<PAGE> 1
1933 Act File No. 2-87746
1940 Act File No. 811-3901
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. 19 [ x ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 16 [ x ]
SENTRY VARIABLE ACCOUNT I
- --------------------------------------------------------------------------------
(Exact Name of Registrant)
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
- --------------------------------------------------------------------------------
(Name of Depositor)
251 Salina Meadows Parkway
North Syracuse, New York 13212
- --------------------------------------------------------------------------------
(Address of Depositor's Executive Offices and Zip Code)
Telephone (315) 453-6302
- --------------------------------------------------------------------------------
(Depositor's Telephone Number, Including Area Code)
William M. O'Reilly
Sentry Life Insurance Company of New York
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, 1999, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) 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; Neuberger Berman
Advisers Management Trust
6 Deductions and Expenses ................. Charges and Deductions
7 General Description of Variable
Annuity Contracts ....................... The Contract
8 Annuity Period .......................... Annuity Provisions
9 Death Benefit ........................... The Contract; 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
<CAPION>
PART B
<S> <C> <C>
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 The Contract
21 Calculation of Performance Data .......... Yield Calculation for Liquid
Asset 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 OF NEW YORK
HOME OFFICE: ANNUITY SERVICE OFFICE:
251 SALINA MEADOWS PARKWAY P.O. BOX 4792
NORTH SYRACUSE, NY 13212 SYRACUSE, NY 13221
TELEPHONE: (315) 453-6301
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACTS
ISSUED BY
SENTRY VARIABLE ACCOUNT I
and
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
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 of New York which has been designated Sentry
Variable Account I (the "Variable Account"). The Variable Account invests in
shares of Neuberger Berman Advisers Management Trust. Through the Variable
Account, you may invest in the following Portfolios of Neuberger Berman Advisers
Management Trust:
- Growth Portfolio - Limited Maturity Bond Portfolio
- Liquid Asset Portfolio - Balanced Portfolio
As the Owner of the Contract, you bear the complete investment risk for amounts
you allocate to the Variable Account.
THE CONTRACT:
- IS NOT A BANK DEPOSIT
- IS NOT FEDERALLY INSURED
- IS NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY
- IS NOT GUARANTEED AND MAY BE SUBJECT TO LOSS OF PRINCIPAL
This Prospectus provides basic information you should know about the Contract
before investing. Please keep this Prospectus for future reference.
A Statement of Additional Information dated May 1, 1999, which is legally a part
of this Prospectus, contains further information about the Contract. It has been
filed with the Securities and Exchange, 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 27 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, 1999.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions................................................................ 4
Summary.................................................................... 5
Fee Table.................................................................. 6
Condensed Financial Information............................................ 8
Performance Information.................................................... 8
Financial Statements....................................................... 8
The Company................................................................ 9
The Variable Account....................................................... 9
Neuberger Berman Advisers Management Trust................................. 9
AMT Liquid Asset Investments.............................................. 9
AMT Growth Investments.................................................... 9
AMT Limited Maturity Bond Investments..................................... 10
AMT Balanced Investments.................................................. 10
Variable Account Voting Rights............................................. 10
Substitution of Securities................................................. 10
Charges and Deductions..................................................... 11
Contingent Deferred Sales Charge.......................................... 11
Reduction or Elimination of Contingent Deferred Sales Charge.............. 12
Deduction for Mortality and Expense Risk Premium.......................... 12
Deduction for Contract Maintenance Charge................................. 12
Deduction for Premium Taxes and Other Taxes............................... 13
Trust Expenses............................................................ 13
The Contract............................................................... 13
Transfer.................................................................. 14
No Default................................................................ 14
Modification of the Contract.............................................. 14
Contract Value............................................................ 14
Ownership................................................................. 15
Assignment................................................................ 15
Beneficiary............................................................... 15
Annuity Provisions......................................................... 16
Income Date and Settlement Option......................................... 16
Changing the Income Date.................................................. 16
Changing the Settlement Option............................................ 16
Settlement Options........................................................ 16
Mortality and Expense Guarantee........................................... 17
Frequency of Annuity Payments............................................. 17
Amount of Annuity Payments................................................ 17
Additional Provisions .................................................... 17
</TABLE>
2
<PAGE> 6
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Death Benefit............................................................................... 18
Death of the Annuitant.................................................................... 18
Death of the Contract Owner............................................................... 18
Purchases and Contract Value................................................................ 19
Change in Purchase Payments............................................................... 19
Allocation of Purchase Payments........................................................... 19
Accumulation Units........................................................................ 19
Distribution of Contract.................................................................. 20
Surrenders.................................................................................. 20
Limitations on Withdrawals from 403(b) Annuities.......................................... 21
Federal Tax Status.......................................................................... 21
General................................................................................... 21
Diversification........................................................................... 22
Contract Owner Control of Investments..................................................... 22
Multiple Contracts........................................................................ 22
Owner Other than Natural Person........................................................... 23
Tax Treatment of Assignments.............................................................. 23
Income Tax Withholding.................................................................... 23
Tax Treatment of Withdrawals - Non-Qualified Contracts and Section 457 Contracts.......... 23
Qualified Plans........................................................................... 24
Tax Treatment of Withdrawals - Qualified Contracts........................................ 26
Tax Sheltered Annuities - Withdrawal Limitations.......................................... 26
Section 457 - Deferred Compensation Plans................................................. 27
Legal Proceedings........................................................................... 27
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 of New York, 251 Salina
Meadows Parkway, North Syracuse, NY 13212.
