<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. 5 [x]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 23 [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 May 1, 2000, 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)
<TABLE>
<CAPTION>
Item No. Location
- -------- --------
PART A
<S> <C> <C>
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; T. Rowe Price Fixed
Income Series, Inc., T. Rowe
Price Equity Series, Inc., T.
Rowe Price International
Series, Inc., and Janus Aspen
Series
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 T. Rowe
Price Prime Reserve Subaccount
22 Annuity Payments ........................ Amount of Annuity Payments
23 Financial Statements ..................... Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
Item, so numbered, in Part C to this Registration Statement
<PAGE> 3
PART A
<PAGE> 4
[SENTRY 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 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 T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price International Series, Inc., and Janus Aspen Series Institutional Shares.
("Janus Aspen Series"). Through the Variable Account, you may invest in the
following Portfolios:
<TABLE>
<CAPTION>
T. Rowe Price Fixed Income Series, Inc. Janus Aspen Series
--------------------------------------- ------------------
<S> <C>
- T. Rowe Price Prime Reserve Portfolio - Balanced Portfolio
- T. Rowe Price Limited-Term Bond Portfolio - Growth Portfolio
- Aggressive Growth Portfolio
T. Rowe Price Equity Series, Inc. - Capital Appreciation Portfolio
--------------------------------- - Worldwide Growth Portfolio
- T. Rowe Price Personal Strategy Balanced Portfolio
- T. Rowe Price Equity Income Portfolio
T. Rowe Price International Series, Inc.
----------------------------------------
- T. Rowe Price International Stock Portfolio
</TABLE>
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 May 1, 2000, 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 Point Drive, Stevens
Point, WI 54481, (800) 533-7827. The Table of Contents for the Statement of
Additional Information can be found on page 28 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 MAY
1, 2000.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions ................................................................................ 4
Summary .................................................................................... 5
Fee Table .................................................................................. 6
Condensed Financial Information ............................................................ 8
Performance Information .................................................................... 9
Financial Statements ....................................................................... 9
The Company ................................................................................ 9
The Variable Account ....................................................................... 9
T. Rowe Price Fixed Income Series, Inc. .................................................... 10
T. Rowe Price Equity Series, Inc. .......................................................... 10
T. Rowe Price International Series, Inc. ................................................... 10
Janus Aspen Series ......................................................................... 10
Variable Account Voting Rights ............................................................. 11
Substitution of Securities ................................................................. 12
Charges and Deductions ..................................................................... 12
Contingent Deferred Sales Charge ......................................................... 12
Reduction or Elimination of Contingent Deferred Sales Charge ............................. 13
Deduction for Mortality and Expense Risk Premium ......................................... 14
Deduction for Contract Maintenance Charge ................................................ 14
Deduction for Premium Taxes and Other Taxes .............................................. 14
Other Expenses ........................................................................... 14
The Contract ............................................................................... 15
Transfers ................................................................................ 15
Telephone Transfers ...................................................................... 15
Account Rebalancing ...................................................................... 16
No Default ............................................................................... 16
Modification of the Contract ............................................................. 16
Contract Value ........................................................................... 16
Ownership ................................................................................ 16
Assignment ............................................................................... 16
Beneficiary .............................................................................. 17
Annuity Provisions ......................................................................... 17
Income Date and Settlement Option ........................................................ 17
Changing the Income Date ................................................................. 17
Changing the Settlement Option ........................................................... 17
Settlement Options ....................................................................... 17
Mortality and Expense Guarantee .......................................................... 18
Frequency of Annuity Payments ............................................................ 18
Amount of Annuity Payments ............................................................... 18
Additional Provisions .................................................................... 19
Death Benefit .............................................................................. 19
Death of the Annuitant ................................................................... 19
Death of the Contract Owner .............................................................. 19
</TABLE>
2
<PAGE> 6
TABLE OF CONTENTS (Continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Purchases and Contract Value .............................................................. 20
Change in Purchase Payments ............................................................. 20
Allocation of Purchase Payments ......................................................... 20
Accumulation Units ...................................................................... 20
Distribution of Contract ................................................................ 21
Surrenders ................................................................................ 21
Limitations on Withdrawals from 403(b) Annuities ........................................ 22
Texas Optional Retirement Program ....................................................... 22
Federal Tax Status ........................................................................ 22
General ................................................................................. 22
Diversification ......................................................................... 23
Contract Owner Control of Investments ................................................... 23
Multiple Contracts ...................................................................... 24
Partial 1035 Exchanges .................................................................. 24
Owner Other than Natural Person ......................................................... 24
Tax Treatment of Assignments ............................................................ 24
Income Tax Withholding .................................................................. 24
Tax Treatment of Withdrawals - Non-Qualified Contracts and Section 457 Contracts ........ 25
Qualified Plans ......................................................................... 25
Tax Treatment of Withdrawals - Qualified Contracts ...................................... 27
Tax Sheltered Annuities - Withdrawal Limitations ........................................ 27
Section 457 - Deferred Compensation Plans ............................................... 28
Legal Proceedings ......................................................................... 28
Table of Contents of Statement of Additional Information .................................. 28
</TABLE>
3
<PAGE> 7
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 A contract issued under a non-qualified plan. This means
Contract 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.
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.
4
<PAGE> 8
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
investment 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 T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series,
Inc., T. Rowe Price International Series, Inc., and Janus Aspen Series 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 payments.
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.
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.
5
<PAGE> 9
FEE TABLE
CONTRACT OWNER TRANSACTION EXPENSES
- Contingent Deferred Sales Charge (as a percentage of purchase
payments)
<TABLE>
<CAPTION>
TIME BETWEEN WHEN PURCHASE
PAYMENT IS MADE 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
ANNUAL EXPENSES OF T. ROWE PRICE FIXED INCOME SERIES, INC., T. ROWE PRICE EQUITY
SERIES, INC., T. ROWE PRICE INTERNATIONAL SERIES, INC., AND JANUS ASPEN
SERIES (as a percentage of the average daily net assets of a Portfolio)
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO AND ADMINISTRATION FEES EXPENSES EXPENSES
- --------- ----------------------- -------- --------
<S> <C> <C> <C>
T. Rowe Price Fixed Income Series, Inc.
- T. Rowe Price Prime Reserve 0.55% 0.00% 0.55%
- T. Rowe Price Limited-Term Bond 0.70% 0.00% 0.70%
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Personal Strategy Balanced 0.90% 0.00% 0.90%
- T. Rowe Price Equity Income 0.85% 0.00% 0.85%
T. Rowe Price International Series, Inc.
- T. Rowe Price International Stock 1.05% 0.00% 1.05%
Janus Aspen Series
- Balanced 0.65% 0.02% 0.67%
- Growth 0.65% 0.02% 0.67%
- Aggressive Growth 0.65% 0.02% 0.67%
- Capital Appreciation 0.65% 0.04% 0.69%
- Worldwide Growth 0.65% 0.05% 0.70%
</TABLE>
Portfolios of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc. and T. Rowe Price International Series, Inc. have an annual
all-inclusive Investment Management and Administrative Fee based on their
average daily net assets, which includes all expenses related to the Portfolio.
The Portfolios calculate and accrue the fees daily. Expenses for the Janus Aspen
Series Portfolios are based on expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee.
6
<PAGE> 10
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>
T. Rowe Price a) $ 68 $ 86 $107 $209
Prime Reserve Portfolio b) $ 18 $ 56 $ 97 $209
T. Rowe Price a) $ 70 $ 91 $115 $225
Limited-Term Bond Portfolio b) $ 20 $ 61 $105 $225
T. Rowe Price a) $ 72 $ 97 $125 $245
Personal Strategy Balanced Portfolio b) $ 22 $ 67 $115 $245
T. Rowe Price a) $ 71 $ 95 $122 $240
Equity Income Portfolio b) $ 21 $ 65 $112 $240
T. Rowe Price a) $ 73 $101 $132 $260
International Stock Portfolio b) $ 23 $ 71 $122 $260
Janus Aspen Series a) $ 70 $ 91 $114 $222
Balanced Portfolio b) $ 20 $ 61 $104 $222
Janus Aspen Series a) $ 70 $ 91 $114 $222
Growth Portfolio b) $ 20 $ 61 $104 $222
Janus Aspen Series a) $ 70 $ 91 $114 $222
Aggressive Growth Portfolio b) $ 20 $ 61 $104 $222
Janus Aspen Series a) $ 70 $ 91 $114 $224
Capital Appreciation Portfolio b) $ 20 $ 61 $104 $224
Janus Aspen Series a) $ 70 $ 91 $115 $225
Worldwide Growth Portfolio b) $ 20 $ 61 $105 $225
</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 Portfolios.
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.
7
<PAGE> 11
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 have been audited by
PricewaterhouseCoopers, LLP, independent accountant, whose 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.
On January 7, 2000, the Company substituted shares of certain Portfolios of T.
Rowe Price Equity Series, Inc., T. Rowe Price Fixed Income Series, Inc., and
Janus Aspen Series for shares of certain Portfolios of Neuberger Berman Advisers
Management Trust (the "Substitution") as follows:
<TABLE>
<CAPTION>
From these Portfolios: Into these Portfolios
<S> <C>
AMT Liquid Asset Portfolio T. Rowe Price Prime Reserve Portfolio
AMT Limited Maturity Portfolio T. Rowe Price Limited-Term Bond Portfolio
AMT Balanced Portfolio T.Rowe Price Personal Strategy Balanced Portfolio
AMT Growth Portfolio Janus Aspen Series Aggressive Growth Portfolio
</TABLE>
On May 1, 2000, the Company began offering six additional Portfolios as
investment options in connection with the Contract. Therefore, there are no
accumulation units shown for the Subaccounts investing in the new Portfolios.
