Sentry Equity Services, Inc., 1800 North
<PAGE> 5
Point Drive, Stevens Point, WI 54481, (800)533-7827. The Table of Contents for
the Statement of Additional Information can be found on page 36 of this
Prospectus.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, the Contract in any jurisdiction in which such offer or
solicitation may not be lawfully made.
INQUIRIES: If you have any questions regarding the Contract, you should call or
write the Annuity Service Office at the telephone number or address given above.
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this Prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
This Prospectus and the Statement of Additional Information are
dated December 1, 1999.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Definition .................................................................................................. 5
Summary ......................................................................................................7
Fee Table .....................................................................................................9
Condensed Financial Information ..............................................................................11
Performance Information ......................................................................................11
Financial Statements .........................................................................................12
The Company ..................................................................................................12
The Variable Account ........................................................................................12
Neuberger Berman Advisers Management Trust ...................................................................13
AMT Liquid Asset Investments ...............................................................................13
AMT Growth Investments ......................................................................................13
AMT Limited Maturity Bond Investments .......................................................................13
AMT Balanced Investments.....................................................................................13
Variable Account Voting Rights ..............................................................................14
Substitution of Securities ..................................................................................14
Charges and Deductions .......................................................................................14
Contingent Deferred Sales Charge ............................................................................14
Reduction or Elimination of Contingent Deferred Sales Charge ................................................16
Deduction for Mortality and Expense Risk Premium ............................................................16
Deduction for Contract Maintenance Charge ...................................................................17
Deduction for Premium Taxes and Other Taxes .................................................................17
Trust Expenses ..............................................................................................18
The Contract .................................................................................................18
Transfers ...................................................................................................18
Telephone Transfers..........................................................................................19
No Default ..................................................................................................19
Modification of the Contract ................................................................................20
Contract Value ..............................................................................................20
Ownership ...................................................................................................20
Assignment ..................................................................................................20
Beneficiary .................................................................................................21
Annuity Provisions ...........................................................................................21
Income Date and Settlement Option ...........................................................................21
Changing the Income Date ....................................................................................21
Changing the Settlement Option ..............................................................................21
Settlement Options ..........................................................................................22
Mortality and Expense Guarantee .............................................................................22
Frequency of Annuity Payments ...............................................................................22
Amount of Annuity Payments ..................................................................................23
Additional Provisions .......................................................................................23
</TABLE>
3
<PAGE> 7
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
Death Benefit ...............................................................................................24
Death of the Annuitant .....................................................................................24
Death of the Contract Owner ................................................................................24
Purchases and Contract Value ................................................................................25
Change in Purchase Payments ................................................................................25
Allocation of Purchase Payments ............................................................................25
Accumulation Units .........................................................................................26
Distribution of Contract ...................................................................................26
Surrenders ..................................................................................................26
Limitations on Withdrawals from 403(b) Annuities ...........................................................27
Texas Optional Retirement Program ..........................................................................28
Federal Tax Status ..........................................................................................28
General ....................................................................................................28
Diversification ............................................................................................29
Contract Owner Control of Investments.......................................................................29
Multiple Contracts .........................................................................................30
Owner Other than Natural Persons ...........................................................................30
Tax Treatment of Assignments ...............................................................................30
Income Tax Withholding .....................................................................................30
Tax Treatment of Withdrawals - Non-Qualified Contracts and Section 457 Contracts............................31
Qualified Plans ............................................................................................31
Tax Treatment of Withdrawals - Qualified Contracts .........................................................34
Tax Sheltered Annuities - Withdrawal Limitations ...........................................................35
Section 457 - Deferred Compensation Plans ..................................................................35
Legal Proceedings ...........................................................................................35
Table of Contents of Statement of Additional Information ....................................................36
</TABLE>
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<PAGE> 8
DEFINITIONS
Following are definitions of terms used in this Prospectus.
Accumulation Unit An accounting unit representing a share of ownership
in the Variable Account during the years before
annuity payments begin.
Annuitant The person upon whose continuation of life any
annuity payment involving life contingencies depends
and to whom annuity payments will be made during the
income phase of the Contract.
Annuity Unit An accounting unit of measure used to calculate
annuity payments during the income phase of the
Contract.
Code Internal Revenue Code of 1986, as amended.
Company Sentry Life Insurance Company, 1800 North Point
Drive, Stevens Point, WI 54481.
Contingent Owner The Contingent Owner, if any, of the Contract must be
the spouse of the Contract Owner named on the
application.
Contract Anniversary The same month and day each year calculated from the
date the Contract was first issued.
Contract Owner The Contract Owner is named on the application,
unless changed, and has all rights under the
Contract.
Contract Value The dollar value of all amounts accumulated under the
Contract as calculated on any valuation date.
Contract Year A 12-month period beginning with the Contract issue
date and each Contract anniversary date thereafter.
Mutual Fund A Mutual Fund designated as an investment option for
the Variable Account.
Income Date The date on which annuity payments begin.
Non-Qualified Contract A contract issued under a non-qualified plan. This
means that the contract does not receive favorable
tax treatment under Sections 401, 403, 408 or 457 of
the Code.
Portfolio A segment of a Mutual Fund made up of a separate and
distinct class of shares.
Qualified Contract A contract that is issued under a tax-qualified plan.
A qualified plan, generally a retirement plan, is one
that receives favorable tax treatment.
Subaccount A segment of the Variable Account that invests in a
Mutual Fund or Portfolio.
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DEFINITIONS
Valuation Date The date on which the Company determines the value of
the Contract. The valuation date is each day that the
New York Stock Exchange ("NYSE") is open for
business, which is Monday through Friday, except for
New Year's Day, Martin Luther King Day, President's
Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day.
Valuation Period The period beginning at the close of business on the
NYSE on each Valuation Date and ending at the close
of business for the next succeeding Valuation Date.
Variable Account Sentry Variable Account II, a separate investment
account of Sentry Life Insurance Company into which
you can allocate your net purchase payments. The
Variable Account is divided into Subaccounts.
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SUMMARY
THE CONTRACT
The Contract described in this Prospectus is an individual flexible purchase
payment deferred variable annuity contract. The Contract is intended for
retirement savings or other long-term investment purposes. "Flexible purchase
payments" means that you may choose to make purchase payments monthly, quarterly
or annually in whatever amount you choose, subject to certain minimum
requirements. A "deferred annuity contract" means that annuity payments do not
begin for a specified period (usually when you retire) or until you reach a
certain age. A "variable annuity" is one in which the contract values and
annuity payments may vary depending on the performance of the underlying
investments portfolios.
As with all deferred annuity contracts, the Contract has two phases: the
accumulation phase and the income phase. The accumulation phase is the period
during which you are making purchase payments. During the accumulation phase,
earnings accumulate on a tax-deferred basis, but are taxed as ordinary income if
you make a withdrawal. The income phase occurs when you begin receiving annuity
payments, usually when you retire.
Along with the investment experience of the Variable Account, the amount of your
purchase payments during the accumulation phase determines, in part, the amount
of the annuity payments you will receive during the income phase.
THE VARIABLE ACCOUNT
You can allocate purchase payments to the Variable Account, which is a
segregated investment account of the Company. The Variable Account invests in
shares of Neuberger Berman Advisers Management Trust (the "Trust") at their net
asset value. As the Contract Owner, you bear the investment risk for the
purchase payments you select to be allocated to the Variable Account.
TEN-DAY FREE LOOK
Within 10 days (or longer in states where required) of the day you receive the
Contract, you may return it to the Company or to your sales representative. When
the Company receives the returned Contract, it will be voided as if it had never
been issued and you will receive a full refund of your purchase payments.
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
There is no sales charge when you purchase the Contract. However, if you
surrender the Contract, the Company may impose a contingent deferred sales
charge. The contingent deferred sales charge ranges from 0% to 6% depending on
how long the Company has had your purchase payment.
MORTALITY AND EXPENSE RISK PREMIUM
Each Valuation Period, the Company deducts a mortality and expense risk premium
from the Variable Account. The charge is equal, on an annual basis, to 1.20% of
the average daily net asset value of the Variable Account.
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CONTRACT MAINTENANCE CHARGE
The Company deducts an annual contract maintenance charge of $30 from the
Contract Value. The Company reserves the right to change the amount of the
contract maintenance charge at any time before the Income Date. After the Income
Date, the Company may deduct a contract maintenance charge from your monthly
annuity payment.
PREMIUM TAXES
The Company will deduct for any premium taxes which must be paid to a state or
other governmental entity from the Contract Value. Currently, premium taxes
range from 0% to 4%.
TAXES
Your earnings in the Contract are not taxed until you take them out. If you take
money out before the Income Date, earnings come out first and are taxed as
income. If you are younger than 59 1/2 when you take money out, you may be
charged a 10% federal tax penalty on the earnings. The annuity payments you
receive during the income phase are considered partly a return of your original
investment. That part of each payment is not taxable as income.
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FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
- - Contingent Deferred Sales Charge (as a percentage of purchase payments)
<TABLE>
<CAPTION>
Time between when purchase payment
is allocated 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>
CONTRACT MAINTENANCE CHARGE - $30 PER YEAR
VARIABLE ACCOUNT ANNUAL EXPENSES
- - Mortality and Expense Risk Premium - 1.20% of daily net asset value
NEUBERGER BERMAN ADVISER MANAGEMENT TRUST AND ADVISERS MANAGERS TRUST 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(2) Expenses
--------- ----------------------- --------- --------
<S> <C> <C> <C>
Liquid Asset(2) 0.65% 0.35% 1.00%
Balanced 0.85% 0.18% 1.03%
Growth 0.83% 0.09% 0.92%
Limited Maturity Bond 0.65% 0.11% 0.76%
</TABLE>
- --------
(1) The Trust is divided into eight Portfolios, four of which are available with
the Variable Account. Each Portfolio invests all of its net investable assets in
a corresponding series of Advisers Managers Trust. The figures shown under
"Investment Management and Administration Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by its
corresponding series. Similarly, "Other Expenses" include all other expenses of
the Portfolio and its corresponding series.
(2) Expenses reflect expense reimbursement. NB Management reimburses the Liquid
Asset Portfolio for certain operating expenses, including NB Management
compensation and excluding certain other expenses that exceed, in the aggregate,
1% of the Portfolio's average daily net asset value. Absent that reimbursement,
the "Total Annual Expenses" for the year ended December 31, 1998 would have been
1.14% for the Liquid Asset Portfolio. This expense reimbursement policy can be
terminated with 60 days written notice and there is no assurance that it will be
continued thereafter.
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<PAGE> 13
EXAMPLES
The following table shows the expenses that you, as a Contract Owner, would pay
on a $1,000 investment, assuming a 5% annual return on assets.
(a) shows the amounts that you would pay at the end of each time period
if you surrender the Contract.
(b) shows the amounts that you would pay if you do not surrender the
Contract.
<TABLE>
<CAPTION>
TIME PERIODS
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
Growth Portfolio (a) $72 $ 98 $126 $252
(b) $22 $ 68 $116 $252
Liquid Asset Portfolio (a) $73 $100 $130 $261
(b) $23 $ 70 $120 $261
Limited Maturity (a) $71 $ 94 $119 $232
Bond Portfolio (b) $21 $ 64 $109 $232
Balanced Portfolio (a) $74 $103 $134 $259
(b) $24 $ 73 $124 $259
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the above table is to assist you in understanding the
various costs and expenses that you will incur, either directly or
indirectly. The table reflects expenses of the Variable Account, as well as
the Trust.
2. Premium taxes may apply; however, they are not reflected.
3. The examples do not reflect that after the first Contract Year, you may
make one surrender per Contract Year, on a non-cumulative basis, of up to
10% of the aggregate purchase payments (less any withdrawals) free from a
contingent deferred sales charge, provided the value of the Contract prior
to the surrender exceeds $10,000.
4. Neither the fee table nor the examples include a transfer fee. Currently,
there is no transfer fee, but the Company reserves the right to assess a
transfer fee in the future.
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 sets forth the Accumulation Unit values for the periods
shown. This data has been taken from the Variable Account's financial
statements. The financial statements (except the September 30, 1999 unaudited
financial statements) have been audited by PricewaterhouseCoopers LLP, an
independent accountant, and the audit report is included in the Statement of
Additional Information.
The following information should be read in conjunction with the Variable
Account's financial statements and related notes, which are included in the
Statement of Additional Information.
<TABLE>
<CAPTION>
Period Ended Year Ended
September 30, 1999 1998 1997 1996 1995 1994 1993 1992 1991
------------------ ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liquid Asset Subaccount
Beginning of Period $17.954 $17.361 $16.779 $16.247 $15.653 $15.311 $15.127 $14.825 $14.207
End of Period 18.342 17.954 17.361 16.779 16.247 15.653 15.311 15.127 14.825
Number of Accum.
Units Outstanding 165,204 140,566 115,558 145,387 162,165 217,211 270,994 414,153 544,747
Growth Subaccount
Beginning of Period $57.557 $39.662 $36.783 $28.257 $30.098 $28.524 $26.357 $20.558 $22.662
End of Period 57.886 57.716 50.557 39.662 36.783 28.257 30.098 28.524 26.357
Number of Accum.
Units Outstanding 724,948 750,025 780,148 847,224 938,909 1,049,256 1,156,057 1,231,668 1,363,149
Limited Maturity Bond
Subaccount
Beginning of Period $25.048 $24.284 $23.024 $22.342 $20.381 $20.653 $19.607 $18.867 $17.147
End of Period $25.096 25.048 24.284 23.024 22.342 20.381 20.653 19.607 18.867
Number of Accum.
Units Outstanding 213,443 238,960 258,942 317,877 384,749 460,025 527,775 624,082 696,573
Balanced Subaccount
Beginning of Period $22.613 $20.399 $17.283 $16.367 $13.382 $14.010 $13.323 $12.480 $10.288
End of Period $22.653 $22.613 20.399 17.283 16.367 13.382 14.010 13.323 12.480
Number of Accum.
Units Outstanding 507,488 499,567 482,578 519,312 550,216 618,542 654,955 565,977 284,777
</TABLE>
<TABLE>
<CAPTION>
1990 1989
---- ----
<S> <C> <C>
Liquid Asset Subaccount
Beginning of Period $13.368 $12.459
End of Period 14.207 13.368
Number of Accum.
Units Outstanding 646,044 502,722
Growth Subaccount
Beginning of Period $17.711 $17,711
End of Period 20.558 22.662
Number of Accum.
Units Outstanding 1,375,719 1,503,684
Limited Maturity Bond
Subaccount
Beginning of Period $16.026 $14.639
End of Period 17.147 16.026
Number of Accum.
Units Outstanding 765,968 837,082
Balanced Subaccount
Beginning of Period $10.000 *
End of Period $10.288 *
Number of Accum.
Units Outstanding 164,053 *
</TABLE>
* No Accumulation Unit Values for this period.
Sales of the Contract in connection with
this Portfolio commenced on September 14,
1990.
PERFORMANCE INFORMATION
Periodically, the Company may advertise performance data for the Portfolios.
This data will show the change, as a percent, in the value of an Accumulation
Unit based on the investment performance over a period of time, usually a
calendar year. It is calculated by dividing the increase (decrease) in value for
the Accumulation Unit by the Accumulation Unit value at the beginning of the
period. Deductions for asset-based charges, contract maintenance charges, and
the operating expenses of the Portfolios will be reflected in the percentage
figure. A deduction for any
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<PAGE> 15
contingent deferred sales charge will not be reflected in the percentage figure.
Deduction of a contingent deferred sales charge would reduce any percentage
increase or make greater any percentage decrease.
Advertisements will also include average annual total return figures, which will
reflect deductions for contract maintenance charges, contingent deferred sales
charges, asset-based charges, and the operating expenses of the Portfolios.
The Company may also distribute sales literature that compares the percentage
change in Accumulation Unit values for a Portfolio against such market indices
as Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, or other management investment companies having similar investment
objectives to the Portfolio being compared.
FINANCIAL STATEMENTS
This Prospectus does not contain any financial statements. The Statement of
Additional Information contains financial statements for both the Company and
the Variable Account.
THE COMPANY
The Company, meaning Sentry Life Insurance Company, is a stock life insurance
company incorporated under the laws of Wisconsin in 1958. Its home office is
located at 1800 North Point Drive, Stevens Point, Wisconsin. It is authorized to
conduct annuity, life, accident and health insurance business in all states,
except New York, and in the District of Columbia. The Company is a wholly-owned
subsidiary of Sentry Insurance a Mutual Company ("SIAMCO"). SIAMCO, a Wisconsin
corporation, is a property and casualty insurance company. Its home office is
also located at 1800 North Point Drive, Stevens Point, Wisconsin. SIAMCO owns
and controls, either 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 Variable Account was established by the Company's Board of Directors on
August 2, 1983. It is a segregated asset account of the Company and is
registered with the Securities and Exchange Commission as a unit investment
trust under the Investment Company Act of 1940. Registration of the Variable
Account does not mean that the Securities and Exchange Commission supervises the
management of the Variable Account or of the Company.
On November 1, 1994, Sentry Investors Life Insurance Company ("SILIC")
transferred the assets (in the form of shares of Neuberger & Berman Advisers
Management Trust) and liabilities arising in connection with certain individual
flexible premium variable annuity contracts ("SILIC Contracts") issued by Sentry
Investors Variable Account II ("SILIC Account") from the SILIC Account to the
Variable Account. The Company has assumed all liabilities and obligations
arising under the SILIC Account assets and is responsible for satisfaction of
all liabilities and obligations arising under the SILIC Contracts pursuant to
the terms of an assumption reinsurance agreement between the Company and SILIC.
Income, gains and losses, whether or not realized, are, in accordance with the
Contract, credited to or charged against the Variable Account without regard to
other income, gains or losses of the Company. Company obligations arising out of
the Contract are general corporate obligations of the Company.