Contingent Owner The Contingent Owner, if any, of the Contract
must be the spouse of the Contract Owner named on the
application.
Contract Anniversary The same month and day each year calculated
from the date the Contract was first issued.
Contract Owner The Contract Owner is named on the application,
unless changed, and has all rights under the Contract.
Contract Value The dollar value of all amounts accumulated under
the Contract as calculated on any valuation date.
Contract Year A 12-month period beginning with the Contract
issue date and each Contract anniversary date
thereafter.
Mutual Fund A Mutual Fund designated as an investment option
for the Variable Account.
Income Date The date on which annuity payments begin.
Non-Qualified Contract A contract issued under a non-qualified plan.
This means that the contract does not receive favorable
tax treatment under Sections 401, 403, 408 or 457 of
the Code.
Portfolio A segment of a Mutual Fund made up of a separate and
distinct class of shares.
Qualified Contract A contract that is issued under a tax-qualified plan.
A qualified plan, generally a retirement plan, is one
that receives favorable tax treatment.
Subaccount A segment of the Variable Account that invests in a
Mutual Fund or Portfolio.
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 I, a separate investment
account of Sentry Life Insurance Company of New York
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 Neuberger Berman Advisers Management Trust (the "Trust") at their net
asset value. As the Contract Owner, you bear the investment risk for the
purchase payments you select to be allocated to the Variable Account.
TEN-DAY FREE LOOK
Within 10 days (or longer in states where required) of the day you receive the
Contract, you may return it to the Company or to your sales representative. When
the Company receives the returned Contract, it will be voided as if it had never
been issued and you will receive a full refund of your purchase payments.
CHARGES AND DEDUCTIONS
Contingent Deferred Sales Charge. There is no sales charge when you purchase the
Contract. However, if you surrender the Contract, the Company may impose a
contingent deferred sales charge. The contingent deferred sales charge ranges
from 0% to 6% depending on how long the Company has had your purchase 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%.
<PAGE> 9
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.
FEE TABLE
<TABLE>
<CAPTION>
CONTRACT OWNER TRANSACTION EXPENSES
- Contingent Deferred Sales Charge (as a percentage of purchase payments)
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%
CONTRACT MAINTENANCE CHARGE
- $30 per year
VARIABLE ACCOUNT ANNUAL EXPENSES
- Mortality and Expense Risk Premium - 1.20% of daily net asset value
NEUBERGER BERMAN ADVISER MANAGEMENT TRUST AND ADVISERS MANAGERS TRUST ANNUAL
EXPENSES (1) (as a percentage of the average daily net assets of a Portfolio)
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT
MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO AND ADMINISTRATION FEES EXPENSES (2) EXPENSES
- --------- ----------------------- ---------- ------------
<S> <C> <C> <C>
Liquid Asset (2) 0.53% 0.35% 1.00%
Balanced 0.85% 0.18% 1.03%
Growth 0.83% 0.09% 0.92%
Limited Maturity Bond 0.65% 0.11% 0.76%
</TABLE>
(1) The Trust is divided into eight Portfolios, four of which are available with
the Variable Account. Each Portfolio invests all of its net investable assets in
a corresponding series of Advisers Managers Trust. The figures shown under
"Investment Management and Administration Fees" include the aggregate of the
administration fees paid by the Portfolio and the management fees paid by its
corresponding series. Similarly, "Other Expenses" include all other expenses of
the Portfolio and its corresponding series.
(2) Expenses reflect expense reimbursement. NB Management has undertaken to
reimburse the Liquid Asset Portfolio for certain operating expenses, including
the compensation of NB Management and excluding certain other expenses that
exceed, in the aggregate, 1% of the Portfolio's average daily net asset value.