The additional Portfolios are as follows:
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Equity Income Portfolio
T. Rowe Price International Series, Inc.
- T. Rowe Price International Stock Portfolio
Janus Aspen Series
- Balanced Portfolio
- Growth Portfolio
- Capital Appreciation Portfolio
- Worldwide Growth Portfolio
As a result of the Substitution described above, the Subaccounts shown in the
table below no longer exist as of the date of this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
LIQUID ASSET SUBACCOUNT
Beginning of Period $17.954 $17.361 $16.779 $16.247 $15.653
End of Period 18.498 17.954 17.361 16.779 16.247
Number of Accum.
Units Outstanding 182,027 140,566 115,558 145,387 162,165
GROWTH SUBACCOUNT
Beginning of Period $57.716 $50.557 $39.662 $36.783 $28.257
End of Period 85.778 57.716 50.557 39.662 36.783
Number of Accum.
Units Outstanding 710,496 750,025 780,148 847,224 938,909
LIMITED MATURITY BOND
Beginning of Period $25.048 $24.284 $23.024 $22.342 $20.381
End of Period 25.115 25.048 24.284 23.024 22.342
Number of Accum.
Units Outstanding 203,835 238,960 258,942 317,877 384,749
BALANCED SUBACCOUNT
Beginning of Period $22.613 $20.399 $17.283 $16.367 $13.382
End of Period 29.845 22.613 20.399 17.283 16.367
Number of Accum.
Units Outstanding 500,706 499,567 482,578 519,312 550,216
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
LIQUID ASSET SUBACCOUNT
Beginning of Period
End of Period $15.311 $15.127 $14.825 $14.207 $13.368
Number of Accum. 15.653 15.311 15.127 14.825 14.207
Units Outstanding
GROWTH SUBACCOUNT 217,211 270,994 414,153 544,747 646,044
Beginning of Period
End of Period $30.098 $28.524 $26.357 $20.558 $22.662
Number of Accum. 28.257 30.098 28.524 26.357 20.5582
Units Outstanding
LIMITED MATURITY BOND 1,049,256 1,156,057 1,231,668 1,363,149 1,375,719
SUBACCOUNT
Beginning of Period
End of Period
Number of Accum. $20.653 $19.607 $18.867 $17.147 $16.0269
Units Outstanding 20.381 20.653 19.607 18.867 17.1476
BALANCED SUBACCOUNT
Beginning of Period 460,025 527,775 624,082 696,573 765,968
End of Period
Number of Accum. $14.010 $13.323 $12.480 $10.288 $10.000
Units Outstanding 13.382 14.010 13.323 12.480 10.288
618,542 654,95 565,977 284,777 164,053
</TABLE>
8
<PAGE> 12
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 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 advertise cumulative return which is calculated the same way,
except that the results are not annualized.
For periods starting prior to the date the Subaccount first invested in the
corresponding Portfolio, the performance will be based on the historical
performance of the Portfolio, modified to reflect the charges and expenses of
the Contract as if the Contract had invested in the Portfolio during the period
stated in the advertisement. These figures should not be interpreted to reflect
actual historical performance of the Subaccount.
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 the District of
Columbia and all states, except New York. 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 satifaction of all
liabilities and oblications 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.
9
<PAGE> 13
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.
10
<PAGE> 14
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
AND JANUS ASPEN SERIES
Each Subaccount within the Variable Account invests in one Portfolio of T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price International Series, Inc. or Janus Aspen Series (collectively, the
Funds). All Portfolios may not be available in all states.
Shares of the Funds may be 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. Certain Funds may also be
sold directly to qualified plans. The Funds believe that offering their shares
in this manner will not be disadvantageous to you.
The Company may enter into certain arrangements under which it is reimbursed by
the Funds' advisers, distributors and/or affiliates for the administrative
services which it provides to the Portfolios.
The investment objective and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be
similar,the investment results of the Portfolios may be higher or lower than
the results of such other mutual funds. The investment advisers cannot
guarantee, and make no representation, that the investment results of similar
funds will be comparable even though the Portfolios have the same investment
advisers.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset base.
A Portfolio may not experience similar performance as its assets grow.
T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., and
T. Rowe Price International Series, Inc. are diversified open-end management
investment companies of the series type. All are registered with the Securities
and Exchange Commission under the Investment Company Act of 1940.
T. Rowe Price Associates, Inc., located at 100 East Pratt Street, Baltimore,
Maryland, 21202, is registered with the Securities and Exchange Commission as an
investment adviser and serves as investment adviser for T. Rowe Price Fixed
Income Series, Inc. and T. Rowe Price Equity Series, Inc. As the investment
adviser, T. Rowe Price Associates, Inc. is responsible for selection and
management of the Portfolio investments. T. Rowe Price Associates, Inc. is not
affiliated with the Company, and the Company has no legal responsibility for the
management or operation of the Portfolios.
Rowe Price Fleming International, Inc., the investment adviser for T. Rowe Price
International Series, Inc., is an affiliate of T. Rowe Price Associates, Inc.
and Robert Fleming Holdings, Ltd. Its offices are located at 100 East Pratt
Street, Baltimore, Maryland 21202.
A summary of the investment objective of each Portfolio is set forth below.
There is no assurance that any Portfolio will achieve its objective. More
detailed information is contained in each Portfolio's prospectus, including the
risks associated with the investments and the investment techniques of each
Portfolio.
T. Rowe Price Prime Reserve Portfolio. The investment objectives of the T.
Rowe Price Prime Reserve Portfolio are preservation of capital, liquidity,
and consistent with these, the highest possible current income. It seeks to
attain these objectives by investing in high-quality, U.S. dollar-
denominated money market securities.
T. Rowe Price Limited-Term Bond Portfolio. The investment objective of the
T. Rowe Price Limited-Term Bond Portfolio is to seek a high level of
income consistent with moderate fluctuations in principal value by
investing primarily in short- and intermediate-term investment-grade debt
securities.
T. Rowe Price Personal Strategy Balanced Portfolio. The investment
objective of the T. Rowe Price Personal Strategy Balanced Portfolio is to
seek the highest total return over time consistent with an emphasis on both
capital appreciation and income.
T. Rowe Price Equity Income Portfolio. The investment objective of the T.
Rowe Price Equity Income Portfolio is to seek substantial dividend income
as well as long-term growth of capital by investing
11
<PAGE> 15
in stocks of large, established companies with higher than average market
dividend yields and below average levels of valuation.
T. Rowe Price International Stock Portfolio. The investment objective of
the T. Rowe Price International Stock Portfolio is to seek long-term growth
of capital through investments primarily in common stocks of established
non-United States companies.
Janus Aspen Series is a non-diversified open-end management company series.
Janus Aspen Series is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940. Janus Aspen Series offers multiple
Portfolios, five of which are currently offered in connection with the Contract.
Janus Capital Corporation, 100 Fillmore Street, Denver, Colorado, 80206-4928,
registered with the Securities and Exchange Commission as an investment adviser,
is the investment adviser to Janus Aspen Series and is responsible for the
day-to-day management of the investment portfolio and other business affairs.
Janus Capital Corporation is not affiliated with the Company, and the Company
has no responsibility for the management or operations of Janus Aspen Series.
A summary of the investment objectives of Janus Aspen Series Portfolios is set
forth below. There is no assurance that any Portfolio will achieve its
objective. More detailed information is contained in the Portfolios' prospectus,
including the risks associated with the investments and the investment
techniques of each Portfolio.
Balanced Portfolio. The investment objective of the Balanced Portfolio is
to seek long-term growth of capital balanced by current income. The
Portfolio normally invests 40% to 60% of its assets in securities selected
primarily for their growth potential, and 40% to 60% of its assets in
securities selected primarily for their income potential. The Portfolio
normally invests at least 25% of its assets in fixed income securities.
Growth Portfolio. The investment objective of the Growth Portfolio is to
seek long-term growth of capital in a manner consistent with preservation
of capital. The Portfolio pursues its objectives by investing primarily in
common stocks selected for their growth potential. Although the Portfolio
can invest in companies of any size, it generally invests in larger, more
established companies.
Capital Appreciation Portfolio. The investment objective of the Capital
Appreciation Portfolio is to seek long-term growth of capital. The
Portfolio pursues its objective by investing primarily in common stocks
selected for their growth potential. The Portfolio may invest in companies
of any size, from larger, well-established companies to smaller, emerging
growth companies.
Aggressive Growth Portfolio. The investment objective of the Aggressive
Growth Portfolio is to seek long-term growth of capital through a
non-diversified Portfolio that invests primarily in common stocks of
domestic companies and some foreign companies selected for their growth
potential. As a non-diversified Portfolio, it may hold larger positions in
a smaller number of securities than a diversified Portfolio. The Portfolio
normally invests at least 50% of its equity assets in medium-sized
companies.
Worldwide Growth Portfolio. The investment objective of the Worldwide
Growth Portfolio is to seek long-term growth of capital in a manner
consistent with preservation of capital. The Portfolio pursues its
investment objective by investing primarily in common stocks of companies
of any size throughout the world. The Portfolio normally invests in issuers
from at least five different countries, including the United States. The
Portfolio may at times invest in fewer than five countries or even a single
country.
VARIABLE ACCOUNT VOTING RIGHTS
The Company is the legal owner (shareholder) of the shares of T. Rowe Price
Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc., and Janus Aspen Series (collectively, the "Funds")
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 affected Contract Owners, instructions as to how to vote those shares.
If any of the Funds hold a shareholder meeting at which you are entitled to
vote, you will receive periodic reports relating to that particular Fund 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
12
<PAGE> 16
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 Fund shares held in the Variable Account at a shareholder
meeting of the Fund, 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 Funds held in the Variable Account in accordance with instructions received
from all persons having a voting interest in the Portfolio. 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 Funds in its own right, it may elect to do
so.