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<PAGE> 16
The assets of the Variable Account are the property of the Company. These
assets, equal to the reserves and other contract liabilities of the Variable
Account, cannot be charged with liabilities arising out of any other business of
the Company.
The Company does not guarantee the investment performance of the Variable
Account. The value of the Contract and the amount of the annuity payments will
vary with the value of the assets underlying the Variable Account.
The assets of the Variable Account are divided into Subaccounts within the
Variable Account.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust (the "Trust") is the funding vehicle
for the Contract. 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 company. All series of Managers Trust
are managed by Neuberger Berman Management Inc. ("NB Management"). Each series
invests in securities according to 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.
The Trust offers eight Portfolios, four of which are currently available in
connection with the Contract. 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.
AMT Liquid Asset Investments. The investment objective of this series
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.
AMT Growth Investments. This series 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 this
series 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 this series 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,
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<PAGE> 17
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
The Company is the legal owner (shareholder) of the Trust shares. However, the
Company believes that when a Portfolio solicits proxies in connection with a
vote of shareholders, it is required to obtain from you, and other effected
Contract Owners, instructions as to how to vote those shares.
If the Trust holds a shareholder meeting at which you are entitled to vote, you
will receive periodic reports relating to the Trust and/or the Portfolio(s) in
which you have an interest, proxy material, and a form on which you can give
voting instructions.
The Company will determine the number of shares that you will have a right to
vote as of a date chosen by it, which will not be more than 60 days prior to the
shareholder meeting. The Company will send you proxy material and the form for
giving voting instructions at least 14 days prior to the shareholder meeting.
For purposes of voting Trust shares held in the Variable Account at a
shareholder meeting of the Trust, your voting interest after the Income Date
decreases as the reserves underlying the Contract decrease.
In accordance with its view of present law, the Company will vote the shares of
the Trust held in the Variable Account in accordance with instructions received
from all persons having a voting interest in the Trust. 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 its
own shares in the same proportion as it votes shares for which it has received
instructions.
If the applicable law with respect to voting rights is amended or if the
interpretation of the law changes, and it is determined that the Company has
authority to vote the shares of the Trust in its own right, it may elect to do
so.
Shares of the Trust are offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with the Company. Shares of the Balanced
Portfolio are also sold directly to qualified plans. The Trust and Managers
Trust believe that offering their shares in this manner will not be
disadvantageous to you.
SUBSTITUTION OF SECURITIES
If a Portfolio is no longer available for investment by the Variable Account, or
if the Company's Board of Directors determines that further investment in a
Portfolio becomes inappropriate in view of the Variable Account's objectives,
the Company may substitute another Portfolio already available or that will
become available for investment by the Variable Account. However, the Company
may not make any substitution of securities in any Subaccount without the prior
approval, and subject to the requirements of, the Securities and Exchange
Commission.
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<PAGE> 18
CHARGES AND DEDUCTIONS
CONTINGENT DEFERRED SALES CHARGE
At the time you purchase the Contract, the Company does not deduct a sales
charge. However, the Company deducts a contingent deferred sales charge if you
make a surrender of purchase payments within six years after you made them. The
Company does not deduct a contingent deferred sales charge after it has had a
purchase payment for more than six years.
The contingent deferred sales charge reimburses the Company for its expenses in
selling the Contract. If the charge does not cover all its sale expenses, the
Company may use the mortality and expense risk premium to make up any
difference.
If you surrender all or a portion of the Contract, the Company will calculate
the contingent deferred sales charge at the time of the surrender and will
deduct it from the Contract Value. In calculating the contingent deferred sales
charge
- purchase payments will be allocated to the amount surrendered on a
first-in-first-out basis;
- in no event will the aggregate contingent deferred sales charge
exceed 6% of the total purchase payments made.
The amount of the contingent deferred sales charge is calculated by
(1) allocating purchase payments to the amount surrendered; and
(2) multiplying each such allocated purchase payment by the
appropriate percentage shown in the table below; and
(3) adding the products of each multiplication in (2) above.
<TABLE>
<CAPTION>
Time between when purchase payment
is allocated 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>
The contingent deferred sales charge percentage is based on the amount partially
surrendered and is deducted from the Contract Value remaining after the amount
requested is deducted.
<TABLE>
<S> <C> <C>
Example: Amount requested: $1,000
Assume 5% contingent deferred sales charge: $ 50
Total amount withdrawn from Contract Value: $1,050
Amount you receive: $1,000
</TABLE>
15
<PAGE> 19
If, after the surrender amount is deducted, the remaining Contract Value is
insufficient to pay the contingent deferred sales charge, the charge will be
deducted from the amount you request to be surrendered.
<TABLE>
<S> <C> <C>
Example: Amount requested: $1,000
Assume 5% contingent deferred sales charge: $ 50
Total amount withdrawn from Contract Value: $1,000
Amount you receive: $ 950
</TABLE>
The Company will determine the amount deducted from the Contract Value by
canceling Accumulation Units from each applicable Subaccount in the ratio that
the value of each Subaccount bears to the total Contract Value. If you prefer
some other method of Accumulation Unit cancellation, you must notify the Company
in writing beforehand.
For purposes of determining the amount of the contingent deferred sales charge,
surrenders will be attributed to purchase payments on a first-in-first-out
basis. You should note that this is contrary to the allocation method used for
determining tax obligations. For tax purposes, withdrawals are considered to
have come from the last money into the Contract. Thus, for tax purposes,
earnings are considered to come out first.
The Company will not deduct a contingent deferred sales charge under the
following circumstances:
- After the first contract anniversary date, you may make one
surrender per Contract Year, on a non-cumulative basis, of up to
10% of the aggregate purchase payments (less any withdrawals)
without a contingent deferred sales charge, provided the value of
the Contract prior to the surrender exceeds $10,000.
- When purchase payments that have been held by the Company for more
than six years are being withdrawn.
- When distributions under the Contract are made because of the
death of the Contract Owner or Annuitant, or as annuity payments.
- At the Company's option pursuant to its current guidelines or
procedures.
REDUCTION OR ELIMINATION OF CONTINGENT DEFERRED SALES CHARGE
The amount of the contingent deferred sales charge may be reduced or eliminated
when the Contract is sold to individuals or to a group of individuals and
results in expense savings. The Company will determine if a group is entitled to
have the contingent deferred sales charge reduced or eliminated based on these
four factors:
(1) The size and type of group. Generally, sales expenses for large
groups are less than for small groups because more contracts can
be issued to a large group with fewer sales contacts.
(2) The total amount of purchase payments that will be received.
Per-contract sales expenses are likely to be less on larger
purchase payments than on smaller ones.
16
<PAGE> 20
(3) Any prior or existing relationship with the Company. Per-contract
sales and administrative expenses are likely to be less when an
established relationship exists.
(4) Other group factors may come to light that warrant a reduction or
elimination of the contingent deferred sales charge.
The contingent deferred sales charge may be eliminated when the Contract is
issued to an officer, director or employee of the Company or any of its
affiliates. An employee's spouse and children under the age of 21 are also
included.
From time to time, the Company may modify both the amounts of reduction and the
criteria for qualification, but in no event will reduction or elimination of the
contingent deferred sales charge or of any other provision of the Contract be
permitted if it will be unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK PREMIUM
The mortality and expense risk premium is equal, on an annual basis, to 1.20% of
the average daily net asset value of the Variable Account. This charge
compensates the Company for all the insurance benefits provided by the Contract,
e.g., guarantee of annuity rates, the death benefit, for certain expenses of the
Contract, and for assuming the risk (expense risk) that the current charges will
be sufficient in the future to cover the cost of administering the Contract. If
the mortality and expense risk premium is insufficient, the Company will bear
the loss. The Company may use any profits from this charge to pay for the costs
of distributing the Contract.
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE
The Company incurs expenses in administering and maintaining the Contract. As
reimbursement for these expenses, the Company deducts a contract maintenance
charge of $30 on each Contract Anniversary date from the Contract Value. The
Company does this by canceling Accumulation Units from each Subaccount in the
ratio that the value of each Subaccount bears to the total Contract Value.
Other information you should know about the contract maintenance charge:
- The current charge is $30 annually; however, prior to the Income
Date, the Company has the right to change the amount.
- Once you begin receiving annuity payments, the Company may impose
a contract maintenance charge if certain pay-out or settlement
options are chosen. However, the amount of the charge after the
Income Date will not change from the amount you were charged
during the Contract Year immediately preceding the Income Date. If
a charge is imposed after the Income Date, it will be deducted on
a monthly basis and will reduce the amount of your annuity
payment.
- If you surrender the Contract for its full surrender value, on
other than the Contract Anniversary date, the Company will deduct
the contract maintenance charge at the time of surrender.
- The contract maintenance charge will be deducted whether or not
you are making purchase payments.
- The Company does not profit from the contract maintenance charge.
17
<PAGE> 21
DEDUCTION FOR PREMIUM TAXES AND OTHER TAXES
The Company will deduct for any premium taxes that are assessed because of the
Contract or the Variable Account from the Contract Value. State premium taxes
currently range from 0% to 4%. Some states assess premium taxes when purchase
payments are made; others assess premium taxes at the time of annuitization (at
the Income Date).
For those states assessing premium taxes when purchase payments are made, the
Company's current practice is to advance payment of the taxes and then deduct
that amount from the Contract Value at the Income Date or when you surrender the
Contract.
The amount of state or other governmental entity premium tax are subject to
change by legislatures, administrative interpretations or judicial acts. The
amount of premium taxes also depends on your state of residence, the status of
the Company in that state, and the state's insurance tax laws.
Any income taxes resulting from the operation of the Variable Account is
deducted from the Contract Value. The Company does not currently anticipate that
income taxes will become payable.
The Company will deduct any withholding taxes as required by applicable law.
TRUST EXPENSES
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 CONTRACT
The assets of the Variable Account are divided into Subaccounts within the
Variable Account. Each Subaccount invests in one Portfolio of the Trust. Subject
to the terms and conditions of the Company, your net purchase payments (purchase
payments minus applicable taxes) will be invested in one or more of the
available Subaccounts which you selected when you completed the application
form. You may change your investment selection prospectively without fee,
penalty or other charge by providing written instructions to the Company.
The Company may, from time to time, offer new investment options by adding
Mutual Funds and, when appropriate, Portfolios within a Mutual Fund. When new
Mutual Funds or Portfolios are added, you will be permitted to select the new
Mutual Funds or Portfolios, subject to terms and conditions imposed by the
Company.
TRANSFERS
You may transfer all or part of your Contract Value between investment options.
You may make only four transfers in any Contract Year prior to the Income Date.
After the Income Date, only one transfer may be made in any Contract Year.
Transfers are subject to the following conditions:
(1) Requests for transfers must be in writing and must clearly state:
- the amount to be transferred; and
18
<PAGE> 22
- the Mutual Fund or Portfolio the transfer is to be made from and
the Mutual Fund or Portfolio the transfer is to be made to.
(2) The minimum amount of any transfer is $250, or the remaining Contract
Value in the Portfolio if it is less than $250.
(3) No partial transfer will be made if the remaining Contract Value in the
Portfolio will be less than $250.
(4) Transfers are made using values determined as of the next Valuation
Period after the Company receives a proper transfer request. However,
you may not make transfers of your initial purchase payment until 30
days after the Company receives it. In addition, you may not make a
transfer if it is within seven calendar days of the date your first
annuity payment is due.
(5) Prior to the Income Date, you may make transfers from the Liquid Asset
Portfolio and/or the Limited Maturity Bond Portfolio to the Growth
Portfolio or the Balanced Portfolio on a pre-authorized basis. The
transfers will only be made if you enter into a written agreement with
the Company. These transfers will be made monthly, with a minimum
transfer amount of $250 per month.
(6) While the Company does not currently charge a transfer fee, it may do
so in the future. In the event the Company imposes a transfer fee, you
will be notified in advance. The amount of the transfer fee will not be
guaranteed and the Company may change it at any time. The fee will be
deducted from the amount transferred.
(7) The Company reserves the right to terminate, suspend or modify the
transfer privileges described above at any time and without notice to
any person.
TELEPHONE TRANSFERS
Transfers by telephone are permitted if you follow these steps:
(1) Check the "Yes" box in the telephone transfer section of the contract
application form.
(2) Call the Annuity Service Office at the telephone number listed on page
1 of this Prospectus. Be prepared to give the customer service
representative specific information about the Contract, including the
Contract number, and your social security number and/or birth date. You
may be required to provide additional information in order to verify
that the request is genuine.
(3) You must give specific detail to the customer service representative as
to the amount to be transferred, the Portfolio the transfer is being
made from, and the Portfolio the transfer is being made to.
Transfers requested by telephone before 3 p.m., C.S.T., will take effect that
day. Transfer requests received by telephone after 3 p.m. C.S.T. will take
effect on the next business day after the request is received.
To prevent losses due to unauthorized or fraudulent transfer instructions, the
Company will use reasonable procedures to ensure that a telephone transfer
request is genuine. The Company will
19
<PAGE> 23
not be liable for losses incurred in complying with a telephone transfer request
it believes is genuine if reasonable procedures were followed to confirm the
legitimacy of the request.
The Company has the right to reject any telephone transfer request.
NO DEFAULT
Unless you surrender the Contract for the full surrender amount, the Contract
will remain in force until the Income Date and will not be in default even if no
additional purchase payments are made.
MODIFICATION OF THE CONTRACT
The Company cannot modify the Contract without your consent, except if
modifications are required by applicable law.
CONTRACT VALUE
The Contract Value is the sum of the values for each Subaccount. The value of
each Subaccount is determined by multiplying the number of Accumulation Units
attributable to the Subaccount by the value of one Accumulation Unit for the
Subaccount.
Example: Number of Accumulation Units in Subaccount = 250
Value of one Subaccount Accumulation Unit = $10
250 x $10 = $2,500 Contract Value
OWNERSHIP
As the Contract Owner, you have all the rights and may receive all benefits
under the Contract. During the lifetime of the Annuitant and prior to the Income
Date, the Contract Owner is the person designated on the application, unless
changed. On and after the Income Date, the Contract Owner is the Annuitant. On
and after the death of the Annuitant, the beneficiary is the Contract Owner.
As the Contract Owner, you may name a Contingent Contract Owner or a new
Contract Owner at any time. However, your spouse is the only person eligible to
be the Contingent Contract Owner. If you die, the Contingent Contract Owner
becomes the Contract Owner. By naming a new Contract Owner or a new Contingent
Contract Owner, any previous choice of Contract Owner or Contingent Contract
Owner will automatically be revoked.
In order to make a change in the Contract Owner or Contingent Contract Owner,
you must submit a dated and signed written request to the Company. The change
will be effective as of the date you signed the written request. A change in
Contract Owner or Contingent Contract Owner will not affect any payment made or
action taken by the Company prior to the time a request for change is received.
You should consult a tax adviser before you change the Contract Owner.
When a Non-Qualified Contract is owned by a non-natural person (e.g., a
corporation or certain other entities other than trust holding the Contract as
an agent for a natural person), the Contract generally will not be treated as an
annuity for tax purposes.
ASSIGNMENT
You may assign the Contract at any time during the Annuitant's lifetime prior to
the Income Date. The Company is not bound by any assignment until it receives
written notice that the Contract has
20
<PAGE> 24
been assigned. The Company is not responsible for the validity of any assignment
and it will not be liable for any payment or other settlement it makes in
connection with the Contract before it receives the assignment.
If the Contract is issued pursuant to a qualified plan, it may not be assigned,
pledged or transferred except under the provisions of applicable law.
Assignment of the Contract may be a taxable event. You should consult your tax
adviser before assigning the Contract.
BENEFICIARY
You name the beneficiary in the application and, unless changed, that
beneficiary is entitled to receive the death benefit on your death or the death
of the Annuitant.
Unless you specify otherwise, the death benefit will be paid in equal shares, or
all to the survivor, as follows:
(1) to the primary beneficiary or beneficiaries who survive the
Annuitant's or Contract Owner's (as applicable) death; or, if
there are none,
(2) to the contingent beneficiary or beneficiaries who survive the
Annuitant's or Contract Owner's (as applicable) death; or, if
there are none,
(3) to the Contract Owner, or the Contract Owner's estate.
As the Contract Owner, you may change the beneficiary or beneficiaries or the
contingent beneficiary or beneficiaries at any time during the Annuitant's
lifetime. You must submit a signed and dated written request to the Company in
order to change the beneficiary. The change will take effect as of the date the
request is signed, but the Company will not be liable for any payment it makes
or action it takes before it records the change.
ANNUITY PROVISIONS
INCOME DATE AND SETTLEMENT OPTION
You will select an Income Date and a settlement option at the time you complete
the application. The Income Date is the date on which the Annuitant will start
receiving annuity payments. The settlement option determines the timing and, in
part, the amount of your annuity payments.
The Income Date must fall on the first day of a calendar month and must be at
least one month after the date the Contract is effective. It may not be later
than the first day of the calendar month following the Annuitant's 75th
birthday, unless the Contract is issued pursuant to a qualified plan that
requires an earlier date.
CHANGING THE INCOME DATE
You may change the Income Date by submitting a signed and dated written notice
to the Company at least 30 days prior to the change. If you change the Income
Date, it must still fall on the first day of a calendar month. It cannot be
deferred beyond the first day of the calendar month following the Annuitant's
75th birthday, unless the Contract is issued pursuant to a qualified plan that
requires an earlier date.
21
<PAGE> 25
CHANGING THE SETTLEMENT OPTION
You may change the settlement option at any time prior to the Income Date by
submitting a signed and dated written notice to the Company at least 30 days
prior to the Income Date. You may select another available settlement option, or
you may request an alternative option acceptable to the Company.