Absent such reimbursement, the "Total Annual Expenses" for the year ended
December 31, 1998 would have been 1.14% for the Liquid Asset Portfolio. This
expense reimbursement policy can be terminated with 60 days written notice and
there can be no assurance that it will be continued thereafter.
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>
Growth Portfolio a) $73.00 $100.00 $129.00 $254.00
b) $23.00 $ 70.00 $119.00 $254.00
Liquid Asset Portfolio a) $74.00 $103.00 $134.00 $264.00
b) $24.00 $ 73.00 $124.00 $264.00
Limited Maturity Bond Portfolio a) $72.00 $ 97.00 $124.00 $242.00
b) $22.00 $ 67.00 $114.00 $242.00
Balanced Portfolio a) $74.00 $104.00 $136.00 $268.00
b) $24.00 $ 74.00 $126.00 $268.00
</TABLE>
EXPLANATION OF FEE TABLE AND EXAMPLES
1. The purpose of the above table is to assist you in understanding the various
costs and expenses that you will incur, either directly or indirectly. The
table reflects expenses of the Variable Account, as well as the Trust.
2. Premium taxes may apply; however, they are not reflected.
3. The examples do not reflect that after the first Contract Year, you may make
one surrender per Contract Year, on a non-cumulative basis, of up to 10% of
the aggregate purchase payments (less any withdrawals) free from a contingent
deferred sales charge, provided the value of the Contract prior to the
surrender exceeds $10,000.
4. Neither the fee table nor the examples include a transfer fee. Currently,
there is no transfer fee, but the Company reserves the right to assess a
transfer fee in the future.
5. THE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
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.
<TABLE>
<CAPTION>
YEAR ENDED
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIQUID ASSET SUB-ACCOUNT
Beginning of Period $17.361 $16.779 $16.247 $15.653 $15.311 $15.127 $14.825 $14.207 $13.368 $12.459
End of Period $17.954 $17.361 16.779 16.247 15.653 15.311 15.127 14.825 14.207 13.368
Number of Accum.
Units Outstanding 6,654 6,265 7,787 14,831 22,043 17,256 11,664 21,017 33,173 26,021
GROWTH SUB-ACCOUNT
Beginning of Period $50.557 $39.662 $36.783 $28.257 $30.098 $28.524 $26.357 $20.558 $22.662 $17.711
End of Period $57.716 50.557 39.662 36.783 28.257 30.098 28.524 26.357 20.558 22.662
Number of Accum.
Units Outstanding 25,635 28,775 34,509 39,845 39,944 41,095 45,564 42,882 43,313 51,964
LIMITED MATURITY BOND
SUB-ACCOUNT
Beginning of Period $24.284 $23.024 $22.342 $20.381 $20.653 $19.607 $18.867 $17.147 $16.026 $14.639
End of Period 25.048 24.284 23.024 22.342 20.381 20.653 19.607 18.867 17.147 16.026
Number of Accum.
Units Outstanding 4,056 4,233 7,846 13,818 13,955 22,808 21,850 25,691 20,387 13,919
BALANCED SUB-ACCOUNT
Beginning of Period $20.399 $17.283 $16.367 $13.382 $14.010 $13.323 $12.480 $10.288 $10.000 *
End of Period $22.613 20.399 17.283 16.367 13.382 14.010 13.323 12.480 10.288 *
Number of Accum.
Units Outstanding 13,054 12,900 15,426 17,273 30,719 34,881 36,134 27,369 20,971 *
</TABLE>
* No Accumulation Unit Values for this period. Sales of the Contract in
connection with this Portofolio commenced on September 17, 1990.
PERFORMANCE INFORMATION
Periodically, the Company may advertise performance data for the Portfolios.
This data will show the change, as a percent, in the value of an Accumulation
Unit based on the investment performance over a period of time, usually a
calendar year. It is calculated by dividing the increase (decrease) in value for
the Accumulation Unit by the Accumulation Unit value at the beginning of the
period. Deductions for asset-based charges, contract maintenance charges, and
the operating expenses of the Portfolios will be reflected in the percentage
figure. A deduction for any contingent deferred sales charge will not be
reflected in the percentage figure. Deduction of a contingent deferred sales
charge would reduce any percentage increase or make greater any percentage
decrease.
Advertisements will also include average annual total return figures, which will
reflect deductions for contract maintenance charges, contingent deferred sales
charges, asset-based charges, and the operating expenses of the Portfolios.
The Company may also distribute sales literature that compares the percentage
change in Accumulation Unit values for a Portfolio against such market indices
as Standard & Poor's 500 Composite Stock Price Index, the Dow Jones Industrial
Average, or other management investment companies having similar investment
objectives to the Portfolio being compared.