SUBSTITUTION OF SECURITIES
If a Subaccount is no longer available for investment by the Variable Account,
or if the Company's Board of Directors determines that further investment in a
Subaccount becomes inappropriate in view of the Variable Account's objectives,
the Company may substitute another Subaccount 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.
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 MADE 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.
13
<PAGE> 17
<TABLE>
<S> <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>
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>
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.
(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
14
<PAGE> 18
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 insufficient 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.
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 taxes is 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 are
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.
OTHER EXPENSES
There are other deductions from and expenses paid out of the assets of the
Portfolios which are described in the accompanying Fund prospectuses.
THE CONTRACT
The assets of the Variable Account are divided into Subaccounts within the
Variable Account. Each
15
<PAGE> 19
Subaccount invests in one Portfolio. Subject to the terms and conditions of the
Company, your purchase payments 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
- 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 25 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) 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.
(6) 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 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.
ACCOUNT REBALANCING
The Company offers an Account Rebalancing Program which allows you to have your
Contract Value automatically reallocated annually to a specific percentage or
at more frequent intervals. You may
<PAGE> 20
participate in this program by sending a written request to the Company at the
Annuity Service Office address given on page 1 of this Prospectus. Participation
in the Account Rebalancing Program will neither ensure a profit nor guarantee
against a loss in a declining market.
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 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 a 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 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.
17
<PAGE> 21
BENEFICIARY
You name the beneficiary on 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 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 85th
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
85th birthday. However, if the Contract is issued pursuant to a qualified plan,
it may require an earlier date.
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 were made or the remaining Contract Value.
OPTION 2 - LIFE ANNUITY WITH MONTHLY PAYMENTS GUARANTEED
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<PAGE> 22
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.
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 a 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
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- 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.
- 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 60 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 60-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:
(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 in 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.
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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 $1,000 $100
Qualified Contract $1,000 $100
Contract issued under an $ 50 $ 50
employer-sponsored payroll
deduction 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 an 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.
Example: Amount of purchase payment = $100
Value of one Subaccount Accumulation Unit = $ 10
$100 /$10 = 10 Accumulation Units
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 value for that Subaccount.
Initially, the Company set the value of an Accumulation Unit at $10. For each
subsequent Valuation
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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 4
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
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 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.
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<PAGE> 26
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.
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 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.
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<PAGE> 27
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 the 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 respects from the situations addressed in published rulings
issued by the Internal Revenue 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.
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<PAGE> 28
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.
PARTIAL 1035 EXCHANGES
Section 1035 of the Code provides that an annuity contract may be exchanged in a
tax-free transaction for another annuity contract. Historically, it was presumed
that only the exchange of an entire contract, as opposed to a partial exchange,
would be accorded tax-free status. In 1998, a tax court ruled that the direct
transfer of a portion of an annuity contract into another annuity contract
qualified as a non-taxable exchange. In late 1999, the Internal Revenue Service
acquiesced to the tax court's ruling, but stated that it will challenge
transactions where taxpayers enter into a series of partial exchanges and
annuitizations in order to avoid application of the 10% premature distribution
penalty or other limitations imposed on annuity contracts under the Code.
Without further guidance from the IRS, it is unclear what specific types of
partial exchanges will be challenged by the IRS. Currently, the Company does not
allow partial exchanges of annuity contracts. However, due to the uncertainty in
this area, you should consult you own tax adviser before entering into a partial
exchange of any annuity contract.
OWNER OTHER THAN NATURAL PERSON
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.
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.
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.
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<PAGE> 29
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 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
vary 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. The Company
is not bound by the terms and conditions of such plan to the extent such terms
conflict with the terms of the Contract unless the Company specifically consents
to be bound. You are responsible for determining that contributions,
distributions and other transactions with respect to the Contract comply with
applicable law.
A Qualified Contract will not provide any necessary or additional tax deferral
if it is used to fund a qualified plan that is tax-deferred. However, the
Contract has features and benefits other than tax-deferral that may make it an
appropriate investment for a qualified plan.
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
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<PAGE> 30
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 with the exception of SIMPLE IRAs and
simplified employee pension (SEP) 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. 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.
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. Under an individual retirement annuity known as a Roth IRA,
contributions are made with after-tax dollars, but the earnings are
distributed tax-free if certain conditions are met. Subject to certain income
limits, a maximum of $2,000 per year may be contributed to a Roth IRA.
Distributions from a Roth IRA are tax-free if it has been held for at least
five years AND it meets one of the following requirements:
- the distribution is made after age 59 1/2 or the taxpayer has died or is
disabled;
- 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.
Certain penalties may apply if you receive a non-qualified distribution.
Rollovers to or from a Roth IRA can be made under certain circumstances,
however, there may be a tax liability if the rollover involves a non-Roth
IRA.
If you are considering a Roth IRA, you should consult with your tax adviser
regarding the tax implications and suitability.
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 distributed 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.
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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:
(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 or 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) distributions made on account of an IRS levy on the Qualified Contract;
(8) under limited conditions, distributions from an IRA to purchase medical
insurance;
(9) under limited conditions, distributions from an IRA for qualified
higher education expenses; and
(10) with limitations, distributions from an IRA for qualified first-time
home purchases.
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 of 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.
28
<PAGE> 32
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 Code provisions, employees and independent contractors performing services
for state and local governments and other tax-exempt organizations may
participate in deferred compensation plans under Section 457 of the Code. The
amounts deferred under a plan which meets the requirements of Section 457 of the
Code are not taxable as income to the participant until paid or otherwise made
available to the participant or beneficiary. As a general rule, the maximum
amount which can be deferred in any one year is the lesser of $8,000 or
33 1/3 percent of the participant's includable compensation. However, in limited
circumstances, the plan may provide for additional catch-up contributions in
each of the last three years before normal retirement age. Furthermore, the Code
provides additional requirements and restrictions regarding eligibility and
distributions.
All of the assets and income of a plan established by a governmental employer
after August 20, 1996, must be held in trust for the exclusive benefit of the
participants and their beneficiaries. For this purpose, custodial accounts and
certain annuity contracts are treated as trusts. Plans that were in existence on
August 20, 1996, must have been amended to satisfy the trust and exclusive
benefit requirements prior to January 1, 1999, and must have been amended no
later than that date to continue to receive favorable tax treatment. The trust
requirement does not apply to amounts under a plan of a tax exempt
(non-governmental) employer. In addition, the trust requirement does not apply
to amounts under a plan of a governmental employer if the plan is not an
eligible plan within the meaning of Section 457(b) of the Code. In the absence
of such a trust, amounts under the plan will be subject to the claims of the
employer's general creditors.
In general, distributions from a plan are prohibited under Section 457 of the
Code unless made after the participating employee:
- attains age 70 1/2;
- separates from service;
- dies; or
- suffers an unforeseeable financial emergency as defined in the Code.
Under present federal tax law, amounts accumulated in a plan under Section 457
of the Code cannot be transferred or rolled over on a tax-deferred basis except
for certain transfers to other plans under Section 457 of the Code.
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.
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 T. ROWE PRICE PRIME RESERVE SUBACCOUNT........... 3
PERFORMANCE INFORMATION................................................ 4
ANNUITY PAYMENTS....................................................... 5
Annuity Unit.......................................................... 5
Amount of Annuity Payments............................................ 5
Net Investment Factor................................................. 6
FINANCIAL STATEMENTS................................................... 6
<PAGE> 33
PART B
<PAGE> 34
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 May 1,
2000.
<PAGE> 35
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 T. ROWE PRICE PRIME RESERVE SUBACCOUNT........3
PERFORMANCE INFORMATION.............................................4
ANNUITY PAYMENTS....................................................5
Annuity Unit......................................................5
Amount of Annuity Payments........................................5
Net Investment Factor.............................................6
FINANCIAL STATEMENTS................................................6
</TABLE>
2
<PAGE> 36
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
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, which will not 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 1997, 1998 and 1999 of $309,674,
$392,706, and $435,255, respectively. Of those amounts it retained $259,161,
$236,907, and $287,172, respectively.
INDEPENDENT ACCOUNTANT
The statutory financial statements of the Company as of December 31, 1999 and
1998, and for the years then ended, and the financial statements of the Variable
Account as of December 31, 1999 and 1998, and for each of the two years in the
period then ended, have been audited by PricewaterhouseCoopers LLP, 203 North
LaSalle, Chicago, Illinois, 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 T. ROWE PRICE PRIME RESERVE SUBACCOUNT
The T. Rowe Price Prime Reserve Subaccount of the Variable Account will
calculate its current yield based on the seven days ended on the date of
calculation.
The current yield of the T. Rowe Price Prime Reserve 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 result by (365/7).
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of the
T. Rowe Price Prime Reserve 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 T. Rowe Price Prime Reserve Subaccount and changes
in the interest rates on such investments, but also on changes in the T. Rowe
Price Prime Reserve Subaccount's expenses during the period.
3
<PAGE> 37
Yield information may be useful in reviewing the performance of the T. Rowe
Price Prime Reserve Subaccount and for providing a basis of comparison with
other investment alternatives. However, the T. Rowe Price Prime Reserve
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.)