SETTLEMENT OPTIONS
The net proceeds under the Contract may be paid under one of the following
options, or an alternative option acceptable to the Company:
OPTION 1 - LIFE ANNUITY
Under this option, the Annuitant will receive a monthly annuity payment
during the Annuitant's lifetime. Payments terminate upon the
Annuitant's death. This means that even if the Annuitant dies after
receiving only one or two annuity payments, the annuity payments will
stop, regardless of how many purchase payments you made or the
remaining Contract Value.
OPTION 2 - LIFE ANNUITY WITH MONTHLY PAYMENTS GUARANTEED
under this option, the Annuitant will receive a monthly annuity payment
during the Annuitant's lifetime, with the guarantee that if the
Annuitant dies before 120 payments have been made, the remainder of the
120 payments will be made to the beneficiary.
The beneficiary can elect to receive the remainder of the guaranteed
annuity payments in monthly installments, or it can be paid in a lump
sum. The lump sum payment will consist of the present value of the
remaining guaranteed annuity payments as of the date the Company
receives the notice of death, commuted at the assumed investment rate
of 4%. The lump sum will be paid within seven days of receiving the
request.
OPTION 3 - JOINT AND LAST SURVIVORSHIP ANNUITY
Under this option, the monthly annuity payments are made during the
joint lifetime of the Annuitant and a second person and continue during
the lifetime of the survivor. In other words, if the Annuitant dies
first, payments continue during the second person's lifetime. It is
possible to receive only one or two annuity payments if both the
Annuitant and the second person die after the first or second payment
is received.
IF NO SETTLEMENT OPTION IS SELECTED, 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 experience (the death
rate) or the expenses of the Company. The Company also guarantees certain death
benefits.
22
<PAGE> 26
FREQUENCY OF ANNUITY PAYMENTS
Annuity payments will be made in monthly installments. However, if the net
amount available under any settlement option is less than $5,000, the Company
has the right to pay the entire amount in a lump sum.
If the amount of a monthly annuity payment is or becomes less than $30, the
Company has the right to change the frequency of the annuity payments so that
each payment will be at least $30.
AMOUNT OF ANNUITY PAYMENTS
A variable annuity is an annuity with payments that
- are not predetermined as to dollar amount; and
- will vary in amount with the investment experience of the
applicable Subaccounts.
At the Income Date, the Contract Value of the Subaccounts will be applied to the
applicable annuity tables contained in the Contract. The annuity table that is
used will depend on the settlement option you choose. The same Contract Value
amount applied to each settlement option may produce a different initial annuity
payment.
The actual dollar amount of the annuity payments depends on four things:
(1) the Contract Value on the Income Date;
(2) the annuity table specified in the Contract;
(3) the settlement option selected; and
(4) the investment performance of the Portfolio(s) selected.
The annuity tables in the Contract are based on a 4% assumed investment rate. If
the actual net investment rate exceeds 4%, your monthly payments will increase.
Conversely, if the actual net investment rate is less than 4%, your monthly
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.
Your monthly annuity payment will be equal to 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(s) selected, and the amount
of each annuity payment will vary accordingly. The Statement of Additional
Information contains information regarding annuity unit values.
ADDITIONAL PROVISIONS
- - Before the Company makes any life annuity payment, you may be required to
provide proof of the Annuitant's age. If the Annuitant's age has been
misstated, the amount of the payment will be the amount that the purchase
payments would have provided at the correct age. Once monthly life annuity
payments have begun, any underpayments will be made up in one lump sum with
the next annuity payment; overpayments will be deducted from future annuity
payments until the total is repaid.
23
<PAGE> 27
- - You must return the Contract to the Company before a settlement option is
paid. Before a death benefit is paid, a certified copy of the death
certificate must be submitted to the Company.
- - Where payment under the Contract is contingent on the recipient being alive
on a certain date, the Company may require proof that the recipient is
alive.
- - The U.S. Supreme Court has determined that, under certain circumstances,
there may be a violation of Title VII of the Civil Rights Act of 1964, as
amended, when retirement benefits are determined on the basis of the
recipient's sex. The annuity tables contained in the Contract are not based
on the Annuitant's sex.
DEATH BENEFIT
DEATH OF THE ANNUITANT
If the Annuitant who is not the Contract Owner dies before the Income Date, the
Company will pay the death benefit to the beneficiary. The amount of the death
benefit will be determined as of the Valuation Period next following the date
the Company receives
(1) a certified copy of the death certificate; AND
(2) an election to either receive the death benefit as a lump sum or
under one of the settlement options.
If a lump sum payment is elected, the Company will pay it within seven days
after it receives the election and the death certificate.
If the beneficiary does not elect a settlement option, the Company will pay the
death benefit in a lump sum.
If the beneficiary elects to have the death benefit paid under a settlement
option, the beneficiary has 90 days from the date the Company receives the death
certificate to select a settlement option. If no settlement option is selected
by the end of the 90-day period, the death benefit will be paid to the
beneficiary in a lump sum. The death benefit will be paid according to
applicable laws or regulations governing such payments.
The amount of the death benefit will be the greater of
(1) the sum of all purchase payments made, less surrendered amounts;
or
(2) the Contract Value.
If the Annuitant dies on or after the Income Date, the death benefit, if any,
will be paid as provided for in the settlement option you selected. The Company
will require proof of the Annuitant's death.
DEATH OF THE CONTRACT OWNER
If the Contract is issued under a non-qualified plan, the death benefit will be
paid as follows:
If you, as the Contract Owner (regardless of whether you are the Annuitant), die
before the Income Date, the entire Contract Value must be distributed within
five years of the date of your death, unless:
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<PAGE> 28
(1) it is payable over the lifetime of a designated beneficiary with
distributions beginning within one year of the date of your death;
OR
(2) the Contingent Owner, if any, continues the contract is his or her
own name. (The Contingent Owner must be your spouse.)
If the owner of the Contract is a non-natural person, for purposes of the death
benefit, the Annuitant will be treated as the Contract Owner and the death of
the Annuitant or a change of the Annuitant will be treated as the death of the
Contract Owner.
PURCHASES AND CONTRACT VALUE
You may purchase the Contract under a flexible purchase payment plan. You can
make purchase payments to the Company as frequently and in the amount you select
on the application. The initial purchase payment is due on the date the Contract
becomes effective. The Company has the right to reject any application or
purchase payment.
<TABLE>
<CAPTION>
Minimum Initial Minimum Subsequent
Purchase Payment Purchase Payment
---------------- ----------------
<S> <C> <C>
Non-Qualified Contract $5,000 $250
Qualified Contract $1,000 $100
Contract issued under an
employer-sponsored payroll deduction $ 50 $ 50
plan
</TABLE>
The Company has the right to establish administrative policies that may decrease
the minimum purchase payment requirements.
CHANGE IN PURCHASE PAYMENTS
As the Contract Owner, you may elect to increase, decrease or change the
frequency or the amount of your purchase payments so long as you meet the
requirements set forth above.
ALLOCATION OF PURCHASE PAYMENTS
You can allocate purchase payments to the appropriate Subaccount(s) within the
Variable Account. The Company converts purchase payments into Accumulation
Units. Purchase payments allocated to a Subaccount are divided by the value of
that Subaccount's Accumulation Unit for the Valuation Period during which the
allocation occurs to determine the number of Accumulation Units attributable to
the purchase payments.
<TABLE>
<S> <C> <C> <C>
Example: Amount of purchase payment = $100
Value of one Subaccount Accumulation Unit = $ 10
$100 / $10 = 10 Accumulation Units
</TABLE>
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<PAGE> 29
For initial purchase payments, if the application is in good order, the Company
will apply the purchase payment to the Variable Account and will credit the
Contract with Accumulation Units within two business days.
If the application is not in good order, the Company will attempt to get it in
good order or the application and the initial purchase payment will be returned
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.
For subsequent purchase payments, the Company will apply the purchase payments
to the Variable Account and will credit the Contract with Accumulation Units
during the next Valuation Period after the Valuation Period in which it receives
the purchase payment.
ACCUMULATION UNITS
Purchase payments are converted into Accumulation Units. The Company does this
by dividing the amount of the purchase payment you allocate to a Subaccount by
the Accumulation Unit for that Subaccount.
Initially, the Company set the value of an Accumulation Unit at $10. For each
subsequent Valuation Period, the Company determines the Accumulation Unit value.
It does this by
1. determining the total amount of money invested in the particular
Subaccount;
2. subtracting from that amount the mortality and expense risk
premium and any other charges such as taxes the Company has
deducted; and
3. dividing this amount by the number of outstanding Accumulation
Units.
The value of an Accumulation Unit may increase or decrease from Valuation Period
to Valuation Period. It is affected by
- the investment performance of the Subaccount,
- expenses, and
- deduction of certain charges.
The value of an Accumulation Unit is determined each day that the New York Stock
Exchange is open for trading. See the definition of "Valuation Date" on page 6
of this Prospectus.
DISTRIBUTION OF CONTRACT
Sentry Equity Services, Inc. ("Sentry Equity"), 1800 North Point Drive, Stevens
Point, Wisconsin, a wholly-owned subsidiary of SIAMCO, is the principal
underwriter of the Contract. The Contract is sold through licensed insurance
agents in states where the Contract may lawfully be sold. The agents are
registered representatives of broker-dealers registered under the Securities and
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. Sentry Equity is paid first-year and renewal commissions, not to
exceed 4.7% of purchase payments, for its services in distributing the Contract.
Sentry Equity, in turn, pays all or a portion of these amounts to the selling
agent or agency.
SURRENDERS
While the Contract is in effect, and before the earlier of the Income Date or
the Annuitant's death, the Company will allow you to make a surrender of all or
a portion of the Contract for its surrender
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<PAGE> 30
value. You must submit a request in writing to the Company for a surrender. The
Company will pay the surrender amount within seven days.
Surrenders will result in the cancellation of Accumulation Units from each
applicable Subaccount in the ratio that the value of each Subaccount bears to
the total Contract Value. If you would like some other method of cancellation to
be used, you must notify the Company beforehand in writing.
The surrender value will be the Contract Value for the next Valuation Period
following the Valuation Period during which the Company receives your written
request, reduced by the sum of:
(1) the total of any applicable premium taxes not previously deducted;
PLUS
(2) any applicable contract maintenance charge; PLUS
(3) any applicable contingent deferred sales charge.
Because of the potential tax consequences of a surrender, including possible tax
penalties, you should consult your tax adviser before making a surrender.
The Company may suspend the right to surrender or delay payment of a surrender
for more than seven days when:
(1) the New York Stock Exchange is closed on other than customary weekend
and holiday closings;
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists and it is not reasonably practicable to dispose of
the securities held in the Variable Account, or it is not reasonably
practicable to determine the net asset value of the Variable Account;
or
(4) during any other period when the Securities and Exchange Commission
permits suspension of payments.
The applicable rules and regulations of the Securities and Exchange Commission
will control as to whether conditions (2) or (3) exist.
LIMITATIONS ON SURRENDERS FROM 403(B) ANNUITIES
If the Contract is a 403(b) annuity with contributions made under a salary
reduction agreement (as defined in Section 403(b)(11) of the Code) withdrawals
can only be taken under certain circumstances. In order to take a withdrawal
from a 403(b) annuity, you must meet one the following conditions:
- be at least age 59 1/2;
- separate from the service of your employer;
- die
- become disabled (as defined in the Code); or
- have a case of hardship.
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<PAGE> 31
Withdrawals for hardship are restricted to the portion of the Contract value
represented by your contributions and does not include investment earnings. The
limitations on withdrawals were effective January 1, 1989, and apply only to:
- salary reduction contributions made after December 31, 1988;
- income attributable to such contributions; and
- income attributable to amounts held as of December 31, 1988.
These limitations will apply to all amounts (regardless of when or how
contributions were originally made) which are transferred or rolled over from a
TSA custodial account (as defined in the Code) into your account. The
limitations on withdrawals do not affect rollovers or transfers between certain
qualified plans. Tax penalties may also apply. You should consult your tax
adviser regarding any withdrawals from a 403(b) annuity.
TEXAS OPTIONAL RETIREMENT PROGRAM
If the Contract is issued to a participant in the Texas Optional Retirement
Program ("ORP"), it will contain an ORP endorsement amending the Contract in two
ways. First, if for any reason the second year of the 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 at its request.
Second, no benefits will be payable, through surrender 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 employer before the Contract can be
redeemed.
FEDERAL TAX STATUS
NOTE: The following discussion is based on the Company's understanding of
current federal income tax law applicable to annuities in general. The Company
cannot predict if changes to these laws will be made. You are cautioned to seek
tax advice as to possible changes. The Company does not guarantee the tax status
of the Contract. You bear the complete risk that the contract may not be treated
as an annuity contract under federal income tax laws. You should also understand
that the following discussion is not exhaustive and that special rules not
discussed here 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 Code governs taxation of annuities in general. You will not be
taxed on the increases in value of the Contract until distribution occurs,
either as a lump sum payment or as annuity payments under the settlement option
selected. If you take a lump sum payment as a total surrender of the Contract
before the Income Date, you will be taxed on the portion of the lump sum payment
that exceeds the cost basis of the Contract. With a Non-Qualified Contract, the
cost basis generally equals the purchase payments, which have already been
taxed. With a Qualified Contract, there may be no cost basis. The taxable
portion of a lump sum payment is taxed at ordinary income tax rates.
When the Annuitant starts receiving annuity payments on the Income Date, a
portion of each payment in excess of an exclusion amount is included 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. The annuity payments you receive after the
investment in the
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<PAGE> 32
contract has been recovered (i.e., when the total of the excluded amount equals
the investment in the Contract) are fully taxed. The taxable portion is taxed at
ordinary income tax rates.
You are urged to consult your tax adviser regarding the tax consequences of any
type of distribution or payment under the Contract.
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) when the investments are not adequately
diversified, as required by U.S.
Treasury Department regulations.
If it is determined that the Contract does not meet the definition of an annuity
contract, you, as the Contract Owner, would be liable for federal income tax on
the earnings portion of the Contract prior to the receipt of income. The Code
contains a safe harbor provision which provides that annuity contracts meet the
diversification requirements if, at 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.
In 1989, the Treasury Department issued regulations that amplify the
diversification requirements for variable contracts contained in the Code and
provide an alternative to the safe harbor provision described above. Under the
regulations, an investment portfolio is deemed adequately diversified if
- no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
- no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
- no more than 80% of the value of the total assets of the portfolio is
represented by any three investments; and
- 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 diversification,
each U.S. government agency or instrumentality is treated as a separate issuer.
The Company intends that the Mutual Funds underlying the Contract will be
managed by the investment advisers so as to comply with the diversification
requirements.
CONTRACT OWNER CONTROL OF INVESTMENTS
Currently, there is no official guidance as to whether, or under what
circumstances, control of the investments of the Variable Account by the
Contract Owner will cause the owner to be treated as the owner of the assets of
the Variable Account, thereby causing the Contract to lose its favorable tax
treatment.
The amount of Contract Owner control which may be exercised under the Contract
is different in some respect from the situations addressed in published rulings
issued by the Internal Revenue
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<PAGE> 33
Service in which it was held that a policy owner was not the owner of the assets
of a 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.
In the event any forthcoming guidance or ruling sets forth a new position, the
guidance or ruling will generally be applied only prospectively. However, if the
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 the uncertainty in this area, the Company reserves the right to modify
the Contract in an attempt to maintain favorable tax treatment.
MULTIPLE CONTRACTS
Federal tax laws provide that multiple non-qualified annuity contracts that are
issued within a calendar year period 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 the combination of contracts. For purposes of this rule, Contracts
received in a Section 1035 exchange will be considered issued in the year of the
exchange. You should consult your tax adviser before purchasing more than one
non-qualified annuity contract in any calendar year.
OWNER OTHER THAN NATURAL PERSONS
Under Section 72(u) of the Code, the investment earnings on purchase payments
will be taxed currently to the Contract Owner if the Contract Owner is a
non-natural person, such as a corporation or certain other entities. A contract
held by a non-natural person will generally not be treated as an annuity for
federal income tax purposes.
However, this does not apply to a contract held by a trust or other entity as an
agent for a natural person, nor does it apply to a contract held by a qualified
plan. You should consult your own tax adviser before purchasing the Contract if
it is to be held by a non-natural person.
TAX TREATMENT OF ASSIGNMENTS
If you assign or pledge the Contract, there may be tax implications. You should
consult your tax adviser before assigning or pledging the Contract.
DEATH BENEFITS
Any death benefits paid under the Contract are taxable to the beneficiary. The
rules governing the taxation of payments from an annuity contract, as discussed
above, generally apply to the payment of death benefits and depend on whether
the death benefits are paid as a lump sum or as annuity payments. Estate taxes
may also apply.
INCOME TAX WITHHOLDING
All distributions under the Contract, or the portion of the distribution that is
included in your gross income, are subject to federal income tax withholding.
Generally, if you are receiving periodic payments, the withholding rate is the
same as for wages; for non-periodic payments, the withholding rate is 10%.
However, you may elect not to have taxes withheld or to have them withheld at a
different rate.
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<PAGE> 34
Effective January 1, 1993, certain distributions from retirement plans qualified
under Sections 401 or 403(b) of the Code that are not directly rolled over to
another qualified retirement plan, an individual retirement account, or an
individual retirement annuity, are subject to a 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 distribution that is not includable in gross
income (the return of any after-tax contributions); or
(4) hardship withdrawals.
You should consult your tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS AND SECTION 457 CONTRACTS
Section 72 of the Code governs the treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn under the Contract will be treated as first
coming from earnings and then, only after the earnings portion is exhausted, as
coming from the purchase payments. Earnings that are withdrawn must be included
in your gross income.
Section 72 further provides that a 10% penalty will apply to the earnings
portion of any distribution. However, the 10% penalty does not apply to amounts
received:
(1) after the taxpayer reaches age 59 1/2;
(2) after the Contract Owner's death;
(3) if the taxpayer is totally disabled (as defined in the Code);
(4) in a series of substantially equal periodic payments made at least
annually during the taxpayer's lifetime (or expected lifetime) or
for the joint lives (or joint live expectancies) of the taxpayer
and his or her beneficiary;
(5) under an immediate annuity; or
(6) that are allocable to purchase payments made prior to August 14,
1982.