PERFORMANCE INFORMATION
The average annual total return figures and the cumulative total return figures
for the one- and five-year periods and since inception to December 31, 1999, are
as follows:
<TABLE>
<CAPTION>
CUMULATIVE AVERAGE ANNUAL
TOTAL RETURN TOTAL RETURN
SINCE SINCE
ONE YEAR FIVE YEARS INCEPTION ONE YEAR FIVE YEARS INCEPTION
-------- ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
T. Rowe Price Prime Reserve (1.60)% - 8.48% (1.60)% - 2.75%
Portfolio(*)
T. Rowe Price Limited-Term (5.66)% 21.14% 23.71% (5.66)% 3.91% 3.77%
Bond Portfolio(*)
T. Rowe Price Personal Strategy 1.92% 101.25% 101.16% 1.92% 15.01% 15.00%
Balanced Portfolio(*)
T. Rowe Price Equity Income (2.78)% 120.27% 133.77% (2.78)% 17.11% 15.91%
Portfolio(*)
T. Rowe Price International 26.86% 89.87% 91.18% 26.86% 13.68% 11.93%
Stock Portfolio(*)
Janus Aspen Balanced Portfolio(*) 20.29% 183.93% 203.02% 20.29% 23.21% 19.24%
Janus Aspen Growth Portfolio(*) 37.53% 249.64% 266.84% 37.53% 28.45% 22.91%
Janus Aspen Aggressive 119.00% 345.34% 505.28% 119.00% 34.82% 33.08%
Growth Portfolio(*)
Janus Aspen Capital 60.57% - 222.74% 60.57% - 55.09%
Appreciation Portfolio(*)
Janus Aspen Worldwide 58.02% 303.40% 382.07% 58.02% 32.17% 28.36%
Growth Portfolio(*)
</TABLE>
(*)Dates of inception of the Portfolios are as follows:
T. Rowe Price Prime Reserve Portfolio: December 31, 1996
T. Rowe Price Limited-Term Bond Portfolio: May 13, 1994
T. Rowe Price Personal Strategy Balanced Portfolio: December 30, 1994
T. Rowe Price Equity Income Portfolio: March 31, 1994
T. Rowe Price International Stock Portfolio: March 31, 1994
Janus Aspen Balanced Portfolio: September 13, 1993
Janus Aspen Growth Portfolio: September 13, 1993
Janus Aspen Aggressive Growth Portfolio: September 13, 1993
Janus Aspen Capital Appreciation Portfolio: May 1, 1997
Janus Aspen Worldwide Growth Portfolio: September 13, 1993
The above figures include the deduction of a 1.20% Mortality and Expense Risk
Premium, a $30 Contract Maintenance Charge and the Investment Management and
Administration Fees and other expenses, if applicable, paid by the Portfolios.
The returns reported above also reflect the deduction of the Contract's
Contingent Deferred Sales Charge from each Portfolio's one year total return,
when such charge equals 5% of a surrendered Purchase Payment, and from each
Portfolio's five year total return, when the charge equals 1% of a surrendered
Purchase Payment.
The T. Rowe Price Prime Reserve Portfolio, the T. Rowe Price Limited-Term Bond
Portfolio, the T. Rowe Price Personal Strategy Balanced Portfolio, and the Janus
Aspen Series Aggressive Growth Portfolio were made available for investment in
connection with the Contract on January 7, 2000. The remaining Portfolios were
made available for investment on May 1, 2000. For periods starting prior to the
date
4
<PAGE> 38
the Contracts first invested in the Portfolio, the performance information shown
above is based on the historical performance of the Portfolio, modified to
reflect the charges and expenses of the Contract, as if the Contract had
invested in the Portfolio during the periods stated. These figures should not be
interpreted to reflect actual historical performance of the Contract.
The hypothetical value of a Contract purchased for the time periods described
above is determined by using the actual Accumulation Unit values for an initial
$1,000 Purchase Payment, and deducting any applicable Contract Maintenance
Charges and any applicable Contingent Deferred Sales Charges to arrive at the
ending hypothetical value. The average annual total return is then determined by
computing the fixed interest rate that a $1,000 Purchase Payment would have to
earn annually, compounded annually, to grow to the hypothetical value at the end
of the time periods described above, as the case may be. The formula used in
these calculations is:
P (1 + T)(n)= ERV
Where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the one- and five year periods
and since inception to December 31, 1999 (or fractional portion
thereof), of a hypothetical $1,000 payment made at the beginning of
each period presented to December 31, 1999.
The calculation of the cumulative total return for the Portfolios under the
Contract issued by the Company is not subject to a standardized formula. The
hypothetical value of a Contract purchased for the time periods described above
is determined by using the actual Accumulation Unit values for an initial $1,000
Purchase Payment and deducting any applicable contract maintenance charge and
any applicable contingent deferred sales charge to arrive at the ending
hypothetical value. The total return percentage is then determined by
subtracting the initial investment from the ending hypothetical value and
dividing the difference by the initial investment and expressing the result as a
percentage.
The cumulative total return quotation figures were calculated using the
following assumptions:
(1) The one-year figure assumes that values based on a $1,000 payment made on
December 31, 1998, were redeemed on December 31, 1999.
(2) The five-year figure assumes that values based on a $1,000 payment made
on December 31, 1994, were redeemed on December 31, 1999.
(3) The since inception figures assume that values based on a $1,000 payment
made on the inception dates were redeemed on December 31, 1999.
ALL QUOTATION FIGURES ABOVE REPRESENT PAST PERFORMANCE OF EACH INVESTMENT
OPTION. THE TOTAL RETURN FIGURES FLUCTUATE DAILY, SO THE ABOVE QUOTATIONS ARE
NOT REPRESENTATIVE OF FUTURE BENEFITS.
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
(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.
5
<PAGE> 39
(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 annuity payment is the sum of all Subaccount
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:
(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 annuity payment. Such factor for any Valuation
Period shall be the accumulated value of $1.00 deposited at the
beginning of such period at the assumed investment rate of 4%.
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.
6
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
FINANCIAL STATEMENTS
DECEMBER 31, 1999 and 1998
7
<PAGE> 41
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
REPORT 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 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, 1999, and 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 accounting
principles generally accepted in the United States. 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 auditing standards generally accepted in the United States, 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, 1999, by correspondence with the custodian,
provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 10, 2000
8
<PAGE> 42
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 3,355,328
shares (cost $3,355,328) $ 3,355,328
Growth Portfolio, 1,635,362
shares (cost $39,921,147) 60,949,957
Limited Maturity Bond Portfolio, 386,681
shares (cost $5,288,618) 5,119,661
Balanced Portfolio, 715,410
shares (cost $11,204,846) 14,944,925
-----------
Total investments 84,369,871
Dividends receivable 12,930
-----------
Total assets 84,382,801
LIABILITIES:
Accrued expenses 7,434
-----------
NET ASSETS $84,375,367
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
----------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income:
Dividends $ 118,848 $ 115,086 $ -- $ --
Expenses:
Mortality and expense risk 33,848 30,299 525,689 474,117
------------ ------------ ------------ ------------
Net investment income (loss) 85,000 84,787 (525,689) (474,117)
------------ ------------ ------------ ------------
Realized gains (losses) on investments
Realized net investment gain -- -- 1,260,786 588,794
Capital gain distributions received -- -- 2,286,697 10,487,400
------------ ------------ ------------ ------------
Realized gain (loss) on investments and
capital gain distributions, net -- -- 3,547,483 11,076,194
Unrealized appreciation (depreciation), net -- -- 16,987,351 (5,211,880)
------------ ------------ ------------ ------------
Net increase in net assets from operations $ 85,000 $ 84,787 $ 20,009,145 $ 5,390,197
============ ============ ============ ============
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31, 1999 and 1998
Net increase (decrease) in net assets from operations:
Net investment income (loss) $ 85,000 $ 84,787 $ (525,689) $ (474,117)
Realized gains (losses) -- -- 3,547,483 11,076,194
Unrealized appreciation (depreciation) -- -- 16,987,351 (5,211,880)
------------ ------------ ------------ ------------
Net increase in net assets from operations 85,000 84,787 20,009,145 5,390,197
------------ ------------ ------------ ------------
Contract transactions:
Purchase payments 239,467 1,292,248 3,246,498 3,248,943
Transfers between subaccounts, net 955,918 25,234 (236,434) (126,390)
Withdrawals (432,315) (879,099) (5,280,344) (4,612,799)
Contract maintenance fees (3,004) (2,851) (45,922) (39,072)
Surrender charges (1,563) (2,826) (36,485) (13,884)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
derived from principal transactions 758,503 432,706 (2,352,687) (1,543,202)
------------ ------------ ------------ ------------
Total increase (decrease) in net assets 843,503 517,493 17,656,458 3,846,995
Net assets at beginning of year 2,523,709 2,006,216 43,288,702 39,441,707
------------ ------------ ------------ ------------
Net assets at end of year $ 3,367,212 $ 2,523,709 $ 60,945,160 $ 43,288,702
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE> 44
<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 $ 624,303 $ 742,728
66,370 74,360 140,065 125,291 765,972 704,067
- ------------ ------------ ------------ ------------ ------------ ------------
253,252 322,776 45,768 105,215 (141,669) 38,661
- ------------ ------------ ------------ ------------ ------------ ------------
(86,444) (46,651) 109,142 28,391 1,283,484 570,534
-- -- 275,308 1,619,027 2,562,005 12,106,427
- ------------ ------------ ------------ ------------ ------------ ------------
(86,444) (46,651) 384,450 1,647,418 3,845,489 12,676,961
(152,501) (82,604) 3,175,329 (721,893) 20,010,179 (6,016,377)
- ------------ ------------ ------------ ------------ ------------ ------------
$ 14,307 $ 193,521 $ 3,605,547 $ 1,030,740 $ 23,713,999 $ 6,669,245
============ ============ ============ ============ ============ ============
$ 253,252 $ 322,776 $ 45,768 $ 105,215 $ (141,669) $ 38,661
(86,444) (46,651) 384,450 1,647,418 3,845,489 12,676,961
(152,501) (82,604) 3,175,329 (721,893) 20,010,179 (6,016,377)
- ------------- ------------ ------------ ------------ ------------ ------------
14,307 193,521 3,605,547 1,030,740 23,713,999 6,699,245
- ------------- ------------ ------------ ------------ ------------ ------------
163,195 156,457 1,731,851 1,758,511 5,381,011 6,456,159
(281,647) 105,524 (437,837) (4,368) -- --
(752,459) (750,978) (1,225,883) (1,315,396) (7,691,001) (7,558,272)
(5,588) (6,327) (11,305) (9,679) (65,819) (57,929)
(4,015) (795) (15,185) (7,543) (57,248) (25,048)
- ------------- ------------ ------------ ------------ ------------ ------------
(880,514) (496,119) 41,641 421,525 (2,433,057) (1,185,090)
- ------------- ------------ ------------ ------------ ------------ ------------
(866,207) (302,598) 3,647,188 1,452,265 21,280,942 5,514,155
5,985,476 6,288,074 11,296,538 9,844,273 63,094,425 57,580,270
- ------------- ------------ ------------ ------------ ------------ ------------
$ 5,119,269 $ 5,985,476 $ 14,943,726 $ 11,296,538 $ 84,375,367 $ 63,094,425
============ ============ ============ ============ ============ ============
</TABLE>
11
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTES TO FINANCIAL STATEMENTS
December 31, 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 the
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> 46
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 $7,434 at December 31, 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.
13
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NET ASSETS
At December 31, 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 182,027 $ 18.50 $ 3,367,212
Growth Portfolio 710,496 85.78 60,945,160
Limited Maturity Bond Portfolio 203,835 25.11 5,119,269
Balanced Portfolio 500,706 29.85 14,943,726
-----------
Total net assets $84,375,367
===========
</TABLE>
At December 31, 1999 there were no significant concentrations of ownership.
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>
5. PURCHASES AND SALES OF SECURITIES
In 1999, purchases and proceeds on sales of the Trust's shares aggregated
$13,619,689 and $13,634,200, 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 $ 2,649,719 $ 7,685,380 $ 678,316 $ 2,606,274 $13,619,689
Proceeds on sales 1,809,121 8,275,374 1,306,207 2,243,498 13,634,200
</TABLE>
In 1998, purchases and proceeds on sales of the Trust's 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>
6. SUBSEQUENT EVENT
On January 7, 2000, the Variable Account transferred assets from Neuberger
Berman Advisers Management Trust to T. Rowe Price Fixed Income Series, Inc.,
T. Rowe Price Equity Series, Inc., and Janus Aspen Institutional Series. The
transfer had no effect on the Variable Account Portfolios' unit value or
number of units.
14
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
15
<PAGE> 49
[PRICEWATERHOUSECOOPERS LLP 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, 1999 and 1998, 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 auditing standards generally accepted in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As 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 accounting principles generally accepted in the United States
(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, 1999 and 1998, 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,
1999 and 1998, 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 of Sentry Life Insurance Company
as of December 31, 1999, and for the year then ended, is presented for the
purposes of additional analysis 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.
/s/ PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 18, 2000
16
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
-------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds................................................ $1,145,721,207 $1,118,191,869
Investments in subsidiaries.......................... 9,869,910 9,532,940
Mortgage loans....................................... -- 18,723
Policy loans......................................... 23,284,247 24,036,498
Cash and short-term investments...................... 20,833,999 29,877,016
-------------- --------------
Total investments.............................. 1,199,709,363 1,181,657,046
Accrued investment income.............................. 19,954,174 18,681,577
Premiums deferred and uncollected...................... 5,060,644 4,474,663
Other assets........................................... 717,462 1,177,498
Assets held in separate accounts....................... 645,899,120 604,877,464
-------------- --------------
Total admitted assets.......................... $1,871,340,763 $1,810,868,248
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
17
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1999 AND 1998
-------------------
<TABLE>
<CAPTION>
LIABILITIES 1999 1998
- ----------- ---- ----
<S> <C> <C>
Future policy benefits:
Life....................................................................... $ 257,989,084 $ 255,692,269
Accident and health........................................................ 15,254,702 15,440,434
Annuity.................................................................... 131,069,441 134,582,450
Policy and contract claims................................................... 4,472,194 4,140,344
Premium and other deposit funds.............................................. 650,107,483 624,627,002
Other policyholder funds..................................................... 3,495,677 10,445,827
Accounts payable and other liabilities....................................... 5,047,521 11,177,061
Federal income taxes accrued................................................. 9,689,197 9,417,827
Asset valuation reserve...................................................... 5,725,552 5,706,987
Interest maintenance reserve................................................. 5,970,750 7,087,699
Liabilities related to separate accounts..................................... 645,025,463 603,897,819
-------------- --------------
Total liabilities.................................................... 1,733,847,064 $1,682,215,719
============== ==============
<CAPTION>
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1999 and 1998............................ 3,161,780 3,161,780
Paid-in surplus.............................................................. 43,719,081 43,719,081
Earned surplus, unappropriated............................................... 90,612,838 81,771,668
-------------- --------------
Total capital stock and surplus...................................... 137,493,699 128,652,529
-------------- --------------
Total liabilities, capital stock and surplus......................... $1,871,340,763 $1,810,868,248
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
18
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
-------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations....................................... $ 78,163,778 $ 76,847,662
Other fund deposits....................................................... 84,714,318 62,791,049
Commissions and expense allowances on
reinsurance ceded....................................................... 10,490,120 11,560,785
Net investment income..................................................... 92,047,182 93,544,822
Other income.............................................................. 7,975,913 8,931,046
------------- -------------
Total premiums and other income..................................... 273,391,311 253,675,364
------------- -------------
Benefits and expenses:
Policyholder benefits and fund withdrawals................................ 183,564,804 199,613,380
Increase in future life policy benefits
and other reserves.................................................. 17,245,042 21,803,214
Commissions............................................................... 7,641,402 7,358,122
Other expenses............................................................ 28,531,247 27,780,333
Transfers to (from) separate accounts, net................................ 10,947,327 (16,816,030)
------------- -------------
Total benefits and expenses......................................... 247,929,822 239,739,019
------------- -------------
Income before federal income tax expense
and net realized losses on investments.................................... 25,461,489 13,936,345
Federal income tax expense, less tax on net realized
losses and transfers to the IMR................................... 8,599,925 5,684,753
------------- -------------
Income before net realized losses on investments............................ 16,861,564 8,251,592
Net realized losses on investments.................................. (835,531) (514,506)
------------- -------------
Net income.................................................................. $ 16,026,033 $ 7,737,086
============== =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
19
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
-------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<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............................ 81,771,668 82,275,476
Net income.............................................. 16,026,033 7,737,086
Change in non-admitted assets........................... (5,597) (4,430)
Change in liability for reinsurance..................... -- (9,348)
Change in asset valuation reserve....................... (18,565) (442,409)
Dividend to stockholder................................. (7,500,000) (7,500,000)
Change in net unrealized gains (losses) on investments.. 339,299 (284,707)
------------ -------------
Balance at end of year.................................. 90,612,838 81,771,668
------------ -------------
Total capital stock and surplus................... $137,493,699 $ 128,652,529
============ ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
20
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
-------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premiums and annuity considerations............................................. $ 77,982,959 $ 76,630,869
Other fund deposits............................................................. 84,714,318 62,791,049
Other premiums, considerations and deposits..................................... 158,698 165,851
Allowances and reserve adjustments received on
reinsurance ceded............................................................. 10,531,483 11,507,443
Investment income received (excluding realized gains
and losses and net of investment expenses).................................... 89,005,861 90,358,325
Other income received........................................................... 7,812,904 13,079,807
Life and accident and health claims paid........................................ (26,702,540) (35,698,918)
Surrender benefits.............................................................. (105,735,114) (132,575,939)
Other benefits to policyholders paid............................................ (50,813,480) (48,180,669)
Commissions, other expenses, and taxes paid
(excluding federal income taxes).............................................. (35,554,121) (34,763,025)
Net transfers (to) from separate accounts....................................... (10,834,702) 16,492,034
Cash in receivable status from separate accounts................................ -- --
Changes in asset charges receivable............................................. -- --
Dividends to policyholders paid................................................. (318,735) (317,700)
Federal income taxes paid....................................................... (6,615,383) (8,853,213)
Net decrease in policy loans.................................................... 752,251 984,139
------------- -------------
Net cash from operations...................................................... 34,384,399 11,620,053
------------- -------------
Proceeds from investments sold, matured, or repaid:
Bonds......................................................................... 137,065,217 147,260,947
Mortgage loans................................................................ 18,723 49,934
Tax on net capital gains...................................................... (1,608,247) (577,663)
------------- -------------
Total investment proceeds............................................... 135,475,693 146,733,218
------------- -------------
Other cash provided............................................................. 2,492,931 17,175,517
------------- -------------
Total cash provided..................................................... 172,353,023 175,528,788
------------- -------------
Cost of investments acquired.................................................... 164,883,237 157,699,531
Other cash applied:
Dividend to stockholder....................................................... 7,500,000 7,500,000
Other applications, net....................................................... 9,012,803 1,088,365
------------- -------------
Total cash applied...................................................... 181,396,040 166,287,896
------------- -------------
Net change in cash and short-term investments........................... (9,043,017) 9,240,892
Cash and short-term investments:
Beginning of year............................................................. 29,877,016 20,636,124
------------- -------------
End of year................................................................... $ 20,833,999 $ 29,877,016
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
21
<PAGE> 55
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 of 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> 56
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 $10,348 and $4,752 at December 31, 1999 and
1998, 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> 57
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.