With respect to (4) above, if the series of substantially equal periodic
payments is modified before the later of your attaining age 59 1/2 or 5 years
from the date of the first periodic payment, then the tax for the year of the
modification is increased by an amount equal to the tax which would have been
imposed (the 10% penalty tax) but for the exception, plus interest for the tax
years in which the exception is used.
The Contract provides that if the Annuitant dies prior to the Income Date, the
death benefit will be paid to the beneficiary. Payments made upon the death of
the Annuitant who is not the Contract Owner do not qualify for the
death-of-contract-owner exception in (2) above and will be subject to
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<PAGE> 35
the 10% penalty, unless the beneficiary is at least age 59 1/2 or one of the
other exceptions to the penalty applies.
The above information applies to Qualified Contracts issued under Section 457 of
the Code, but does not apply to other Qualified Contracts. However, separate tax
withdrawal penalties and restrictions may apply to other Qualified Contracts
(see below).
QUALIFIED PLANS
The Contract offered by this Prospectus is suitable for use under various types
of qualified plans. The tax implications for participants in qualified plans
varies with the type of plan and the terms and conditions of each plan. You need
to be aware 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 Contract.
Some retirement plans are subject to distribution and other requirements that
are not incorporated into the Company's administrative procedures. You are
responsible for determining that contributions, distributions and other
transactions with respect to the Contract comply with applicable law.
Following are general descriptions of the types of qualified plans that can be
used with the Contract. The descriptions are not comprehensive and are for your
general information only. Tax laws and regulations regarding qualified plans are
very complex and have different applications depending on individual facts and
circumstances. You should consult your tax adviser before purchasing the
Contract under a qualified plan.
If the Contract is issued pursuant to a qualified plan, it may contain special
provisions that are more restrictive than the Contract provisions described in
this Prospectus. Generally, if the Contract is issued under a qualified plan,
the Contract is not transferable except if it is surrendered or annuitized.
Various penalties and excise taxes may apply to purchase payments
(contributions) or distributions made in violation of applicable limits. Certain
withdrawal penalties and restrictions may apply to surrenders from a Qualified
Contract.
The Contract is no longer available in connection with H.R. 10 (Keogh) Plans or
corporate pension and profit-sharing plans. The information provided below is
being included to provide disclosure to owners of Contracts that were issued
under these types of plans.
TAX SHELTERED ANNUITIES
The Code permits the purchase of tax-sheltered annuities by public
schools and certain charitable, educational and scientific
organizations. These qualifying employers may make contributions to
these annuities on behalf of their employees. The contributions are not
included in the gross income of the employees until the employees
receive distributions from the annuities. The amount of contributions
is limited to certain maximums imposed by the Code. The Code also
provides restrictions on transferability, distributions,
nondiscrimination and withdrawals of tax-sheltered annuities. You
should consult with your tax adviser regarding the tax consequences of
investing in a tax-sheltered annuity.
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<PAGE> 36
INDIVIDUAL RETIREMENT ANNUITIES
The Code permits eligible individuals to contribute to an individual
retirement plan known as an "individual retirement annuity" or "IRA."
Under applicable limits, you can contribute certain amounts to an IRA
that can be deducted from your taxable income. There are also limits
with respect to eligibility, contributions, transferability and
distributions. 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. If the Contract is to be used as an
IRA, there are specific requirements imposed by the Code. In addition,
the Company is required to give you additional informational disclosure
if you purchase the Contract as an IRA. However, you should consult
with your tax adviser regarding the tax consequences and suitability of
investing in an IRA.
ROTH IRA
In 1998, a new type of IRA became available, known as a Roth IRA. Under
a Roth IRA, contributions are made with after-tax dollars, but the
earnings are distributed tax-free if certain conditions are met. This
differs from a traditional IRA where contributions may be deducted from
gross income and are taxed, along with the earnings, when they are
distributed.
Purchase payments for a Roth IRA are limited to a maximum of $2,000 per
year. Lower maximum limits apply to individuals with adjusted gross
incomes between $95,000 and $110,000 in the case of single taxpayers,
between $150,000 and $160,000 in the case of married taxpayers filing a
joint tax return, and between $0 and $10,000 in the case of married
taxpayers filing separate tax returns. An overall $2,000 annual limit
continues to apply to all of a taxpayer's IRA contributions, including
Roth IRAs and non-Roth IRAs.
Qualified distributions from a Roth IRA are entirely free from federal
income taxes. A distribution is qualified if the Roth IRA has been held
for at least five years AND it meets one the following requirements:
- the distribution is made after age 59 1/2 or the taxpayer has
died or is disabled; OR
- the distribution is being used for a qualified first-time home
purchase, subject to a $10,000 lifetime maximum, by the
taxpayer, a spouse, child, grandchild, or ancestor.
If the distribution is not qualified, the earnings portion of the
distribution is taxed. Because distributions are treated as coming from
contributions first, there is no tax until the contributions have been
fully distributed. The 10% penalty tax and the regular IRA exceptions
to the 10% penalty tax apply to taxable distributions from a Roth IRA.
You may roll over amounts from one Roth IRA to another Roth IRA. You
may also make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless you have adjusted gross income over $100,000 or if you are
married and file a separate tax return. You must pay tax on any portion
of the IRA being rolled over that represents earnings or a previously
deductible IRA contribution.
If you are considering a Roth IRA, you should consult with your tax
adviser regarding the tax implications and suitability.
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PENSION AND PROFIT-SHARING PLANS
The Code permits employers, including self-employed individuals, to
establish various types of retirement plans for employees.
Contributions to the plans for the benefit of employees are not
included in the employees' gross income until distribution from the
plan. The employees' tax liabilities may vary depending on the
particular plan design. However, the Code places limits and
restrictions on all plans with respect to such things as amount of
allowable contributions; form, manner and timing of distributions;
transfer of benefits; vesting and non-forfeiture of interests;
nondiscrimination in eligibility and participation; and tax treatment
of distributions, withdrawals and surrenders. You should consult your
tax adviser regarding the tax consequences and suitability of investing
in pension and profit-sharing plans.
TAX TREATMENT OF WITHDRAWALS - QUALIFIED CONTRACTS
In the case of a withdrawal from a Qualified Contract, a ratable portion of the
amount you receive is taxable, generally based on the ratio of your cost basis
to your total accrued benefit under the plan. Special tax rules may apply to
certain distributions from a Qualified Contract. The Code imposes a 10% penalty
on the taxable portion of any distribution from qualified retirement plans.
To the extent amounts are not includable in gross income because they have been
rolled over to an IRA or to another eligible qualified plan, no tax penalty is
imposed. The tax penalty will also not apply to the following distributions:
(1) distributions made on or after age 59 1/2;
(2) distributions following death or disability;
(3) after separation from service, distributions that are part of
substantially equal periodic payments made at least annually
for the life (or life expectancy) of the Contract Owner or the
Annuitant (as applicable) or the joint lives (or joint life
expectancies) of the Contract Owner and Annuitant (as
applicable) and the designated beneficiary;
(4) distributions after separation from service after age 55;
(5) under limited conditions, distributions made for amounts paid
during the taxable year for medical care;
(6) distributions paid to an alternate payee pursuant to a
qualified domestic relations order;
(7) under limited conditions, distributions from an IRA to purchase
medical insurance;
(8) under limited conditions, distributions from an IRA made for
qualified higher education expenses; and
(9) with limitations, distributions from an IRA for qualified
first-time home purchases.
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<PAGE> 38
The exceptions in (4) and (6) above do not apply in the case of an IRA. The
exception in (3) above applies to an IRA without the requirement that there be a
separation from service. With respect to (3) above, if the series of
substantially equal periodic payments is modified before the later of your
attaining age 59 1/2 or 5 years from the date of the first periodic payment,
then the tax for the year of the modification is increased by an amount equal to
the tax which would have been imposed (the 10% penalty tax) but for the
exception, plus interest for the tax years in which the exception is used.
Generally, if the Contract is issued under a qualified plan, annuity payments
must begin no later than April 1 of the calendar year following the calendar
year in which you reach age 70 1/2; OR the calendar year in which you retire,
whichever is LATER.
Under a qualified plan, annuity payments must be made over a period not
exceeding your life expectancy or the life expectancies of you and your
designated beneficiary. If the required minimum distributions are not made, a
50% penalty tax is imposed on the amount not distributed.
TAX SHELTERED ANNUITIES - WITHDRAWAL LIMITATIONS
If the Contract is a 403(b) annuity (also known as a tax-sheltered annuity) with
contributions made under a salary reduction agreement (as defined in the Code)
withdrawals can only be taken under certain circumstances. In order to take a
withdrawal from a 403(b) annuity, you must meet one the following conditions:
- be at least age 59 1/2;
- separate from the service of your employer;
- die
- become disabled (as defined in the Code); or
- have a case of hardship.
Withdrawals for hardship are restricted to the portion of the Contract Value
represented by your contributions and does not include investment earnings. The
limitations on withdrawals became effective January 1, 1989, and apply only to:
- salary reduction contributions made after December 31, 1988;
- income attributable to such contributions; and
- 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. You should consult your
tax adviser regarding any withdrawals from a 403(b) annuity.
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. As with qualified plans, the Code
establishes limits and restrictions on eligibility, contributions, and
distributions. Under a Section 457 plan, contributions made for the benefit of
employees will not be included in the employees' gross income until they are
distributed from the plan. 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 they are available for
distribution to the employee or the employee's beneficiary. However, for plans
established after August 20, 1996, it is required that plan assets be held in
trust for the benefit of employees and not be subject to claims by the
employer's general creditors. After January 1, 1999, this requirement is
mandatory for all Section 457 plans.
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LEGAL PROCEEDINGS
Neither the Variable Account nor the underwriter, Sentry Equity, is a party to
any legal proceedings. The Company is engaged in routine litigation which, in
the opinion of the Company, is 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 THE CONTRACT .......................................... 3
INDEPENDENT ACCOUNTANT ................................................ 3
LEGAL OPINIONS ........................................................ 3
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT ........................ 3
PERFORMANCE INFORMATION ............................................... 4
ANNUITY PAYMENTS ...................................................... 6
Annuity Unit .................................................... 6
Amount of Annuity Payments ...................................... 6
Net Investment Factor ........................................... 7
FINANCIAL STATEMENTS .................................................. 7
<PAGE> 41
PART B
<PAGE> 42
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACT
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 contract which is referred to herein.
The prospectus concisely presents information that a prospective investor should
know before investing. For a copy of the prospectus, call or write the Company
at 1800 North Point Drive, Stevens Point, WI 54481, (800)533-7827.
This Statement of Additional Information and the Prospectus are dated December
1, 1999.
<PAGE> 43
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
- ---- ----
<S> <C>
THE COMPANY ............................................................... 3
DISTRIBUTION OF THE CONTRACT .............................................. 3
INDEPENDENT ACCOUNTANT .................................................... 3
LEGAL OPINIONS ............................................................ 3
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT ............................ 3
PERFORMANCE INFORMATION ................................................... 4
ANNUITY PAYMENTS .......................................................... 6
Annuity Unit ..................................................... 6
Amount of Annuity Payments ....................................... 6
Net Investment Factor ............................................ 7
FINANCIAL STATEMENTS ...................................................... 7
</TABLE>
2
<PAGE> 44
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
all states, except New York, and in the District of Columbia. 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, either 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.
DISTRIBUTION OF THE CONTRACT
Sentry Equity Services, Inc. ("Sentry Equity"), 1800 North Point Drive, Stevens
Point, Wisconsin, a wholly-owned subsidiary of SIAMCO, serves as the principal
underwriter of the Contract. The Contract is sold through licensed insurance
agents in those states where the Contract 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 will be paid first-year and renewal
commissions for its services in distributing the Contract, not to exceed 4.7% of
purchase payments. Sentry Equity will, in turn, pay all or a portion of these
amounts to the selling agent or agency. The Contract is sold on a continuous
basis.
Sentry Equity also acts as principal underwriter for Sentry Fund, Inc., an
open-end management investment company. Sentry Equity was paid underwriter
commissions in the aggregate for the years 1996, 1997 and 1998 of $338,226,
$309,674, and $392,706, respectively. Of those amounts, it retained $286,484,
$259,161, and $236,907, respectively.
INDEPENDENT ACCOUNTANT
The statutory financial statements of the Company as of December 31, 1998 and
1997, and for the years then ended, and the financial statements of the Variable
Account as of December 31, 1998 and 1997, and for each of the two years in the
period then ended, have been audited by, PricewaterhouseCoopers, an independent
accountant, whose reports appear herein and have been included in reliance on
its authority as an expert in accounting and auditing.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Contract.
YIELD CALCULATION OF LIQUID ASSET SUBACCOUNT
The Liquid Asset subaccount of the Variable Account will calculate its current
yield based on the seven days ended on the date of calculation. For the seven
calendar days ended September 30, 1999, the annualized yield for the Liquid
Asset subaccount was 3.22%.
The current yield of the Liquid Asset subaccount 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 subaccount 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 results by (365/7).
3
<PAGE> 45
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 subaccount 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 subaccount and changes in the interest
rates on such investments, but also on changes in the Liquid Asset subaccount's
expenses during the period.
Yield information may be useful in reviewing the performance of the Liquid Asset
subaccount and for providing a basis of comparison with other investment
alternatives. However, the Liquid Asset subaccount'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 Deduction - Contingent Deferred Sales Charge" in the
Prospectus.)
ANNUITY PAYMENTS
ANNUITY UNIT
Initially, the value of an Annuity Unit was set at $10. For each subsequent
Valuation Period, the Annuity Unit value is determined as follows:
(1) the Annuity Unit value for a Subaccount for the last
Valuation Period is multiplied by the net investment
factor for the Subaccount for the next Valuation Period;
(2) 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.
AMOUNT OF ANNUITY PAYMENTS
The dollar amount of annuity payments after the first payment 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
subaccount variable annuity payments less any applicable contract maintenance
charge.
The subaccount Annuity Unit value at the end of any Valuation Period is
determined by multiplying the subaccount Annuity Unit value for the immediately
preceding Valuation Period by the quotient of (1) and (2), where:
4
<PAGE> 46
(1) is the net investment factor for the Valuation Period for which the
subaccount Annuity Unit value is being determined; and
(2) 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 is the accumulated value of $1.00 deposited at the
beginning of such period at the assumed investment rate of 4%.
NET INVESTMENT FACTOR
The net investment factor for any subaccount for any Valuation Period is
determined by dividing (1) by (2) and subtracting (3) from the result where:
(1) is the net result of:
(a) the net asset value per share of the Mutual Fund or Portfolio
held in the subaccount determined as of the current Valuation
Period; PLUS
(b) the per share amount of any dividend or capital gain
distribution made by the Mutual Fund or Portfolio held in the
subaccount if the "ex-dividend" date occurs during the current
Valuation Period; PLUS OR MINUS
(c) a per share charge or credit, which is determined by the
Company, for changes in tax reserves resulting from investment
operations of the subaccount;
(2) is the net result of:
(a) the net asset value per share of the Mutual Fund or Portfolio
held in the subaccount determined as of the immediately
preceding Valuation Period; PLUS OR MINUS
(b) the per share charge or credit for any changes in tax reserve
for the immediately preceding Valuation Period; and
(3) is the percentage factor representing the mortality and expense risk
premiums.
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 on the ability of the Company to meet its obligations under the
Contract.