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 $30,266,743 and $29,212,951 for 1999 and 1998,
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> 58
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------------
K. CODIFICATION
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance, which will replace the current Accounting
Practices and Procedures manual as the NAIC's primary guidance on
statutory accounting. The NAIC is now considering amendments to the
Codification guidance that would also be effective upon
implementation. The Codification provides guidance for areas where
statutory accounting has been silent and changes current statutory
accounting in some areas, e.g., deferred income taxes are recorded.
The Wisconsin Insurance Department will adopt the Codification
guidance, effective January 1, 2001. The effect of the Codification on
the Company's financial statements has not yet been estimated.
(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, 1999 VALUE GAINS LOSSES VALUE
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 44,861,293 $ 999,252 $ (772,215) $ 45,088,330
Obligations of states and
political subdivisions 443,994 27,721 0 471,715
Corporate securities 876,015,612 10,437,319 (40,424,102) 846,028,829
Mortgage-backed securities 224,400,308 4,532,599 (2,314,104) 226,618,803
-------------- ----------- ------------- ---------------
Total $1,145,721,207 $15,996,891 $(43,510,421) $1,118,207,677
============== =========== ============ ==============
</TABLE>
<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>
25
<PAGE> 59
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
---------------------------
Book value and estimated market value of bonds at December 31, 1999, 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 $ 7,339,697 $ 7,424,129
Due after one year through five years 71,644,578 71,916,890
Due after five years through ten years 174,799,974 171,372,748
Due after ten years 667,536,650 640,875,107
-------------- --------------
Subtotal 921,320,899 891,588,874
Mortgage-backed securities 224,400,308 226,618,803
-------------- --------------
Total $1,145,721,207 $1,118,207,677
============== ==============
</TABLE>
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1999 is summarized as follows:
<TABLE>
<S> <C>
Aaa 25.29%
Aa 7.98%
A 41.73%
Baa 24.25%
Ba & below and not rated 0.75%
-------
100.00%
=======
</TABLE>
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1999 and 1998, including maturities and
calls, were $137,065,217 and $147,260,947, respectively. In 1999 and 1998,
respectively, gross gains of $1,424,706 and $3,633,126, and gross losses of
$2,344,106 and $508,150 were realized on these sales before transfer to the
IMR liability.
At December 31, 1999 and 1998, investments carried at $4,283,967 and
$4,335,822, 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 1999 and 1998. Condensed financial information regarding SLONY is
shown as follows:
<TABLE>
<CAPTION>
SLONY
------------------------------------
1999 1998
------------ -----------
<S> <C> <C>
Investments $31,349,369 $33,868,989
Total assets 37,511,889 38,308,361
Policy reserves and benefits 18,263,957 19,401,383
Total liabilities 27,641,979 28,775,421
Statutory capital and surplus 9,869,910 9,532,940
Premium income 6,164,053 7,151,770
Net investment income 2,436,476 2,627,438
Benefits and expenses 7,044,649 8,687,989
Net income 1,019,134 659,539
</TABLE>
26
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(4) Net Investment Income and Net Realized and Unrealized Gains (Losses)
Sources of net investment income for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Dividends received from affiliates $ 850,000 $ 880,000
Interest:
Bonds 87,460,887 89,112,233
Short-term investments 1,140,773 1,111,775
Other investments 1,815,616 1,676,371
Amortization of IMR 1,138,005 1,119,458
----------- -----------
Gross investment income 92,405,281 93,899,837
Investment expense 358,099 355,015
----------- -----------
Net investment income $92,047,182 $93,544,822
=========== ===========
</TABLE>
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
------------------------------ --------------------------------
1999 1998 1999 1998
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Common stock of unconsolidated
subsidiary $ -- $ -- $ 336,970 $ (284,707)
Bonds (919,400) 3,124,975 -- --
Stocks -- -- 2,329 --
Capital gains tax 104,925 (1,608,247) -- --
----------- ----------- ----------- ------------
Pre-IMR capital gains (losses),
net of tax (814,475) 1,516,728 339,299 (284,707)
IMR capital gains transferred
into the reserve, net of taxes (21,056) (2,031,234) -- --
----------- ----------- ----------- ------------
$ (835,531) $ (514,506) $ 339,299 $ (284,707)
=========== =========== =========== ============
</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>
1999 1998
----------- -----------
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 8,911,521 $ 4,877,721
Accrual of bond discount (566,045) (937,906)
Adjustment for deferred acquisition costs (59,256) (33,295)
Dividends received from subsidiaries (297,500) (308,000)
Different basis used to compute future policy benefits 506,516 2,678,735
Amortization of interest maintenance reserve (398,302) (391,810)
Other, net 502,991 (200,692)
----------- -----------
Total $ 8,599,925 $ 5,684,753
=========== ===========
</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 $93,757,427, respectively, at December 31,
1999.
27
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
---------------------
Federal income tax returns of SIAMCO have been examined through 1996,
and the Company and the Internal Revenue Service have reached agreement
on all issues relating to 1996 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.
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.
28
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
---------------------
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1999 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,145,721,207 $1,118,207,677
Assets held in separate accounts 645,899,120 645,899,120
Liabilities:
Aggregate reserves for
investment-type contracts 71,802,052 71,619,440
Structured settlements 54,073,885 64,055,048
Liability for premium and
other deposit funds 650,107,483 641,978,933
Liabilities related to separate accounts 645,025,463 645,025,463
<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>
(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 in 1999 and 1998.
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 $373,000 and $429,000 by SIAMCO for 401k Plan
benefits in 1999 and 1998, respectively.
In addition to the above-mentioned benefits, the Company, with SIAMCO
and its affiliated subsidiaries, provides certain health care, dental
and life insurance benefits to retired employees and their covered
dependents. The retiree health care benefits allocated to the Company
by SIAMCO were approximately $516,000 for 1999 and $470,000 for 1998.
29
<PAGE> 63
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
---------------------
(8) REINSURANCE
The Company has entered into reinsurance contracts for participation in
reinsurance pools and surplus protection for its wholly-owned
subsidiary. Assumed life in-force amounted to approximately 32% and 31%
of total in-force (before ceded reinsurance) at December 31, 1999 and
1998, 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.
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>
1999
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $ 295 $ 24,993 $ 7,399 $ 3,488
Benefits 138 54,854 7,236 1,854
Commissions 8 10,050 (3) 440
Future Policy Benefits:
Life & Annuities 31 -- 13 1,303
Accident & Health -- 213,850 165 70
Intercompany Receivable -- 3,620 -- --
<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>
(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.
30
<PAGE> 64
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
---------------------
(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
$33,022,000 and $25,742,000 in 1999 and 1998, 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, 1999 and 1998
included $54,073,885 and $53,328,059, 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 $1,342.0 million and
$1,286.0 million in 1999 and 1998, respectively, are subject to
withdrawal at the discretion of the annuity contract holders.
Approximately 96% of these balances carry surrender charges.
31
<PAGE> 65
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
33
<PAGE> 66
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1999
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<S> <C>
Investment Income Earned:
Government Bonds..................................................... $ 321,403
Other bonds (unaffiliated)........................................... 87,139,484
Common stocks of affiliates.......................................... 850,000
Mortgage loans....................................................... 999
Premium notes, policy loans and liens................................ 1,583,866
Short-term investments............................................... 1,140,773
Aggregate write-ins for investment income............................ 230,751
--------------
Gross investment income.............................................. $ 91,267,276
==============
Mortgage Loans - Book Value:
Residential mortgages................................................ $ -
==============
Mortgage Loans By Standing - Book Value:
Good standing........................................................ $ -
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks........................................................ $ 9,869,910
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less........................................ $ 19,858,194
Over 1 year through 5 years........................................ 157,866,910
Over 5 years through 10 years...................................... 275,602,276
Over 10 years through 20 years..................................... 312,091,609
Over 20 years...................................................... 380,302,218
--------------
Total by Maturity.................................................. $1,145,721,207
==============
Bonds by Class - Statement Value
Class 1............................................................ $ 833,324,129
Class 2............................................................ 292,171,799
Class 3............................................................ 17,342,925
Class 4............................................................ 2,882,354
Class 5............................................................ -
Class 6............................................................ -
--------------
Total by Class..................................................... $1,145,721,207
==============
Total Bonds Publicly Traded........................................ $1,124,872,697
==============
Total Bonds Privately Placed....................................... $ 20,848,510
==============
</TABLE>
34
<PAGE> 67
<TABLE>
<S> <C>
Short-Term Investments - Book Value................................... $ 20,833,999
==============
Cash on Deposit....................................................... -
==============
Life Insurance In Force (000's omitted):
Ordinary............................................................ $ 4,538,256
==============
Group Life ......................................................... $ 3,188,254
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted).............................................. $ 110,819
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary............................................................ $ 20,124
==============
Group Life.......................................................... 106
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit................................................ $ 340,063
==============
Income Payable................................................... $ 216,400
==============
Ordinary - Involving Life Contingencies
Income Payable .................................................. $ 78,816
==============
Annuities:
Ordinary
Immediate - Amount of Income Payable............................. $ 1,749,809
==============
Deferred - Fully paid account balance............................ $ 18,765,099
==============
Deferred - Not fully paid account balance ....................... $ 108,234,625
==============
Group
Amount of income payable......................................... $ 4,841,658
==============
Fully paid account balance ...................................... $ 26,503,191
==============
Not fully paid account balance................................... $1,208,929,671
==============
Accident and Health Insurance - Premiums In Force:
Ordinary........................................................... $ 115,852
==============
Group.............................................................. $ 26,714,977
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance........................... $ 360,313
==============
Claim Payments 1999:
Group Accident and Health Year - Ended December 31, 199X
1999............................................................. $ 2,582,449
==============
1998............................................................. $ 419,317
==============
1997............................................................. $ 85,332
==============
1996 & prior..................................................... $ 1,047,898
==============
Other Accident & Health
1999............................................................. $ 5,320
==============
1998............................................................. $ 21,591
==============
1997............................................................. $ 19,197
==============
1996 & prior..................................................... $ 56,701
==============
</TABLE>
35
<PAGE> 68
PART C
<PAGE> 69
PART C
OTHER INFORMATION
ITEM 24 Financial Statements and Exhibits
(a) Financial Statements of Sentry Variable Account II
Included in Part A:
Condensed Financial Information
Included in Part B:
Report of Independent Accountant
Statement of Assets, Liabilities and Contract Owners'
Equity, December 31, 1999
Statements of Operations and changes in Contract Owners'
Equity for the years ended December 31, 1999 and 1998
Notes to Financial Statements, December 31, 1999 and
1998
Financial Statements of Sentry Life Insurance Company
Included in Part B
Report of Independent Accountant
Statutory-Basis Balance Sheets, December 31, 1999 and
1998
Statutory-Basis Statements of Operations for the years
ended December 31, 1999 and 1998
Statutory-Basis Statements of Changes in Capital Stock
and Surplus for the years ended December 31, 1999
and 1998
Statutory-Basis Statements of Cash Flow for the years
ended December 31, 1999 and 1998
Notes to Statutory-Basis Financial Statements
<PAGE> 70
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) Fund Participation Agreement with T. Rowe Price Fixed
Income Series, Inc., T. Rowe Price Equity Series,
Inc., and T. Rowe Price International Series,
Inc.***
(8)(ii) Fund Participation Agreement with Janus Aspen
Series***
(9) Opinion and Consent of Counsel
(10) Consent of Independent Accountants
(11) Not Applicable
(12) Agreement Governing Contribution to Sentry Variable
Account II*
(13) Calculation of Performance Data
* Exhibits (1), (3)(i), (3)(ii), (3)(iii), (6)(i), (6)(ii), and (12) are
incorporated herein by reference to such exhibits 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, 1998.