5
<PAGE> 47
SENTRY VARIABLE ACCOUNT II
FINANCIAL STATEMENTS (UNAUDITED)
AS OF SEPTEMBER 30, 1999
6
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
<S> <C>
Liquid Asset Portfolio, 3,020,011
shares (cost $3,020,011) $ 3,020,011
Growth Portfolio, 1,673,332
shares (cost $40,234,214) 41,967,162
Limited Maturity Bond Portfolio,
406,136 shares (cost $5,578,683) 5,356,938
Balanced Portfolio, 727,233
shares (cost $11,375,423) 11,497,551
-----------
Total investments 61,841,662
Dividends receivable 10,687
-----------
Total assets 61,852,348
LIABILITIES:
Accrued expenses 5,287
-----------
NET ASSETS $61,847,061
===========
</TABLE>
The accompanying notes are an integral
part of these financial statements
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the nine months ended September 30, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------- ---------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Dividends $ 82,505 $ 83,479 $ -- $ --
Expenses:
Mortality and expense risk 24,310 21,703 375,634 364,329
---------- ---------- ----------- -----------
Net investment income (loss) 58,195 61,776 (375,634) (364,329)
---------- ---------- ----------- -----------
Realized net investment gain -- -- 502,876 692,324
Unrealized appreciation
(depreciation), net -- -- (2,308,510) (14,462,234)
Capital gain distributions received -- -- 2,286,697 10,487,400
---------- ---------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 481,063 (3,282,510)
---------- ---------- ----------- -----------
Net increase (decrease) in contract
owners' equity from operations 58,195 61,776 105,429 (3,646,839)
---------- ---------- ----------- -----------
Purchase payments 165,910 1,240,504 2,205,608 2,366,285
Transfers between subaccounts, net 543,194 321,355 (106,395) 252,888
Withdrawals (257,729) (360,861) (3,472,889) (3,992,838)
Contract maintenance fees (2,404) (2,189) (37,998) (32,901)
Surrender charges (685) (2,551) (18,036) (10,954)
---------- ---------- ----------- -----------
Net decrease in contract owners'
equity derived from principal
transactions 448,286 1,196,258 (1,429,710) (1,923,296)
---------- ---------- ------------ -----------
Total increase (decrease) in contract
owner's equity 506,481 1,258,034 (1,324,281) (5,570,135)
Contract owners' equity at beginning
of year 2,523,709 2,006,216 43,288,702 39,441,707
---------- ---------- ----------- -----------
Contract owners' equity at end of year $3,030,190 $3,264,250 $41,964,421 $33,871,572
========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 50
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
------------------------- ------------------------- -------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 319,622 $ 397,136 $ 185,833 $ 230,506 $ 587,960 $ 711,121
50,383 56,165 101,499 93,927 551,826 536,124
- ----------- ----------- ----------- ----------- ----------- ------------
269,239 340,971 84,334 136,579 36,134 174,997
---------- ----------- ----------- ----------- ----------- ------------
(53,432) (36,408) 104,266 102,951 553,710 758,867
(205,290) (110,814) (442,622) (2,396,849) (2,956,422) (16,969,897)
-- -- 275,308 1,619,027 2,562,005 12,106,427
- ----------- ----------- ----------- ----------- ----------- ------------
(258,722) (147,222) (63,048) (674,871) 159,293 (4,104,603)
- ----------- ----------- ----------- ----------- ----------- ------------
10,517 193,749 21,286 (538,292) 195,427 (3,929,606)
- ----------- ----------- ----------- ----------- ----------- ------------
128,274 65,362 1,320,986 1,529,011 3,820,778 5,201,162
(161,895) (123,573) (274,904) 55,106 --- ---
(598,393) (434,175) (855,715) (643,674) (5,184,726) (5,431,548)
(4,638) (5,222) (8,751) (7,476) (53,791) (47,788)
(2,808) (450) (3,523) (2,661) (25,052) (16,616)
- ----------- ----------- ----------- ----------- ----------- ------------
(639,460) (498,058) 178,093 930,306 (1,442,791) (294,790)
- ----------- ----------- ----------- ----------- ----------- ------------
(628,943) (304,309) 199,379 392,014 (1,247,364) (4,224,396)
5,985,476 6,288,074 11,296,538 9,844,273 63,094,425 57,580,270
- ----------- ----------- ----------- ----------- ----------- ------------
$ 5,356,533 $ 5,983,765 $11,495,917 $10,236,287 $61,847,061 $ 53,355,874
=========== =========== =========== =========== =========== ============
</TABLE>
<PAGE> 51
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 1999 and 1998
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 financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates and
assumptions at the date of the financial statements. Actual results could
differ from those estimates.
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 at the reported net asset values of such
portfolios, which value their investment securities at fair value.
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 investment 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
investment gains of the Variable Account which are applied to increase net
assets are not taxed.
<PAGE> 52
NOTES TO FINANCIAL STATEMENTS (Unaudited-continued)
September 30, 1999 and 1998
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 $5,287
at September 30, 1999.
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.
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.
<PAGE> 53
NOTES TO FINANCIAL STATEMENTS (Unaudited-continued)
September 30, 1999 and 1998
4. NET ASSETS
Net Assets are represented by
accumulation units in the related
Variable Account.
At September 30, 1999 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 165,204 $18.34 $ 3,030,190
Growth Portfolio 724,948 57.89 41,964,421
Limited Maturity Bond Portfolio 213,443 25.10 5,356,533
Balanced Portfolio 507,488 22.65 11,495,917
----------
Total net assets $61,847,061
===========
</TABLE>
At September 30, 1998 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 183,285 $17.81 $ 3,264,250
Growth Portfolio 743,603 45.55 33,871,572
Limited Maturity Bond Portfolio 238,862 25.05 5,983,765
Balanced Portfolio 526,067 19.46 10,236,287
----------
Total net assets $53,355,874
===========
</TABLE>
<PAGE> 54
NOTES TO FINANCIAL STATEMENTS (Unaudited - continued)
September 30, 1999 and 1998
5. PURCHASES AND SALES OF SECURITIES
In 1999, purchases and proceeds on sales of the Trust's shares
aggregated $10,261,507 and $9,107,852, 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 $1,640,811 $5,892,819 $594,708 $2,133,169 $10,261,507
Proceeds on sales 1,135,530 5,411,836 965,545 1,594,941 9,107,852
</TABLE>
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$21,604,450 and $9,621,886, 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 $2,635,193 $14,354,712 $632,318 $3,982,227 $21,604,450
Proceeds on sales 1,381,641 6,154,613 789,241 1,296,391 9,621,886
</TABLE>
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
7
<PAGE> 56
[PRICEWATERHOUSECOOPERS LETTERHEAD]
REPORTS OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Sentry Life Insurance Company
and
The Contract Owners of
Sentry Variable Account II:
In our opinion, the accompanying combined statement of assets and
liabilities and the related combined and separate statements of operations and
changes in net assets present fairly, in all material respects, the financial
position of the Sentry Variable Account II, and the Liquid Asset Portfolio,
Growth Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio
thereof, at December 31, 1998, the results of each of their operations and
changes in each of their net assets for each of the two years in the period then
ended, in conformity with generally accepted accounting principles. 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 audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers L.L.P.
Chicago, Illinois
February 11, 1999
8
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 2,514,730
shares (cost $2,514,730) $ 2,514,730
Growth Portfolio, 1,646,703
shares (cost $39,250,355) 43,291,814
Limited Maturity Bond Portfolio, 433,176
shares (cost $6,002,953) 5,986,497
Balanced Portfolio, 691,412
shares (cost $10,732,929) 11,297,678
-----------
Total investments 63,090,719
Dividends receivable 9,167
-----------
Total assets 63,099,886
LIABILITIES:
Accrued expenses 5,461
-----------
NET ASSETS $63,094,425
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
------------------------ ------------------------------
1998 1997 1998 1997
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 115,086 $ 104,541 $ - $ -
Expenses:
Mortality and expense charges 30,299 27,213 474,117 450,947
---------- ---------- ------------ -----------
Net investment income (loss) 84,787 77,328 (474,117) (450,947)
---------- ---------- ------------ -----------
Realized net investment gain (loss) - - 588,794 1,540,740
Unrealized appreciation (depreciation), net - - (5,211,880) 4,937,957
Capital gain distributions received - - 10,487,400 2,948,192
---------- ---------- ------------ -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net - - 5,864,314 9,426,889
---------- ---------- ------------ -----------
Net increase in net assets
from operations 84,787 77,328 5,390,197 8,975,942
---------- ---------- ------------ -----------
Purchase payments 1,292,248 94,695 3,248,943 1,192,713
Transfers between subaccounts, net 25,234 (37,697) (126,390) 115,753
Withdrawals (879,099) (561,881) (4,612,799) (4,384,625)
Contract maintenance fees (2,851) (3,317) (39,072) (41,415)
Surrender charges (2,826) (2,360) (13,884) (19,220)
---------- ---------- ------------ -----------
Net increase (decrease) in net assets
derived from principal transactions 432,706 (510,560) (1,543,202) (3,136,794)
---------- ---------- ------------ -----------
Total increase (decrease) in net assets 517,493 (433,232) 3,846,995 5,839,148
Net assets at beginning of year 2,006,216 2,439,448 39,441,707 33,602,559
---------- ---------- ------------ -----------
Net assets at end of year $2,523,709 $2,006,216 $ 43,288,702 $39,441,707
========== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE> 59
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- --------------------------------- --------------------------------- ---------------------------------
1998 1997 1998 1997 1998 1997
- ------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C>
$ 397,136 $ 414,044 $ 230,506 $ 164,097 $ 742,728 $ 682,682
74,360 80,334 125,291 113,868 704,067 672,362
- ------------ ------------ ------------ ------------ ------------ ------------
322,776 333,710 105,215 50,229 38,661 10,320
- ------------ ------------ ------------ ------------ ------------ ------------
(46,651) 2,573 28,391 213,070 570,534 1,756,383
(82,604) 18,458 (721,893) 869,649 (6,016,377) 5,826,064
- - 1,619,027 421,183 12,106,427 3,369,375
- ------------ ------------ ------------ ------------ ------------ ------------
(129,255) 21,031 925,525 1,503,902 6,660,584 10,951,822
- ------------ ------------ ------------ ------------ ------------ ------------
193,521 354,741 1,030,740 1,554,131 6,699,245 10,962,142
- ------------ ------------ ------------ ------------ ------------ ------------
156,457 220,322 1,758,511 441,443 6,456,159 1,949,173
105,524 (252,094) (4,368) 174,038 - -
(750,978) (1,343,699) (1,315,396) (1,281,938) (7,558,272) (7,572,143)
(6,327) (7,254) (9,679) (9,845) (57,929) (61,831)
(795) (2,672) (7,543) (8,821) (25,048) (33,073)
- ------------ ------------ ------------ ------------ ------------ ------------
(496,119) (1,385,397) 421,525 (685,123) (1,185,090) (5,717,874)
- ------------ ------------ ------------ ------------ ------------ ------------
(302,598) (1,030,656) 1,452,265 869,008 5,514,155 5,244,268
6,288,074 7,318,730 9,844,273 8,975,265 57,580,270 52,336,002
- ------------ ------------ ------------ ------------ ------------ ------------
$ 5,985,476 $ 6,288,074 $ 11,296,538 $ 9,844,273 $ 63,094,425 $ 57,580,270
============ ============ ============ ============ ============ ============
</TABLE>
11
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY
Sentry Variable Account II
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make
certain estimates and assumptions at the date of the financial
statements. Actual results could differ from those estimates.
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 Accounts Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued at the reported net asset values of
such portfolios, which value their investment securities at fair value.
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
investment 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
investment gains of the Variable Account which are applied to increase net
assets are not taxed.
12
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY
Sentry Variable Account II
Notes to Financial Statements (continued)
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 $5,461 at December 31, 1998.
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.
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.
13
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY
Sentry Variable Account II
Notes to Financial Statements (continued)
4. NET ASSETS
Net Assets are represented by accumulation units in the related Variable
Account.
At December 31, 1998 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 140,566 $17.95 $ 2,523,709
Growth Portfolio 750,025 57.72 43,288,702
Limited Maturity Bond Portfolio 238,960 25.05 5,985,476
Balanced Portfolio 499,567 22.61 11,296,538
-----------
Total net assets $63,094,425
===========
</TABLE>
At December 31, 1997 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 115,558 $17.36 $ 2,006,216
Growth Portfolio 780,148 50.56 39,441,707
Limited Maturity Bond Portfolio 258,942 24.28 6,288,074
Balanced Portfolio 482,578 20.40 9,844,273
-----------
Total net assets $57,580,270
===========
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
In 1998, purchases and proceeds on sales of the Trustis shares aggregated
$24,882,854 and $13,922,844, 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 $3,392,077 $15,934,442 $ 968,445 $4,587,890 $24,882,854
Proceeds on sales 2,876,339 7,463,244 1,141,430 2,441,831 13,922,844
</TABLE>
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$9,252,852 and $11,592,525, 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 $1,524,938 $5,657,165 $ 650,882 $ 1,419,867 $ 9,252,852
Proceeds on sales 1,956,814 6,298,766 1,703,235 1,633,710 11,592,525
</TABLE>
14
<PAGE> 63
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
15
<PAGE> 64
[PRICEWATERHOUSECOOPERS 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 (the Company) as of December 31, 1998 and 1997, 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 report
on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion
As discussed more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the insurance department of the State of Wisconsin, which
practices differ from generally accepted accounting principles (GAAP). We have
only been engaged by the Company to audit the accompanying financial statements
on a statutory basis of accounting. The Company is not required to prepare GAAP
financial statements and does not prepare GAAP financial statements. The effects
on the financial statements of the variances between the statutory basis of
accounting and GAAP, although not reasonably determinable, are presumed to be
material. We are therefore required in the following paragraph to issue an
adverse opinion on GAAP.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Sentry Life Insurance Company as of December 31, 1998 and 1997, or the
results of its operations and its cash flows for the years then ended
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,
1998 and 1997, 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 forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of assets and liabilities is presented to comply with the
National Association of Insurance Commissioners' annual statement instructions
and is not a required part of the statutory-basis financial statements. Such
information has been subjected to the auditing procedures applied in our audit
of the statutory basis financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the statutory-basis financial
statements taken as a whole.
PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 12, 1999
16
<PAGE> 65
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds..................................................................... $ 1,118,191,869 $1,103,011,418
Investments in subsidiaries............................................... 9,532,940 9,817,647
Mortgage loans............................................................ 18,723 68,657
Policy loans ............................................................. 24,036,498 25,020,637
Cash and short-term investments .......................................... 29,877,016 20,636,124
--------------- --------------
Total investments.................................................. 1,181,657,046 1,158,554,483
Accrued investment income.................................................... 18,681,577 18,231,430
Premiums deferred and uncollected ........................................... 4,474,663 4,377,983
Due from affiliates.......................................................... - 3,008,778
Other assets ................................................................ 1,177,498 6,099,831
Assets held in separate accounts............................................. 604,877,464 533,613,785
--------------- --------------
Total admitted assets............................................. $ 1,810,868,248 $1,723,886,290
=============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
17
<PAGE> 66
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
- ----------- ---- ----
<S> <C> <C>
Future policy benefits:
Life ....................................................... $ 255,692,269 250,618,823
Accident and health ........................................ 15,440,434 14,967,065
Annuity .................................................... 134,582,450 138,902,775
Policy and contract claims .................................... 4,140,344 4,720,182
Premium and other deposit fund ................................ 624,627,002 604,285,476
Other policyholder funds ...................................... 10,445,827 26,118,724
Accounts payable and other liabilities ........................ 11,177,061 3,477,182
Federal income taxes accrued .................................. 9,417,827 11,555,703
Asset valuation reserve ....................................... 5,706,987 5,264,578
Interest maintenance reserve .................................. 7,087,699 6,175,922
Liabilities related to separate accounts ...................... 603,897,819 528,643,523
-------------- --------------
Total liabilities.................................... $1,682,215,719 $1,594,729,953
============== ==============
CAPITAL STOCK AND SURPLUS
-------------------------
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1998 and 1997............. 3,161,780 3,161,780
Paid-in surplus ............................................... 43,719,081 43,719,081
Earned surplus, unappropriated ................................ 81,771,668 82,275,476
-------------- --------------
Total capital stock and surplus ..................... 128,662,529 129,156,337
-------------- --------------
Total liabilities, capital stock and surplus ........ $1,810,868,248 $1,723,886,290
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
18
<PAGE> 67
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
---------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations....................................... $ 76,847,662 $ 74,408,562
Other fund deposits....................................................... 62,791,049 52,574,356
Commissions and expense allowances on
reinsurance ceded...................................................... 11,560,785 18,912,935
Net investment income..................................................... 93,544,822 91,589,939
Other income.............................................................. 8,931,046 8,512,462
------------ ------------
Total premiums and other income.................................... 253,675,364 245,998,254
------------ ------------
Benefits and expenses:
Policyholder benefits and fund withdrawals................................ 199,613,380 188,108,969
Increase in future life policy benefits
and other reserves .................................................... 21,803,214 7,695,811
Commissions .............................................................. 7,358,122 10,638,144
Other expenses ........................................................... 27,780,333 30,477,161
Transfers from separate accounts, net .................................... (16,816,030) (16,336,976)
------------ ------------
Total benefits and expenses ....................................... 239,739,019 220,553,109
------------ ------------
Income before federal income tax expense
and net realized losses on investments ................................... 13,936,345 25,445,145
Federal income tax expense, less tax on net realized
losses and transfers to the I M R ............................... 5,684,753 9,177,337
------------ ------------
Income before net realized losses on investments............................... 8,251,592 16,267,808
Net realized losses on investments ................................ (514,506) (272,063)
------------ ------------
Net income..................................................................... $ 7,737,086 $ 15,995,745
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
19
<PAGE> 68
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<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.............................. 82,275,476 67,368,745
Net income................................................ 7,737,086 15,995,745
Change in non-admitted assets............................. (4,430) 1,850
Change in liability for reinsurance....................... (9,348) (650)
Change in asset valuation reserve......................... (442,409) 6,192,639
Dividend to stockholder................................... (7,500,000) (7,500,000)
Change in net unrealized gains on investments............. (284,707) 217,147
------------ ------------
Balance at end of year.................................... 81,771,668 82,275,476
------------ ------------
Total capital stock and surplus.................... $128,652,529 $129,156,337
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
20
<PAGE> 69
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
---------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Premiums and annuity considerations...................... $ 76,630,869 $ 74,046,843
Other fund deposits...................................... 62,791,049 52,574,356
Other premiums, considerations and deposits.............. 165,851 170,518
Allowances and reserve adjustments received on
reinsurance ceded...................................... 11,507,443 25,981,339
Investment income received (excluding realized gains
and losses and net of investment expenses)............ 90,358,325 88,152,129
Other income received.................................... 13,079,807 8,341,945
Life and accident and health claims paid................. (35,698,918) (24,600,136)
Surrender benefits....................................... (132,575,939) (99,192,578)
Other benefits to policyholders paid..................... (48,180,669) (46,821,006)
Commissions, other expenses, and taxes paid
(excluding federal income taxes)...................... (34,763,025) (41,375,759)
Net transfers from separate accounts..................... 16,492,034 16,364,694
Cash in receivable status from separate accounts......... - (4,318,844)
Changes in asset charges receivable...................... - 6,765
Dividends to policyholders paid.......................... (317,700) (316,156)
Federal income taxes paid................................ (8,853,213) (9,002,003)
Net decrease in policy loans............................. 984,139 368,610
------------ ------------
Net cash from operations.............................. 11,620,053 40,380,717
------------ ------------
Proceeds from investments sold, matured, or repaid:
Bonds................................................. 147,260,947 101,049,805
Mortgage loans........................................ 49,934 82,308
Tax on net capital gains.............................. (577,663) (105,566)
------------ ------------
Total investment proceeds...................... 146,733,218 101,026,547
------------ ------------
Other cash provided...................................... 17,175,517 10,746,587
------------ ------------
Total cash provided............................ 175,528,788 152,153,851
------------ ------------
Cost of investments acquired............................. 157,699,531 146,935,141
Other cash applied:
Dividend to stockholder............................... 7,500,000 7,500,000
Other applications, net............................... 1,088,365 5,819,079
------------ ------------
Total cash applied............................. 166,287,896 160,254,220
------------ ------------
Net change in cash and short-term investments.. 9,240,892 (8,100,369)
Cash and short-term investments:
Beginning of year .................................... 20,636,124 28,736,493
------------ ------------
End of year .......................................... $ 29,877,016 $ 20,636,124
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
21
<PAGE> 70
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 Company writes insurance
products in all states except New York primarily through direct writers who
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.
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. 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-basis financial statements.
The accompanying statutory-basis financial statements have been prepared in
accordance with statutory accounting principles which require management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the 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. Under GAAP, bonds would be classified as either trading,
available for sale, or 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 stock 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, on investments carried at market, 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 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.
22
<PAGE> 71
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------------------
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. 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 contract,
if it has been in effect at least six years, there is no surrender charge.
For the variable universal life contract, 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 $4,752 and $322 at December 31, 1998 and 1997,
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 2.5% to 6%. Additional statutory policy deficiency
reserves have been provided where the valuation net premium exceeds the gross
premiums.
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%.
Group Health reserves consist predominantly of long-term disability reserves
representing present value of amounts not yet due calculated using standard
disability tables and various interest rates.
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 computed using mortality, withdrawal and interest rate
assumptions that are based on Company experience.
E. Interest Maintenance Reserve (IMR)
Realized investment gains and losses on bonds 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 for recognition of such realized
gains and losses is prescribed by the NAIC in order to smooth the impact of
such activity on the Company's earned surplus. For GAAP purposes, there is no
such reserve.
23
<PAGE> 72
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------------------
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets including
bonds, stocks, mortgage loans, real estate and other invested assets. Changes
in the AVR are included in policyholders' surplus. For GAAP purposes, a
writedown, for other than temporary declines in value, is recognized as a
realized loss on an individual asset basis.
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and limited-payment
contracts are taken into income when due. 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 charged 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 $29,212,951 and $31,900,482 for 1998 and 1997, 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, such 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 gains
(losses) 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 regulations 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 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 initial valuation of
postretirement benefits, over a period of twenty years and a portion of the
annual expense is allocated to the Company.
24
<PAGE> 73
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
--------------------
(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, 1998 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 44,847,324 $ 3,875,945 0 $ 48,723,269
Obligations of states and
political subdivisions 441,814 92,159 0 533,973
Corporate securities 819,379,743 73,859,271 (3,201,476) 890,037,538
Mortgage-backed securities 253,522,988 14,734,376 (20,123) 268,237,241
-------------- ------------ ----------- --------------
Total $1,118,191,869 $ 92,561,751 $(3,221,599) $1,207,532,021
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31,1997 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 51,872,626 $ 3,446,572 $ (609) $ 55,318,589
Obligations of states and
political subdivisions 439,817 99,564 0 539,381
Corporate securities 757,760,027 60,329,883 (1,178,355) 816,911,555
Mortgage-backed securities 292,938,948 22,571,116 (553,953) 314,956,111
-------------- ------------ ----------- --------------
Total $1,103,011,418 $ 86,447,135 $(1,732,917) $1,187,725,636
============== ============ =========== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1998, 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 $ 18,650,144 $ 19,101,785
Due after one year through five years 66,661,672 69,833,730
Due after five years through ten years 157,206,519 169,106,006
Due after ten years 622,150,546 681,253,259
-------------- --------------
Subtotal 864,668,881 939,294,780
Mortgage-backed securities 253,522,988 268,237,241
-------------- --------------
Total $1,118,191,869 $1,207,532,021
============== ==============
</TABLE>
25
<PAGE> 74
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
--------------------
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1998 is summarized as follows:
Aaa 28.04%
Aa 5.35%
A 42.06%
Baa 22.98%
Ba & below and not rated 1.57%
------
100.00%
======
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1998 and 1997, including maturities and
calls, were $147,260,947 and $101,049,805, respectively. In 1998 and 1997,
respectively, gross gains of $3,633,126 and $1,525,602, and gross losses of
$508,150 and $652,460 were realized on these sales before transfer to the
IMR liability.
At December 31, 1998 and 1997, investments carried at $4,335,822 and
$4,384,747, respectively, were on deposit with various governmental
agencies as required by law.
(3) UNCONSOLIDATED SUBSIDIARIES
The Company wholly owed Sentry Life Insurance Company of New York (SLONY)
during 1998 and 1997. Condensed financial information regarding SLONY is
shown as follows:
<TABLE>
<CAPTION>
SLONY
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
Investments $33,868,989 $35,406,623
Total assets 38,308,361 38,955,256
Policy reserves and benefits 19,401,383 19,699,749
Total liabilities 28,775,421 29,137,609
Statutory capital and surplus 9,532,940 9,817,647
Premium income 7,151,770 8,331,937
Net investment income 2,627,438 2,783,625
Benefits and expenses 8,687,989 9,917,561
Net income 659,539 764,439
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Dividends received from affiliates $ 880,000 $ 750,000
Interest:
Bonds 89,112,233 87,232,271
Short-term investments 1,111,775 1,124,220
Other investments 1,676,371 1,763,787
Amortization of IMR 1,119,458 1,113,741
----------- -----------
Gross investment income 93,899,837 91,984,019
Investment expense 355,015 394,081
----------- -----------
Net investment income $93,544,822 $91,589,939
=========== ===========
</TABLE>
26
<PAGE> 75
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
-------------------------- ----------------------------
1998 1997 1998 1997
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Common stock of unconsolidated - - $ (284,707) $ 217,147
subsidiary
Bonds 3,124,975 873,142 - -
Capital gains tax (1,608,247) (577,663) - -
----------- ---------- ---------- ---------
Pre-IMR capital gains, net of tax 1,516,728 295,479 (284,707) 217,147
IMR capital gains transferred
into the reserve net of taxes (2,031,234) (567,542) - -
----------- ---------- ---------- ---------
$ (514,506) $ (272,063) $ (284,707) $ 217,147
=========== ========== ========== =========
</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>
1998 1997
----------- -----------
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 4,877,721 $ 8,905,800
Accrual of bond discount (937,906) (633,561)
Adjustment for deferred acquisition costs (33,295) 12,178
Dividends received from subsidiaries (308,000) (262,500)
Different basis used to compute future policy benefits 2,678,735 1,720,817
Amortization of interest maintenance reserve (391,810) (389,809)
Other, net (200,692) (175,588)
----------- -----------
Total $ 5,684,753 $ 9,177,337
=========== ===========
</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 $5,605,476 and $84,735,704, respectively, at December 31,
1998.
Federal income tax returns of SIAMC0 have been examined through 1994 and
the Company and the Internal Revenue Service have reached agreement on all
issues relating to 1994 and prior years. 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> 76
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, 1998 VALUE FAIR VALUE
--------- ----------
<S> <C> <C>
Assets:
Bonds $1,118,191,869 $1,207,532,021
Assets held in separate accounts 604,877,464 604,877,464
Liabilities:
Aggregate reserves for
investment-type contracts 75,976,747 75,638,874
Structured settlements 53,328,059 63,023,295
Liability for premium and
other deposit funds 624,627,002 624,347,222
Liabilities related to
separate accounts 603,897,819 603,897,819
</TABLE>
28
<PAGE> 77
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
--------------------
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31,1997 VALUE FAIR VALUE
--------- ----------
<S> <C> <C>
Assets:
Bonds $1,103,011,148 $1,187,725,636
Assets held in separate accounts 533,613,785 533,613,785
Liabilities:
Aggregate reserves for
investment-type contracts 80,815,675 80,386,603
Structured settlements 52,717,040 59,537,099
Liability for premium and
other deposit funds 604,285,476 603,300,638
Liabilities related to
separate accounts 528,643,523 528,643,523
</TABLE>
(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 $0 and $283,000 in 1998 and 1997,
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 $429,000
and $260,000 by SIAMCO for 401k Plan benefits in 1998 and 1997,
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 SLAMCO were
approximately $470,000 for 1998 and $445,000 for 1997.
(8) REINSURANCE
The Company had entered into reinsurance contracts for participation in
reinsurance pools and surplus protection fur its wholly-owned subsidiaries.
Assumed life in-force amounted to approximately 31% and 30% of total
in-force (before ceded reinsurance) at December 31, 1998 and 1997,
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 liabilities
relating to SIAMCO's employee benefit plans, are ceded to reinsurers. The
group health liabilities are ceded to SIAMCO.
29
<PAGE> 78
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
--------------------
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
were as follows:
<TABLE>
<CAPTION>
1998 (000'S OMITTED)
--------------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $ 306 $ 28,380 $ 6,459 $3,563
Benefits 372 43,926 6,539 1,634
Commissions 10 11,083 (3) 477
Future Policy Benefits:
Life & Annuities 34 - 18 1,213
Accident & Health - 226,031 175 73
Intercompany Receivable - 333 - -
</TABLE>
<TABLE>
<CAPTION>
1997 (000'S OMITTED)
--------------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $ 306 $ 56,101 $6,628 $7,891
Benefits 8 59,973 6,602 4,437
Commissions 5 17,718 (2) 1,195
Future Policy Benefits:
Life & Annuities 34 - 19 1,347
Accident & Health - 232,386 291 159
Intercompany Receivable - 8,650 - -
</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
legal 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 ultimate cost for these assessments is not expected to
have a material adverse effect on the financial statements.
(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 $25,742,000 and
$20,360,000 in 1998 and 1997, respectively.
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, 1998 and 1997 included
$53,328,059 and $52,717,040, respectively, relating to these contracts.
Also, see Notes 7 and 8 for other related party transactions.
(11) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposits of approximately $1,286.0 million and
$1,202.0 million in 1998 and 1997, respectively, are subject to withdrawal
at the discretion of the annuity contract holders. Approximately 96% and
95%, respectively, carry surrender charges.
<PAGE> 79
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
31
<PAGE> 80
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31,1998
SCHEDULE I - 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 ............................................................. $ 322,647
Other bonds (unaffiliated) ................................................... 88,789,586
Common stocks of affiliates .................................................. 880,000
Mortgage loans ............................................................... 4,509
Premium notes, policy loans and liens ........................................ 1,631,171
Short-term investments ....................................................... 1,111,775
Aggregate write-ins for investment income .................................... 40,691
--------------
Gross investment income ...................................................... $ 92,780,379
==============
Mortgage Loans - Book Value:
Residential mortgages ........................................................ 18,723
==============
Mortgage Loans By Standing - Book Value:
Good standing ................................................................ $ 18,723
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks ................................................................ $ 9,532,940
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ................................................ $ 39,078,263
Over 1 year through 5 years ................................................ 164,828,536
Over 5 years through 10 years .............................................. 263,873,963
Over 10 years through 20 years ............................................. 310,147,916
Over 20 years .............................................................. 340,263,191
--------------
Total by Maturity .......................................................... $1,118,191,869
==============
</TABLE>
32
<PAGE> 81
<TABLE>
<S> <C>
Bonds by Class - Statement Value
Class 1 ................................................................... $ 798,070,889
Class 2 ................................................................... 304,364,338
Class 3 ................................................................... 15,756,642
Class 4 ................................................................... 0
Class 5 ................................................................... 0
Class 6 ................................................................... 0
--------------
Total by Class ............................................................ $1,118,191,869
==============
Total Bonds Publicly Traded ............................................... $1,111,613,198
==============
Total Bonds Privately Placed .............................................. $ 6,578,671
==============
Short-Term Investments - Book Value ............................................ $ 29,877,016
==============
Cash on Deposit ................................................................ $ 0
==============
Life Insurance In Force (000's omitted):
Ordinary .................................................................. $ 4,684,362
==============
Group Life ................................................................ $ 3,189,201
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ....................................................... $ 116,889
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary .................................................................. 21,189
==============
Group Life ................................................................ 115
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ....................................................... $ 0
==============
Income Payable .......................................................... $ 390,642
==============
Ordinary - Involving Life Contingencies
Income Payable .......................................................... $ 195,275
==============
</TABLE>
33
<PAGE> 82
<TABLE>
<S> <C>
Annuities:
Ordinary
Immediate - Amount of Income Payable ....................................... $ 1,707,764
==============
Deferred - Fully paid account balance ...................................... $ 20,071,365
==============
Deferred - Not fully paid account balance .................................. $ 89,150,724
==============
Group
Amount of income payable ..................................................... $ 5,081,573
==============
Fully paid account balance ................................................... $ 9,507,969
==============
Not fully paid account balance ............................................... $1,166,706,277
==============
Accident and Health Insurance - Premiums In Force:
Ordinary ..................................................................... $ 157,622
==============
Group ........................................................................ $ 36,000,900
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ..................................... $ 349,083
==============
Claim Payments 1998:
Group Accident and Health Year - Ended December 31, 199X
1998 ....................................................................... $ 2,665,883
==============
1997 ....................................................................... $ 1,954,794
==============
1996 ....................................................................... $ 1,606,833
==============
1995 & prior ............................................................... $ 7,612,173
==============
Other Accident & Health
1998 ....................................................................... $ 16,632
==============
1997 ....................................................................... $ 33,798
==============
1996 ....................................................................... $ 15,336
==============
1995 & prior ............................................................... $ 89,013
==============
</TABLE>
34
<PAGE> 83
PART C
<PAGE> 84
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:
Unaudited Statement of Assets, Liabilities and Statement
of Operations and Change in Net Assets, September 30,
1999
Report of Independent Accountant
Statement of Assets, Liabilities and Contract Owners'
Equity, December 31, 1998
Statement of Operations and changes in Contract Owners'
Equity for the years ended December 31, 1998 and 1997
Notes to Financial Statements, December 31, 1998 and 1997
Financial Statements of Sentry Life Insurance Company
Included in Part B
Report of Independent Accountant
Statutory-Basis Balance Sheets, December 31, 1998 and
1997
Statutory-Basis Statements of Operations for the years
ended December 31, 1998 and 1997
Statutory-Basis Statements of Changes in Capital Stock
and Surplus for the years ended December 31, 1998 and
1997
Statutory-Basis Statements of Cash Flow for the years
ended December 31, 1998 and 1997
Notes to Statutory-Basis Financial Statements
<PAGE> 85
ITEM 24
(b) Exhibits
(1) Resolutions of the Board of Directors of
Sentry Life Insurance Company*
(2) Not Applicable
(3)(i) Principal Underwriter Agreement*
(3)(ii) Registered Representatives Agreement*
(3)(iii) General Agent Agreement*
(4)(i) Individual Flexible Purchase Payment
Deferred Variable Annuity Contract
(4)(ii) Contract Amendment pursuant to Tax
Reform Act of 1984
(5) Application Form
(6)(i) Articles of Incorporation of Sentry Life
Insurance Company*
(6)(ii) Bylaws*
(7) Not Applicable
(8)(i) Sales Agreement (Fund Participation
Agreement)*
(8)(ii) Assignment and Modification Agreement**
(9) Opinion and Consent of Counsel
(10) Consent of Independent Accountants
(11) Not Applicable
(12) Agreement Governing Contribution to
Sentry Variable Account II*
(27) Not applicable
* Exhibits (1), (3)(i), (3)(ii), (3)(iii), (6)(i),
(6)(ii),(8)(i), and (12) are incorporated herein by reference
to such exhibit in Registrant's (File Nos. 2087027 and
811-3875) Post-Effective Amendment No. 17 to Form N-4 filed
electronically on or about April 30, 1997.
** Exhibit (8)(ii) is incorporated herein by reference to such
exhibit in Registrant's (File Nos. 2087027 and 811-3875)
Post-Effective Amendment No. 16 to Form N-4 filed
electronically on or about April 29, 1996.
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
---- ---------------------
Dale R. Schuh Director, Chairman of the Board and
President
Wallace D. Taylor Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
Janet L. Fagan Director
James J. Weishan Director
<PAGE> 86
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, Inc., 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.
ITEM 27 Number of Contract Owners
As of September 30, 1999, there were 1,915 qualified contract owners and 554
non-qualified contract owners.
ITEM 28 Indemnification
Under the Bylaws of Sentry Life Insurance Company, each director and officer of
the Company shall be indemnified by the Company against all costs and expenses
actually and necessarily incurred by him or her in connection with the defense
of any action, suit or proceeding in which he or she is made a party by reason
of his or her being or having been a director or officer of the Company, whether
or not he or she continues to be a director or officer at the time of incurring
such costs or expense, except in relation to matters as to which he or she shall
be adjudged in such action, suit or proceeding to be liable for gross negligence
or willful misconduct in the performance of his or her duties as such director
or officer. This right of indemnification shall not be exclusive of other rights
to which any director or officer may be entitled as a matter of law or
agreement.
Sentry Equity Services, Inc., the principal underwriter, is a Delaware
corporation. The Delaware General Corporation Law, Section 145, provides for
indemnification of directors, officers, employees and agents as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS -(a) A
corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with such action,
<PAGE> 87
suit or proceeding if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe the person's conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner
which the person reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal
action or proceeding, had reasonable cause to believe that the person's
conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit if the person acted in
good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter
as to which such person shall have been adjudged to be liable to the
corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or
such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense
of any action, suit or proceeding referred to in subsections (a) and
(b) of this section, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper
in the circumstances because the person has met the applicable standard
of conduct set forth in subsections (a) and (b) of this section. Such
determination shall be made (1) by a majority vote of the directors who
are not parties to such action, suit or proceeding, even though less
than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion,
or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the corporation as authorized
in this section. Such expenses (including attorneys' fees) incurred by
other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be
deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
<PAGE> 88
(g) A corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors,
officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under this section with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee
or agent of the corporation which imposes duties on, or involves
services by, such director, officer, employee or agent with respect to
an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he reasonably believed
to be in the interest of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in
this section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be
director, officer, employee or agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction
to hear and determine all actions for advancement of expenses or
indemnification brought under this section or under any bylaw,
agreement, vote of stockholders or disinterested directors, or
otherwise. The Court of Chancery may summarily determine a
corporation's obligation to advance expenses (including attorneys'
fees).