** Exhibits 4(i) and 4(ii) are incorporated herein by reference to such
exhibits in Registrant's (File Nos. 2087027 and 811-3875)
Post-Effective Amendment No. 20 to Form N-4 filed electronically on or
about December 1, 1999.
*** Exhibits (8)(i) and (8)(ii) are incorporated herein by reference to
such exhibits in Registrant's (File Nos. 2087027 and 811-3875)
Post-Effective Amendment No. 22 filed electronically on or about
January 7, 2000.
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> 71
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;
(j) WAULECO, Inc., a Wisconsin corporation; and
(k) Sentry Holding Company, Inc., a Delaware 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 Select Insurance Company, Sentry Casualty Company, Rock River
Insurance Company, all Illinois corporations; Sentry Insurance Agency,
Inc., a Delaware corporation; and Sentry Insurance General Agency,
Inc., a Texas corporation, are wholly-owned subsidiaries of Sentry
Holding Company, Inc.
7. Sentry Life Insurance Company of New York, a New York corporation, is a
wholly-owned subsidiary of the Depositor.
8. Dairyland County Mutual Insurance Company of Texas, a Texas
corporation, is affiliated with Dairyland.
ITEM 27 Number of Contract Owners
As of April 1, 2000, there were 2,065 qualified contract owners and 593
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
<PAGE> 72
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, 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
<PAGE> 73
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.
(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
<PAGE> 74
Contracts, also acts as Principal Underwriter for:
Sentry Variable Account I
Sentry Variable Life Account I
Sentry Fund, Inc.
(b) The following persons are the officers and directors of Sentry
Equity Services, Inc. The principal business address for each
director and officer of the Principal Underwriter is 1800
North Point Drive, Stevens Point, Wisconsin 54481:
Positions and Offices
Name With Underwriter
---- ---------------------
Dale R. Schuh Director and Chairman of
the Board
Wallace D. Taylor 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. $ 148,083 $ 0.00 $ 0.00 $ 435,255
</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> 75
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> 76
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 24th day of April, 2000.
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> 77
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 April 24, 2000
- ----------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
/s/ Wallace D. Taylor April 24, 2000
- ----------------------------------------
Wallace D. Taylor, Vice President
/s/ William M. O'Reilly April 24, 2000
- ----------------------------------------
William M. O'Reilly, Secretary and
Director
/s/ William J. Lohr April 24, 2000
- ----------------------------------------
William J. Lohr, Treasurer and
Director
/s/ Janet L. Fagan April 24, 2000
- ----------------------------------------
Janet L. Fagan, Director
/s/ James J. Weishan April 24, 2000
- ----------------------------------------
James J. Weishan, Director
<PAGE> 78
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 23
TO
FORM N-4
FOR
SENTRY VARIABLE ACCOUNT II
<PAGE> 79
INDEX TO EXHIBITS
Exhibit
99.B 5 Application Form
99.B 9 Opinion and Consent of Counsel
99.B 10 Consent of Independent Accountant
99.B 13 Calculation of Performance Data
<PAGE> 1
EXHIBIT 99.B5
<TABLE>
<S><C>
[SENTRY LIFE INSURANCE COMPANY LOGO] VARIABLE ANNUITY APPLICATION
- ------------------------------------------------------------------------------------------------------------------------------------
1. ANNUITANT
Name Soc. Sec. No. Date of Birth
------------------------------------------------------------ --------------------------- ------------
Address Telephone No.
-------------------------------------------------------- ------------------------------------------------------
City State Zip Sentry Employee? [ ] Yes [ ] No Male [ ]
------------------------------ ---------- --------
Date Annuity Payments Begin Spouse? [ ] Yes [ ] No Female [ ]
-------------------------------------------
(Month) (Year)
- ------------------------------------------------------------------------------------------------------------------------------------
2. CONTRACT OWNER (Complete only if different from Annuitant.) Date of Birth
-------------------------------------------
Name Soc. Sec. No.
--------------------------------------------------------------------- -------------------------------------------
Address City State Zip
----------------------------------------- ------------------------------------- --------------- -------------
Contingent Owner(*)
-----------------------------------------------------------------------------------------------------------------
(*)Only the spouse of the contract owner may be named as 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 AND ALLOCATION Initial Purchase Payment .........................$
----------------
Planned Subsequent Payment* ......................$
----------------
Bill Me: Monthly Qtrly Annually * Subsequent payments will be allocated as shown unless otherwise
--- --- --- directed.
T. Rowe Price Fixed Income Series, Inc.
- -----------------------------------------
T. ROWE PRICE PRIME RESERVE PORTFOLIO ............ % Janus Aspen Series Institutional Shares
--------- -----------------------------------------
T. ROWE PRICE LIMITED TERM BOND PORTFOLIO......... % BALANCED PORTFOLIO............................ %
--------- --------------
T. Rowe Price Equity Series, Inc. GROWTH PORTFOLIO.............................. %
- ----------------------------------------- --------------
T. ROWE PRICE CAPITAL APPRECIATION PORTFOLIO................ %
--------------
PERSONAL STRATEGY BALANCED PORTFOLIO........... % AGGRESSIVE GROWTH PORTFOLIO................... %
--------- --------------
T. ROWE PRICE EQUITY INCOME PORTFOLIO............. % WORLDWIDE GROWTH PORTFOLIO.................... %
--------- --------------
T. Rowe Price International Series, Inc.
- ------------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO....... % Total Allocation must equal 100%
---------
- ------------------------------------------------------------------------------------------------------------------------------------
5. PLAN TYPE (CHECK AS MANY BOXES AS APPLY.) [ ] Qualified Plan
[ ] Non Qualified Plan [ ] Traditional IRA - Tax Contribution Year
[ ] 1035 Transfer (Non-Qualified only) [ ] Roth IRA - Tax Contribution Year
[ ] SEP IRA (Please attach form 5305-SEP)
Cost Basis of contract being replaced $ [ ] Rollover IRA
--------------------
[ ] Transfer IRA (Complete Transfer Form)
Original date of contract being replaced [ ] SIMPLE IRA Rollover
------------------
[ ] SIMPLE IRA (new)
- ------------------------------------------------------------------------------------------------------------------------------------
6.a. 6.b. Telephone Transfer Privilege
Make Check Payable To:
SENTRY LIFE INSURANCE COMPANY [ ] The undersigned Contract Owner hereby elects the Telephone Transfer
Send Check With Application To: Privilege and agrees to the terms and conditions as described on the
ANNUITY SERVICE OFFICE 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
- ------------------------------------------------------------------------------------------------------------------------------------
10. I(WE) ACKNOWLEDGE RECEIPT OF THE CURRENT PROSPECTUS OF SENTRY VARIABLE ACCOUNT II, T. ROWE PRICE FIXED INCOME SERIES,
INC., T. ROWE PRICE EQUITY SERIES, INC., T. ROWE PRICE INTERNATIONAL SERIES, INC., AND JANUS ASPEN SERIES INSTITUTIONAL SHARES.
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.
This application has been signed in ,
---------------------------------------------------------- -----------------------------------
City State
on month day year
----------------------------------------- -------------------------------------- ---------------------------------
Signature Signature
of Annuitant of Owner
--------------------------------------------------- --------------------------------------------------------
(Owner unless otherwise indicated) (If other than Annuitant)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
32-103(D) Sentry Life Insurance Company Stevens Point, Wisconsin 5-00
<PAGE> 2
<TABLE>
<S><C>
11. AGENT'S REPORT
Will the annuity replace an existing life insurance If Yes, indicate type of contract: [ ] Life Insurance
or annuity contract? [ ] Yes [ ] No (Submit any required replacement forms.) [ ] Annuity
Signature of Agent Phone Number ( )
------------------------------------------------------- ------ -----------------------------------
Print Agent Name Sales Code
------------------------------------------------------- ---------------------------------------------
Name of Broker Dealer Address
----------------------------------------------- ------------------------------------------------------
City State Zip
----------------------------------------------------------- ---------------------------- ----------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
TELEPHONE TRANSFER PRIVILEGE
The Contract Owner hereby authorizes Sentry Life Insurance Company (the 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 minimum amounts stated in the Contract.