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any officer or controlling person in connection with the
securities being registered) the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
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.
<PAGE> 89
(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 Director and Chairman of the Board
Susan M. DeBruin President
Glen E. Scott Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
(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. $155,799 $ 0.00 $ 0.00 $392,706
</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.
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.
(d) Sentry Life Insurance Company ("Company") hereby represents that
the fees and charges deducted under the Contracts described in
the Prospectus, in the aggregate, are reasonable in relation to
the services rendered, the expenses to be incurred and the risks
assumed by the Company.
<PAGE> 90
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> 91
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 Point,
State of Wisconsin, on the 29th day of November, 1999.
Sentry Variable Account II
Registrant
By: Sentry Life Insurance Company
By: /s/ Dale R. Schuh
-------------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
Sentry Life Insurance Company
Depositor
By: /s/ Dale R. Schuh
-------------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
<PAGE> 92
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/ Dale R. Schuh November 29, 1999
- ----------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
/s/ William M. O'Reilly November 29, 1999
- ----------------------------------------
William M. O'Reilly, Secretary and
Director
/s/William J. Lohr November 29, 1999
- ----------------------------------------
William J. Lohr, Treasurer and
Director
/s/ Janet L. Fagan November 29, 1999
- ----------------------------------------
Janet L. Fagan, Director
/s/ James J. Weishan November 29, 1999
- ----------------------------------------
James J. Weishan, Director
<PAGE> 1
EXHIBIT 4(i)
<PAGE> 2
SENTRY INVESTORS LIFE INSURANCE COMPANY
SENTRY INVESTORS LIFE INSURANCE COMPANY, 34 Monument Square, Concord,
Massachusetts, ("the Company") will make income payments to the annuitant in
accordance with the terms set forth in this Contract beginning on the Income
Date.
This Contract is issued in consideration of the application, a copy of which is
attached and made a part of the Contract, and of the payment of Purchase
Payments in accordance with the terms and conditions of this Contract.
TEN DAY FREE LOOK
Within ten days 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 paid on it will then be refunded in full.
Signed for the Company.
/s/Caroline E. Fribance /s/Andy Popa, Jr.
Secretary President
VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT
DEFERRED, NON-PARTICIPATING
ANNUITY PAYMENTS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED
AS TO DOLLAR AMOUNT.
FOR DETERMINATION OF VARIABLE BENEFITS PLEASE SEE THE VARIABLE ACCOUNT
PROVISIONS, PAGE 6, AND THE VARIABLE ANNUITY PROVISION, PAGE 11.
<PAGE> 3
POLICY INDEX
General Provisions
The Contract ............................................................. 4
Non-Participation in Surplus ............................................. 4
Incontestability ......................................................... 4
Misstatement of Age....................................................... 4
Contract Settlement....................................................... 4
Reports................................................................... 4
Taxes..................................................................... 4
Evidence of Survival...................................................... 4
Protection of Proceeds.................................................... 4
Modification of Contract.................................................. 4
Ownership, Assignment Provision............................................ 4
Ownership................................................................. 4
Assignment................................................................ 4
Beneficiary Provisions..................................................... 5
Beneficiary............................................................... 5
Change of Beneficiary..................................................... 5
Purchase Provisions........................................................ 5
Purchase Payments......................................................... 5
Net Purchase Payments..................................................... 5
Change in Purchase Payments............................................... 5
No Default................................................................ 5
Variable Account Provisions................................................ 5
The Variable Account...................................................... 5
Investments of the Variable Account....................................... 5
Valuation of Assets....................................................... 5
Contract Value............................................................ 6
Transfers................................................................. 6
Accumulation Units........................................................ 6
Valuation Periods and Dates............................................... 7
Mortality and Expense Risk Premium........................................ 7
Mortality and Expense Guarantee........................................... 7
Annuity Unit.............................................................. 7
Contract Maintenance Charge................................................ 7
Deduction for Contract
Maintenance Charge....................................................... 7
Annuity Provisions......................................................... 7
Income Date and Settlement Option......................................... 7
Change in Income Date..................................................... 7
Change in Settlement Option............................................... 7
Settlement Options........................................................ 7
Frequency and Amount of Annuity Payment................................... 8
<PAGE> 4
Variable Annuity.......................................................... 8
Net Investment Factor..................................................... 8
Payments................................................................... 9
Payments on the Death of the
Annuitant Prior to the Income Date...................................... 9
Payments on the Death of the
Annuitant After the Income Date........................................ 9
Surrender Provisions....................................................... 9
Surrender................................................................. 9
Calculation of Contingent Deferred
Sales Charge............................................................ 9
Suspension of Payments..................................................... 10
Tables..................................................................... 11
Life Income................................................................ 11
Life Income-Joint and Survivor............................................. 12
Annuity Purchase Rates..................................................... 13
<PAGE> 5
CONTRACT DATA PAGE
ANNUITANT: John Smith
CONTRACT NUMBER: 000
CONTRACT OWNER: John Smith
EFFECTIVE DATE: April 1, 1984
INCOME DATE: January 1, 2012
CONTRACT MAINTENANCE CHARGE: Guaranteed never to exceed $30 each year unless
changed.*
*Prior to the Income Date, the Contract Maintenance Charge is not guaranteed and
may be changed for future years. After the Income Date, the amount of the
Contract Maintenance Charge will not be changed from the amount of the annual
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.
MORTALITY AND EXPENSE RISK PREMIUM: Equal on an annual basis to 1.20% of the
daily net asset value of the Variable
Account.
TRANSFER FEE: $0 per transaction. This Transfer Fee is not guaranteed and may
be changed at any time.
ELIGIBLE MUTUAL FUNDS: Advisers Management Trust
- Growth Portfolio
- Bond Portfolio
- Liquid Asset Portfolio
VARIABLE ACCOUNT: Sentry Investors Variable Account II
ANNUITY SERVICE OFFICE: P.O. Box 867, Stevens Point, Wisconsin 54481
For determination of variable benefits please see the Variable Account
Provisions, page 5, and the Variable Annuity Provision, page 8.
FOR USE WITH SENTRY INVESTORS VARIABLE ACCOUNT II
A SEPARATE INVESTMENT ACCOUNT OF
SENTRY INVESTORS LIFE INSURANCE COMPANY
<PAGE> 6
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate the Contract
Value 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 Investors Life Insurance Company at its Annuity Service Office
designated on the Contract Data Page.
CONTINGENT OWNER - The Contingent Owner, if any, is as named in the application,
unless changed.
CONTRACT ANNIVERSARY - An anniversary of the Effective Date of this Contract.
CONTRACT OWNER - The Contract Owner is named in the application, unless changed,
and has all rights under this 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.
ELIGIBLE MUTUAL FUND(S) - A Mutual Fund designated on the Contract Data Page.
INCOME DATE - The date on which annuity payments are to commence.
PORTFOLIO - A segment of an Eligible Mutual Fund which constitutes a separate
and distinct class of shares.
VALUATION DATE - Each day that the New York Stock Exchange is open for business.
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.
VARIABLE ACCOUNT - A separate investment account of the Company designated on
the Contract Date Page into which net purchase payments will be allocated.
3
<PAGE> 7
GENERAL PROVISIONS
THE CONTRACT - The entire Contract consists of this Contract and the
application, a copy of which is attached. This Contract may be changed or
altered only by the President or the Secretary of the Company.
NON-PARTICIPATION IN SURPLUS - This Contract will not share in any distribution
of profits or surplus of the Company.
INCONTESTABILITY - The Company will not contest this Contract from its Effective
Date.
MISSTATEMENT OF AGE - The Company may require proof of age of the Annuitant
before making any life annuity payment provided for by this Contract. If the age
of the Annuitant 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
upon in one sum with the next annuity payment; overpayments will be deducted
from the future annuity payments until the total is repaid.
CONTRACT SETTLEMENT - This Contract must be returned to the Company upon any
settlement. Prior to any settlement as a death claim, due proof of the
Annuitant's death must be submitted to the Company.
REPORTS - The Company will furnish the Contract Owner with a report showing the
Contract Value at least once each calendar year. This report will be sent to the
last known address of the Contract Owner.
TAXES - Any taxes paid to any governmental entity will be charged against the
Contract Value. The Company will, in its sole discretion, determine when such
taxes have resulted from: the investment experience of the Variable Account; the
receipt by the Company of the purchase payment(s); or commencement of annuity
payments.
EVIDENCE OF SURVIVAL - Where any benefits under this 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.
PROTECTION OF PROCEEDS - No beneficiary may commute, encumber, alienate or
assign any payments under this Contract before they are due. To the extent
permitted by law, no payments shall be subject to the debts, contracts or
engagements of any beneficiary nor to any judicial process to levy upon or
attach the same for payment thereof.
MODIFICATION OF CONTRACT - This Contract may not be modified by the Company
without the consent of the Contract Owner except as may be required by
applicable law.
OWNERSHIP, ASSIGNMENT PROVISION
OWNERSHIP - The Contract Owner has all rights, and may receive all benefits
under this Contract. During the lifetime of the Annuitant and prior to the
Income Date, the Contract Owner shall be the person designated 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. If the Contract Owner dies, the Contingent Owner becomes the Contract
Owner. Any new choice of Contract Owner or Contingent 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 at 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 it was received.
ASSIGNMENT - The Contract Owner may assign this 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 at the Company. The
Company is not responsible for the validity of any assignment. The Company shall
not be liable as to any payment or other settlement made by the Company before
receipt of the assignment.
4
<PAGE> 8
If this Contract is issued pursuant to a retirement plan which receives
favorable tax treatment under the provisions of Section 401, 403, 404, 408 or
457 of the Internal Revenue Code, then it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under
applicable law.
BENEFICIARY PROVISIONS
BENEFICIARY - The Beneficiary, named in the application unless changed, is the
party entitled to receive the benefits to be paid at the death of the Annuitant.
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 death; or, if there
are none,
(2) to the Contingent Beneficiaries who survive the Annuitant's death; or, if
there are none,
(3) to the Contract Owner; or to the estate of the Contract Owner.
CHANGE OF BENEFICIARY - 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 such notice is signed. But the Company
shall not be liable for any payment made or action taken before it records the
change.
PURCHASE PROVISIONS
PURCHASE PAYMENTS - Subject to the limitations contained herein, purchase
payments are payable according to the frequency and in the amount selected by
the Contract Owner in the application. The initial purchase payment is due on
the Effective Date and must be at least $5,000. Subsequent purchase payments
must be at least $250. In the event that the Contract is issued to retirement
plans which qualify for favorable tax treatment under Section 401, 403, 404,
408, or 457 of the Internal Revenue Code, the amount of the initial purchase
payment must be at least $1,000. Subsequent purchase payments must be at least
$100. The Company reserves the right to reject any application or purchase
payment.
NET PURCHASE PAYMENTS - A net purchase payment is equal to the purchase payment
less any applicable premium taxes.
CHANGE IN PURCHASE PAYMENTS - The Contract Owner may elect to increase or
decrease or to change the frequency of purchase payments.
NO DEFAULT - Unless surrendered for the full Surrender Value, this Contract
remains in force until the Income Date and will not be in default even though no
additional purchase payments are made.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT - The Variable Account is the separate investment account
of the Company. It is named on the Contract Data Page. The Company has allocated
a part of its assets for this and certain other contracts to the Variable
Account. The assets of the Variable Account are the property of the Company.
However, they are not chargeable with the liabilities arising out of any other
business the Company may conduct.
INVESTMENTS OF THE VARIABLE ACCOUNT - Net purchase payments applied to the
Variable Account will be invested in the Eligible Mutual Fund(s) and the
Portfolio(s), if any, within an Eligible Mutual Fund listed on the Contract Data
Page. Such investment will be made in accordance with the selection made by the
Contract Owner in the Application. The selection of investment is subject to the
terms and conditions imposed on such selection by the Company. The Contract
Owner may change such selection prospectively without fee, penalty or other
charge upon written notice to the Company. Such change will be effective for net
purchase payments received after receipt of such notice. The assets of the
Variable Account are segregated by Eligible Mutual Fund(s), Portfolio(s) within
the Eligible Mutual Fund(s) and type of Contract. Therefore, a series of
sub-accounts is established within the Variable Account. The Company may, from
time to time, add additional Eligible Mutual Fund(s) or Portfolio(s) to those
listed on the Contract Data Page. In such an event,
5
<PAGE> 9
the Contract Owner may be permitted to select such Eligible Mutual Fund(s) or
Portfolio(s) as investments to underlie this Contract. However, the right to
make any such selection will be limited by the terms and conditions imposed on
such transactions by the Company.
If the shares of any of the Eligible Mutual Funds, or any Portfolio within these
Funds become unavailable for investment by the Variable Account, or the
Company's Board of Directors deems further investment in these shares
inappropriate, the Company may substitute shares of another mutual fund for fund
shares already purchased or to be purchased by Purchase Payments under the
Contract.
CONTRACT VALUE - Net purchase payments are allocated among the various
sub-accounts within the variable account. For each sub-account, the net purchase
payments are converted into Accumulation Units. The number of the Accumulation
Units credited to the Contract is determined by dividing the Net Purchase
Payment allocated to the sub-account by the value of the Accumulation Unit for
the sub-account. The value of the Contract 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.
TRANSFERS - The Contract Owner may, no more frequently than four times in any
one Contract Year prior to the Income Date and no more frequently than one time
in any one Contract Year after the Income Date, direct the transfer of all or
part of the Contract Values between Eligible Mutual Fund(s) or Portfolio(s)
subject to the following conditions:
(a) The Contract Owner will pay to the Company a Transfer Fee for each transfer
as initially shown on the Contract Data Page in effect at the time of the
transfer. 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.
(b) The minimum amount which may be transferred from an Eligible Mutual Fund or
Portfolio is (i) $250; or, (ii) if smaller, the remaining value of the
Contract's interest in such Eligible Mutual Fund or Portfolio.
(c) 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.
(d) Transfers shall be effected during the Valuation Period next following
receipt by the Company of a written transfer direction (containing all required
information). However, no such transfer may be made effective within seven
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 thirty (30) days after receipt of
such initial Purchase 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.
(e) Any transfer direction must clearly specify:
(1) the amount which is to be transferred; and
(2) the name(s) of the Eligible Mutual Fund(s) or Portfolio(s) which are to be
affected.
(f) The Company reserves the right at any time and without prior notice to any
party to terminate, suspend or modify the transfer privileges described above.
ACCUMULATION UNIT - Net Purchase Payments are converted into Accumulation Units.
This is done by dividing each Net Purchase Payment by the value of an
Accumulation Unit for the Valuation Period during which the net 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, that is, the aggregate value of the
underlying Fund shares held at the end of such Valuation Period, plus or minus
6
<PAGE> 10
(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.
VALUATION PERIODS AND DATES - A Valuation Period is the period commencing at the
close of business of the New York Stock Exchange for each Valuation Date and
ending at the close of business for the succeeding Valuation Date. A Valuation
Date is each day that the New York Stock Exchange is open for business.
MORTALITY AND EXPENSE RISK PREMIUM - The Company deducts a Mortality and Expense
Risk Premium equal on an annual basis to the amount set forth on the Contract
Data Page. The Mortality and Expense Risk Premium compensates the Company for
assuming the mortality and expense risks under this Contract. Such deductions
are made daily from the Contract Value.
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.
ANNUITY UNIT - The value of an Annuity Unit for each sub-account was arbitrarily
set initially at $10. This was done when the first Eligible Mutual Fund shares
were purchased. 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.
CONTRACT MAINTENANCE CHARGE
DEDUCTION FOR CONTRACT MAINTENANCE CHARGE - The Company deducts an annual
Contract Maintenance Charge shown on the Contract Data Page, from the Contract
Value by cancelling Accumulation Units to reimburse it for administration
expenses relating to maintenance of this Contract. The Contract Maintenance
Charge will be deducted from the Contract Value on each Contract Anniversary
this 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.
When this 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. 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 the
reduction of the monthly benefit.
ANNUITY PROVISIONS
INCOME DATE AND SETTLEMENT OPTION - The Contract Owner selects an Income Date
and Settlement Option at the time of application. Such date must always be the
first day of a calendar month and must be at least one month after the Effective
Date, and may not be later than the first day of the first calendar month
following the Annuitant's 75th birthday.
CHANGE IN INCOME DATE - The Contract Owner may, upon at least thirty (30) days
prior written notice to the Company, change the Income Date. The date to which
such a change may be made shall be 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 75th birthday.
CHANGE IN SETTLEMENT OPTION - The Contract Owner may, upon at least thirty (30)
days prior 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.
SETTLEMENT OPTIONS - The net proceeds payable upon settlement of this Contract
may be paid under one of the following options or any other option acceptable to
the Company:
7
<PAGE> 11
Option 1 - LIFE ANNUITY. An annuity payable monthly during the lifetime of the
Annuitant. Payments cease at the death of the Annuitant.
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
guaranteed 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, commuted at the assumed investment rate, and
paid in a single sum within seven (7) days of receipt of such request.
Option 3 - JOINT AND LAST SURVIVOR ANNUITY. 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.
If no settlement option is elected, Option 1 will automatically be applied.
FREQUENCY AND AMOUNT 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 one single lump sum. In addition, if the payments provided for
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.
VARIABLE ANNUITY - A Variable Annuity is an annuity with payments which: (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 sub-account(s) Contract Value will be applied to the
applicable Annuity Tables. The Annuity Table used will depend upon the
Settlement Option chosen. The amount payable for the first payment for each
$1,000 so applied is shown in the Tables on pages 11 and 12. If, as of the
Income Date, the then current settlement option rates applicable to this class
of contracts will provide a larger income than that guaranteed for the same form
of annuity under this Contract, the larger amount will be paid. 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.
(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 reduced by the 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,
(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 four (4%) percent.
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
8
<PAGE> 12
(2) the per share amount of any dividend or capital gain distribution made by
the Eligible Mutual Fund or Portfolio held in the sub-account if the
"exdividend" 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.
(c) is the percentage factor representing the Mortality and Expense Risk
Premium.
The Net Investment Factor may be greater or less than one; therefore, Annuity
Unit value may increase or decrease.
PAYMENTS
PAYMENTS ON THE DEATH OF THE ANNUITANT PRIOR TO THE INCOME DATE - In the event
of the death of the Annuitant prior to the Income Date, a 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 Valuation period next following the date
both due proof of death and an election for a single sum payment or Settlement
Option is received by the Company. If a single sum settlement is requested, the
proceeds will be paid within seven (7) days of receipt of such election and
proof of death. If a single sum settlement is not elected and a Settlement
Option is desired, election may be made by the beneficiary during the ninety-day
period commencing with the date of receipt of notification of death; otherwise a
single sum settlement will be made to the beneficiary at the end of such
ninety-day period. The amount of the death benefit will be the greater of (i)
the sum of all Purchase Payments made, less any amount surrendered, or (ii) the
Contract Value. Death benefits will be made in accordance with any applicable
laws or regulations governing payment of death proceeds.
PAYMENTS ON THE DEATH OF THE ANNUITANT AFTER THE INCOME DATE - If the Annuitant
dies after the Income Date, the death benefit, if any, shall be as specified in
the Settlement Option elected. The Company will require proof of the Annuitant's
death. Death benefits will be made in accordance with any applicable laws or
regulations governing payment of death proceeds.
SURRENDER PROVISIONS
SURRENDER - While this Contract is in force and before the earlier of the Income
Date or the death of the Annuitant, the Company will, upon written request to
the Company by the Contract Owner, allow the surrender of all or a portion of
this 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 (7) days of
receipt of such request.
The Surrender Value shall be the Contract Value for the Valuation Period next
following the Valuation Period during which the written request to the Company
for surrender is received reduced by the sum of:
(a) the total of any applicable premium taxes not previously deducted;
(b) any applicable Contract Maintenance Charges;
(c) any applicable Contingent Deferred Sales Charge.
CALCULATION OF CONTINGENT DEFERRED SALES CHARGE - If all or a portion of the
Surrender Value is surrendered, a Contingent Deferred Sales Charge will be
calculated at the time of each such surrender and will be deducted from the
Contract Value. In calculating the Contingent Deferred Sales Charge:
9
<PAGE> 13
(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;
(c) Adding the products of each multiplication in (b) above.
Time Between Receipt of Allocated
Purchase Payment and Date of Surrender Percentage
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%
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 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 if 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 ten (10%) percent of aggregate Purchase Payments free from Contingent
Deferred Sales Charges provided the contract Value prior to the surrender
exceeds $10,000. The Company may also periodically waive the contingent Sales
Charges under the Company procedures then in effect.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone payments hereunder for any
period when:
(1) the New York Stock Exchange is closed (other than customary weekend and
holiday closings);
(2) trading on the Exchange is restricted;
(3) an emergency exists as a result of which disposal of securities held in the
Variable Account is not reasonably practicable or it is not reasonably
practicable to determine the value of the Variable Account's net assets; or
(4) during any other period when the Securities and Exchange Commission, by
order, so permits for the protection of security holder; provided that
applicable rules and regulations of the Securities and Exchange Commission shall
govern as to whether the conditions described in (2) and (3) exist.
10
<PAGE> 14
Dollar Amount of the First Monthly
Variable Annuity Payment per $1,000
Unisex
Adjusted Age Life Only Life & 10 yrs Certain
40 4.19 4.18
41 4.24 4.22
42 4.28 4.27
43 4.33 4.31
44 4.38 4.36
45 4.43 4.41
46 4.49 4.46
47 4.55 4.52
48 4.61 4.58
49 4.67 4.64
50 4.74 4.70
51 4.81 4.77
52 4.89 4.83
53 4.97 4.91
54 5.05 4.99
55 5.14 5.07
56 5.23 5.15
57 5.33 5.24
58 5.44 5.34
59 5.55 5.44
60 5.68 5.55
61 5.81 5.66
62 5.95 5.78
63 6.10 5.90
64 6.26 6.03
65 6.43 6.17
66 6.61 6.31
67 6.81 6.46
68 7.01 6.61
69 7.24 6.77
70 7.48 6.94
71 7.74 7.11
72 8.02 7.28
73 8.32 7.46
74 8.64 7.63
75 8.98 7.81
The Settlement Rates given in the above table are based on the 1983 Individual
Annuitant Mortality Table (a) assuming an interest rate of 4.0% per year
compounded annually. Settlement rates for any age not shown above will be
calculated on the same basis as those rates in the table above. Such rates will
be furnished upon request.
11
<PAGE> 15
Dollar Amount of the First Month
Variable Annuity Payment per $1,000
Joint & Survivor Life Income
Unisex
<TABLE>
<CAPTION>
Annuitant Spouse Adjusted Age minus Annuitant Adjusted Age
Adjusted Age -10 -5 +0 +5 +10
--- -- -- -- ---
<S> <C> <C> <C> <C> <C>
40 3.73 3.80 3.87 3.94 4.00
41 3.75 3.83 3.90 3.87 4.04
42 3.78 3.85 3.93 4.01 4.07
43 3.80 3.88 3.96 4.04 4.11
44 3.82 3.91 4.00 4.08 4.15
45 3.85 3.94 4.03 4.12 4.20
46 3.88 3.97 4.07 4.16 4.24
47 3.91 4.01 4.11 4.21 4.29
48 3.94 4.04 4.15 4.25 4.34
49 3.97 4.08 4.19 4.30 4.40
50 4.00 4.12 4.24 4.35 4.45
51 4.04 4.16 4.29 4.41 4.51
52 4.07 4.20 4.34 4.46 4.58
53 4.11 4.25 4.39 4.53 4.65
54 4.15 4.30 4.45 4.59 4.72
55 4.20 4.35 4.51 4.66 4.79
56 4.24 4.41 4.57 4.73 4.88
57 4.29 4.46 4.64 4.81 4.96
58 4.34 4.53 4.71 4.90 5.06
59 4.40 4.59 4.79 4.98 5.15
60 4.45 4.66 4.87 5.08 5.26
61 4.51 4.73 4.96 5.18 5.37
62 4.58 4.81 5.06 5.29 5.49
63 4.65 4.90 5.16 5.41 5.62
64 4.72 4.98 5.26 5.53 5.76
65 4.79 5.08 5.38 5.66 5.91
66 4.88 5.18 5.50 5.80 6.07
67 4.96 5.29 5.63 5.95 6.23
68 5.06 5.40 5.77 6.12 6.42
69 5.15 5.53 5.92 6.29 6.61
70 5.26 5.66 6.08 6.48 6.82
71 5.27 5.80 6.25 6.68 7.04
72 5.49 5.95 6.44 6.90 7.28
73 5.62 6.12 6.64 7.13 7.54
74 5.76 6.29 6.85 7.38 7.82
75 5.91 6.48 7.08 7.65 8.11
</TABLE>
The Settlement Rates given in the above table are based on the 1983 Individual
Annuitant Mortality Table (a) assuming an interest rate of 4.0% per year
compounded annually. Settlement rates for any age not shown above will be
calculated on the same basis as those rates in the table above. Such rates will
be furnished upon request.
12
<PAGE> 16
Annuity Purchase Rates
Adjusted Age
Calendar Year when Income Adjusted Age
Payments Commence
1984-1989 Actual Age minus 1
1990-1999 minus 2
2000-2009 minus 3
2010-2019 minus 4
2020-2024 minus 5
2025-2029 minus 6
2030-2934 minus 7
2035-2039 minus 8
13
<PAGE> 1
EXHIBIT 4(ii)
<PAGE> 2
CONTRACT AMENDMENT
The purpose of this Amendment is to qualify the policy as an annuity contract in
accordance with Section 72(s) of the Internal Revenue Code of 1954, as amended.
The provisions of this Amendment shall apply even if they differ with any other
provisions of the Policy. We reserve the right to change any provisions in this
policy in order to comply with any further requirements, regulations, or rulings
pertaining to Section 72(s).
Pursuant to the requirements of the Tax Reform Act of 1984, this Contract is
amended as follows:
1. A Contingent Owner, if named, must be the spouse of the Contract Owner.
2 If the Contract Owner dies before the Income Date, the entire Contract
Value will be distributed within five (5) years of the date of death
unless:
(i) It is payable over the lifetime of a designated Beneficiary with
distributions beginning within one (1) year of the date of death; or
(ii) The Contingent Owner, if any, continues the Contract in his or her own
name.
3. An election by a Beneficiary to receive periodic payments in lieu of a lump
sum payment, must be made within sixty (60) days after the date on which
such limp sum first becomes payable.
Sentry Investors Life Insurance Company
- ------------------------------------------
Caroline E. Fribance, Secretary
<PAGE> 1
EXHIBIT 5
<PAGE> 2
SENTRY INVESTORS LIFE VARIABLE ANNUITY APPLICATION
INSURANCE COMPANY
- --------------------------------------------------------------------------------
<TABLE>
<S><C>
1. ANNUITANT
Name Soc. Sec. No.
-------------------------------------------------------------- --------------------------------------
Address Date of Birth
----------------------------------------------------------- --------------------------------------
City State Zip Sentry Employee? / / Yes / / No
--------------------------- --------------- ---------
Income Date. The first day of , Spouse? / / Yes / / No
----------------- --------------
(Month) (Year)
2. CONTRACT OWNER (Complete only if different from Annuitant.) Date of Birth
-------------------------------
Name Soc. Sec. No.
--------------------------------------------------------------- ---------------------------------------
Address City State Zip
--------------------------------------------- ---------------------- ------------------ -------------
Contingent Owner
-----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
3. BENEFICIARIES (Show full name[s], relationship[s] and percentage each is to receive.)
Primary Beneficiary Relationship %
-------------------------------------------------------- ------------------- ----
Contingent Beneficiary Relationship %
----------------------------------------------------- ------------------- ----
- ----------------------------------------------------------------------------------------------------------------------------
4. PURCHASE PAYMENTS PURCHASE PAYMENT ALLOCATION
Initial Purchase Payment $ Liquid Asset Portfolio................ %
------------------ -----------
Planned Subsequent Purchase Payments* $ Growth Portfolio....................... %
-------------- -----------
Bill Me: Monthly Qtrly Annually Limited Maturity Bond Portfolio ....... %
----- ------ ------ -----------
Balanced Portfolio ..................... %
-----------
Total Allocation 100%
* Subsequent purchase payments will Total allocation must equal 100%
be allocated as shown unless other directed.
- ----------------------------------------------------------------------------------------------------------------------------
5. PLAN TYPE (Check as many boxes as apply.)
/ / Non-Qualified Annuity / / Qualified Retirement Annuity
/ / 1035 Transfer (Non-Qualified only) / / TSA (Tax Sheltered Annuity)
/ / IRA
Cost Basis of contract being replaced $ / / New IRA / / Tax Contribution Year 19
-------------- ---
Original date of contract being replaced / / Rollover IRA / / Transfer IRA
------------
/ / SEP IRA (Please attach form 5305-SEP)
- ----------------------------------------------------------------------------------------------------------------------------
6.a. MAKE CHECK PAYABLE TO: 6.b. TELEPHONE OR TELEGRAM EXCHANGE PRIVILEGE
Sentry Investors Life Insurance / / The undersigned Contract Owner hereby elects
Company the Telephone or Telegram Exchange Privilege
Send Check With Application To: and agrees to the terms and conditions as
Annuity Service Office described on the reverse side of this application.
P.O. Box 867
Stevens Point, WI 54481
- ----------------------------------------------------------------------------------------------------------------------------
7. SPECIAL REQUESTS
- ----------------------------------------------------------------------------------------------------------------------------
8. Annuitant requests Statement of Additional Information. Yes No
----- -----
- ----------------------------------------------------------------------------------------------------------------------------
9. Is the annuity applied for intended to replace or change any existing life insurance or annuity?
/ / Yes / / No
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 3
10. I (We) acknowledge receipt of the current prospectus of Sentry Variable
Account II and Neuberger & Berman Advisers Management Trust. Payments and values
provided by the contract for which application is made are variable and are not
guaranteed as to dollar amount. I (We) certify under penalties of perjury that
the above social security number is correct.
<TABLE>
<S><C>
This application has been signed in ,
-------------------------------------------------------------- -------------------------
(City) (State)
on month day 19
--------------------------------- ------------------------------------------- -----
Signature Signature of
of Annuitant Contract Owner
----------------------------------------------------------- -------------------------------------
(Owner unless otherwise indicated) (If other than Annuitant)
11. AGENT'S REPORT
Will the annuity replace an existing life insurance or annuity contract? / / Yes / / No
If Yes, indicate type of contract: / / Life Insurance / / Annuity
(Submit any required replacement forms.)
Signature of Agent Phone Number
------------------------------------------------------------- ----------------------------
Print Agent's Name Sales Code
------------------------------------------------------------- -----------------------------
Name of Broker Dealer Address
------------------------------- -------------------------------------------------------------
City State Zip
------------------------------------------------------------------ ------------------- ---------------------
</TABLE>
SENTRY INVESTORS LIFE INSURANCE COMPANY
<PAGE> 4
TAX SHELTERED ANNUITIES
403(b) TSA
PARTICIPANT'S ACKNOWLEDGEMENT
I have entered into a salary reduction agreement (as defined in Internal Revenue
Code Section 402(g)(3)(C) with my employer. Under that agreement, contributions
will be made to a retirement plan which receives favorable tax treatment under
Section 403(b) of the Internal Revenue Code. The retirement plan is funded by a
variable annuity contract issued by Sentry Investors Life Insurance Company.
I hereby acknowledge that I understand the restrictions on redemption imposed by
Section 403(b)(11) of the Internal Revenue Code on the contributions made to a
Section 403(b) retirement plan and the earnings thereon. I also acknowledge that
I understand that there may be other investment alternatives available under my
employer's Section 403(b) arrangement to which I may elect to transfer by
contract value.
I have received a current prospectus for the variable annuity contract which
funds my 403(b) retirement plan, and acknowledge that it includes an explanation
of the withdrawal restrictions imposed by the Internal Revenue Code.
- ---------------------------------------------
Name of Participant (Please Print)
- --------------------------------------------- -------------------
Signature of Participant Date
================================================================================
TELEPHONE EXCHANGE PRIVILEGE
The Contract Owner hereby authorizes Sentry Investors Life Insurance company to
honor telephone instructions to effect a transfer of all or part of the Contract
Values between Eligible Mutual Fund(s) or Portfolio(s) of the Contract, subject
to the minimums stated in the contract provisions.
The Company will employ reasonable procedures to confirm that telephone transfer
requests are legitimate. The Company will not be liable for complying with
telephone transfer request it believe to be legitimate and for which it followed
reasonable procedures to ensure legitimacy. Sentry Life Insurance Company
reserves the right to reject any telephone instruction. The Contract owner
understands and agrees that this exchange privilege is for the convenience of
the Contract Owner and may be suspended or revoked for any reason at anytime
without prior notice.
================================================================================
INSTRUCTIONS FOR TELEPHONE EXCHANGES
When you wish to effect an exchange in your account, telephone the Annuity
Service Office toll free at 1(800)533-7827. Be prepared to state the name of the
account, your account number and your social security number.
If your telephone call is received on any business day before 3:00 p.m. Central
Time, the exchange of accumulation units will be made on the basis of the
Valuation period as of the close of that same day. If your telephone call is
received after 3:00 p.m. Central Time, the exchange of accumulation units will
be made on the basis of the Valuation Period next following the day your
telephone call was received.
<PAGE> 1
EXHIBIT 9
<PAGE> 2
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
November 22, 1999
Board of Directors
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
RE: Opinion of Counsel - Sentry Variable Account II
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing
with the Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form N-4 for Individual Flexible Purchase Payment
Deferred Variable Annuity Contracts (the "Contracts") to be issued by Sentry
Life Insurance Company and its separate account, Sentry Variable Account II.
We have made such examination of the law and have examined such records
and documents as in our judgment are necessary or appropriate to enable us to
render the opinions expressed below.
We are of the following opinions:
1. Sentry Variable Account II is a Unit Investment Trust as that term
is defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by a Contract Owner
pursuant to a Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such a Contract
Owner will have a legally-issued, fully paid, non-assessable contractual
interest under such Contract.
You may use this opinion letter, or a copy thereof, as an exhibit to
the Registration Statement.
<PAGE> 3
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
Board of Directors
Sentry Life Insurance Company of New York
November 22, 1999
Page Two
We consent to the reference to our Firm under the caption "Legal
Opinions" contained in the Statement of Additional Information which forms a
part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/Lynn Korman Stone
---------------------
Lynn Korman Stone
<PAGE> 1
EXHIBIT 10
<PAGE> 2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 20 to the
Registration Statement of Sentry Variable Account II (the "Account") on Form N-4
(File No. 33-85204) in the Statement of Additional Information of:
(1) Our report dated February 11, 1999, on our audits of the
financial statements of the Account; and
(2) Our report dated February 12, 1999, on our audits of the
statutory-basis financial statements of Sentry Life Insurance
Company.
We also consent to the references to our Firm under the captions "Condensed
Financial Information" in the Prospectus and "Independent Accountant" in the
Statement of Additional Information.
s/ PricewaterhouseCoopers L.L.P.
November 29, 1999