The Company will employ reasonable procedures to confirm that telephone transfer
requests are legitimate. The Company will not be liable for complying with any
telephone transfer request it believes to be legitimate and for which it
followed reasonable procedures to ensure legitimacy. The Company reserves the
right to reject any telephone transfer request. The Contract Owner understands
and agrees that this transfer privilege is for the convenience of the Contract
Owner and may be suspended or revoked by the Company for any reason and at
anytime without prior notice.
INSTRUCTIONS FOR TELEPHONE TRANSFERS
When you want to make a transfer 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 transfer 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 transfer of accumulation units will
be made on the basis of the Valuation Period NEXT FOLLOWING the day your
telephone call was received.
<PAGE> 1
BLAZZARD, GRODD & HASENAUER, P.C.
ATTORNEYS AT LAW CONNECTICUT OFFICE:
943 POST ROAD EAST o P.O. BOX 5108
NORSE N. BLAZZARD** WESTPORT, CONNECTICUT 06881-5108
LESLIE E. GRODD* TELEPHONE (203) 226-7866
JUDITH A. HASENAUER** FACSIMILE (203) 454-4028
WILLIAM E. HASENAUER*
RAYMOND A. O'HARA III* FLORIDA OFFICE:
LYNN KORMAN STONE* 4401 WEST TRADEWINDS AVENUE,SUITE 207
LAUDERDALE BY THE SEA, FLORIDA 33308
TELEPHONE (954) 771-6667
FACSIMILE (954) 771-7689
* Admitted in Connecticut
** Admitted in Connecticut and Florida
April 12, 2000
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 the 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 an Owner pursuant to a
Contract issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
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.
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 99.B10
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 5 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 10, 2000, on our audits of the financial
statements of the Account; and
(2) Our report dated February 18, 2000, on our audits of the
statutory-basis financial statements of Sentry Life Insurance
Company.
We also consent to the reference to our Firm under the captions "Condensed
Financial Information: in the Prospectus and "Independent Accountant" in the
Statement of Additional Information.
s/ PricewaterhouseCoopers LLP
April 20, 2000
<PAGE> 1
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
EXHIBIT 13
SEC Rule 482 - Total Return Page 1 of 3
Variable Annuity - One Year
Original Purchase - 12/31/98
Valuation Date 12/31/99
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price
Date Transaction Type Amount Prime Reserve Ltd. Term Bond Pers. Strat. Bal. Equity Income International
- ---- ---------------- ------ ------------- -------------- ----------------- ------------- -------------
<S><C> <C> <C> <C> <C> <C> <C>
12/31/98 Purchase 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
9/10/99 Contract Fee (3.00) 1,022.50 994.50 1,046.58 1,014.40 1,210.41
12/31/99 Value before Surr. Chg. 1,033.97 993.40 1,069.24 1,022.18 1,318.63
12/31/99 Value after Surr. Chg. (50.00) 983.97 943.40 1,019.24 972.18 1,268.63
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Janus Aspen Janus Aspen Janus Aspen Janus Aspen
Date Transaction Type Amount Balanced Growth Aggr. Growth Cap. Appreciation Worldwide
- ---- ---------------- ------ -------- ------ ------------ ----------------- ---------
<S><C> <C> <C> <C> <C> <C> <C>
12/31/98 Purchase 1,000.00 1,000.00 1,000.00 1,000.0O 1,000.00 1,000.00
9/10/99 Contract Fee (3.00) 1,168.22 1,277.49 1,747.99 1,417.44 1,402.27
12/31/99 Value before Surr. Chg. 1,252.88 1,426.25 2,239.96 1,655.70 1,630.21
12/31/99 Value after Surr. Chg. (50.00) 1,202.88 1,375.25 2,189.96 1,605.70 1,580.21
</TABLE>
VA yields
<PAGE> 2
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
EXHIBIT 13
Page 2 of 3
SEC Rule 482 - Total Return
Variable Annuity - Five Year
Original Purchase - 12/31/94
Valuation Date 12/31/99
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price
Date Transaction Type Amount Prime Reserve Ltd. Term Bond Pers. Stat. Bal. Equity Income International
- ---- --------------- ------ ------------- -------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/94 Purchase 1,000.00 N/A 1,000.00 1,000.00 1,000.00 1,000.00
9/10/95 Contract Fee (3.00) N/A 1,027.02 1,101.18 1,114.94 1,092.34
9/10/96 Contract Fee (3.00) N/A 1,068.93 1,267.93 1,307.07 1,243.15
9/10/97 Contract Fee (3.00) N/A 1,112.53 1,459.81 1,532.16 1,414.69
9/10/98 Contract Fee (3.00) N/A 1,158.04 1,681.18 1,796.52 1,610.32
9/10/99 Contract Fee (3.00) N/A 1,205.53 1,936.58 2,107.01 1,833.40
12/31/99 Value before Surr. Chg. N/A 1,221.42 2,023.43 2,213.61 1,908.82
12/31/99 Value after Surr. Chg. (10.00) N/A 1,211.42 2,013.43 2,203.61 1,898.82
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Janus Aspen Janus Aspen Janus Aspen Janus Aspen
Date Transaction Type Amount Balanced Growth Aggr. Growth Cap. Appreciation Worldwide
- ---- ---------------- ------ -------- ------ ------------ ----------------- ---------
<S><C> <C> <C> <C> <C> <C> <C>
12/31/94 Purchase 1,000.00 1,000.00 1,000.00 1,000.0O N/A 1,000.00
9/10/95 Contract Fee (3.00) 1,154.68 1,188.31 1,228.74 N/A 1,212.00
9/1O/96 Contract Fee (3.00) 1,424.08 1,527.77 1,658.15 N/A 1,603.41
9/10/97 Contract Fee (3.00) 1,756.03 1.963.70 2,236.63 N/A 2,120.56
9/10/98 Contract Fee (3.00) 2,166.05 2,524.87 3,018.61 N/A 2,805.47
9/10/99 Contract Fee (3.00) 2,672.50 3,247.26 4,074.40 N/A 3,712.57
12/31/99 Value before Surr. Chg. 2,851.48 3,508.91 4,468.23 N/A 4,046.84
12/31/99 Value after Surr. Chg. (10.00) 2,841.46 3,498.91 4,458.23 N/A 4,036.84
</TABLE>
VA yields
<PAGE> 3
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
EXHIBIT 13
Page 3 of 3
SEC Rule 482 - Total Return
Variable Annuity - Since Inception
Original Purchase - Various
Valuation Date 12/31/99
<TABLE>
<CAPTION>
T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price T. Rowe Price
Date Transaction Type Amount Prime Reserve Ltd. Term Bond Pers. Stat. Bal. Equity Income International
- ---- --------------- ------ ------------- -------------- ---------------- ------------- -------------
<S><C> <C> <C> <C> <C> <C> <C>
3/31/94 Purchase 1,000.00 1,000.00 1,000.00
5/13/94 Purchase 1,000.00 1,000.00
9/10/94 Contract Fee (3.00) 1,010.58 1,066.51 1,050.13
12/30/94 Purchase 1,000.00 1,000.00
9/10/95 Contract Fee (3.00) 1,050.33 1,101.48 1,236.72 1,176.19
9/10/96 Contract Fee (3.00) 1,091.78 1,268.05 1,435.15 1,318.16
12/31/96 Purchase 1,000.00 1,000.00
9/10/97 Contract Fee (3.00) 1,024.42 1,134.85 1,459.70 1,665.22 1,477.16
9/10/98 Contract Fee (3.00) 1,062.19 1,179.74 1,680.76 1,932.65 1,655.71
9/10/99 Contract Fee (3.00) 1,101.47 1,226.53 1,935.76 2,243.51 1,856.19
12/31/99 Value before Surr. Chg. 1,114.74 1,242.19 2,022.47 2,349.54 1,923.40
12/31/99 Value after Surr. Chg. (10.00) 1,232.19 2,012.47 2,339.64 1,913.40
12/31/99 Value after Surr. Chg. (3.00) 1,084.74
</TABLE>
<TABLE>
<CAPTION>
Janus Aspen Janus Aspen Janus Aspen Janus Aspen Janus Aspen
Date Transaction Type Amount Balanced Growth Aggr. Growth Cap. Appreciation Worldwide
- ---- ---------------- ------ -------- ------ ------------ ----------------- ---------
<S><C> <C> <C> <C> <C> <C> <C>
9/13/93 Purchase 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00
9/10/94 Contract Fee (3.00) 1,189.56 1,225.80 1,326.26 1,279.65
9/10/95 Contract Fee (3.00) 1,417.69 1,505.84 1,764.11 1,641.74
9/10/96 Contract Fee (3.00) 1,690.97 1,861.59 2,349.35 2,108.57
5/1/97 Purchase 1,000.00
9/10/97 Contract Fee (3.00) 2,016.53 2,276.12 3,127.27 1,171.77 2,707.15
9/10/98 Contract Fee (3.00) 2,405.34 2,798.68 4,163.78 1,826.25 3,476.50
9/10/99 Contract Fee (3.00) 2,869.69 3,441.89 5,544.82 2,847.96 4,465.35
12/31/99 Value before Surr. Chg. 3,030.38 3,668.45 6,055.24 3,265.04 4,822.84
12/31/99 Value after Surr. Chg. 3,030.38 3,668.45 6,055.24 4,822.84
12/31/99 Value after Surr. Chg. (40.00) 3,225.04
</TABLE>
VA yields