FINANCIAL STATEMENTS
This Prospectus does not contain any financial statements. The Statement of
Additional Information contains financial statements for both the Company and
the Variable Account.
8
<PAGE> 12
THE COMPANY
The Company, meaning Sentry Life Insurance Company of New York, is a stock life
insurance company incorporated under the laws of New York in 1966. Its home
office is located at 251 Salina Meadows Parkway, North Syracuse, NY 13212. It is
authorized to conduct annuity, life, accident and health insurance business in
Minnesota, New York and North Dakota. The Company is a wholly-owned subsidiary
of Sentry Life Insurance Company, which in turn 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 Equity Services, Inc.
THE VARIABLE ACCOUNT
The Variable Account was established by the Company's Board of Directors on
August 24, 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.
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.
The assets of the Variable Account are the property of the Company. These
assets, equal to the reserves and other contract liabilities of the Variable
Account, cannot be charged with liabilities arising out of any other business of
the Company.
The Company does not guarantee the investment performance of the Variable
Account. The value of the Contract and the amount of the annuity payments will
vary with the value of the assets underlying the Variable Account.
The assets of the Variable Account are divided into Subaccounts within the
Variable Account.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust (the "Trust") is the funding vehicle
for the Contract. Each Portfolio of the Trust invests all of its net investable
assets in its corresponding series (each a "series") of Advisers Managers Trust
("Managers Trust"), an open-end management company. All series of Managers Trust
are managed by Neuberger Berman Management Inc. ("NB Management"). Each series
invests in securities according to an investment objective, policies and
limitations identical to those of its corresponding Portfolio. This
"master/feeder fund" structure is different from that of many other investment
companies which directly acquire and manage their own portfolios of securities.
For more information regarding this structure, see the Trust's Prospectus.
The Trust offers eight Portfolios, four of which are currently available in
connection with the Contract. In that the investment objective of each Portfolio
matches that of its corresponding series, the following information is presented
in terms of the applicable series of Managers Trust.
AMT Liquid Asset Investments. The investment objective of this series is to
provide the highest current income consistent with safety and liquidity.
The series invests in high quality U.S. dollar-denominated money market
instruments of U.S. and foreign issuers, including governments and their
agencies and instrumentalities, banks and other financial institutions, and
corporations, and may invest in repurchase agreements with respect to these
instruments. An investment in the Liquid Asset Portfolio is neither insured
nor guaranteed by the U.S. Government.
AMT Growth Investments. This series seeks capital appreciation without
regard to income by investing in securities believed to have the maximum
potential for long-term capital appreciation. It does not seek to invest in
securities that pay dividends or interest, and any such income is
incidental. The series expects to be almost fully invested in common
stocks, often of companies that may be temporarily out of favor in the
market.
9
<PAGE> 13
AMT Limited Maturity Bond Investments. The investment objective of this
series is to provide the highest current income consistent with low risk to
principal and liquidity; and secondarily, total return. The series invests
in a diversified Portfolio of fixed and variable rate debt securities and
seeks to increase income and preserve or enhance total return by actively
managing average Portfolio maturity in light of market conditions and
trends. These are short-to-intermediate term debt securities. The series'
dollar-weighted average Portfolio maturity may range up to five years.
AMT Balanced Investments. The investment objective of this series is
long-term capital growth and reasonable current income without undue risk
to principal. The investment adviser anticipates that the series'
investments will normally be managed so that approximately 60% of the
series' total assets will be invested in common stocks and the remaining
assets will be invested in debt securities. However, depending on the
investment adviser's view regarding current market trends, the common stock
portion of the series' investments may be adjusted downward to as low as
50% or upward to as high as 70%. At least 25% of the series' assets will be
invested in fixed-income senior securities.
VARIABLE ACCOUNT VOTING RIGHTS
The Company is the legal owner (shareholder) of the Trust shares. However, the
Company believes that when a Portfolio solicits proxies in connection with a
vote of shareholders, it is required to obtain from you, and other affected
Contract Owners, instructions as to how to vote those shares.
If the Trust holds a shareholder meeting at which you are entitled to vote, you
will receive periodic reports relating to the Trust and/or the Portfolio(s) in
which you have an interest, proxy material, and a form on which you can give
voting instructions.
The Company will determine the number of shares that you will have a right to
vote as of a date chosen by it, which will not be more than 60 days prior to the
shareholder meeting. The Company will send you proxy material and the form for
giving voting instructions at least 14 days prior to the shareholder meeting.
For purposes of voting Trust shares held in the Variable Account at a
shareholder meeting of the Trust, your voting interest after the Income Date
decreases as the reserves underlying the Contract decrease.
In accordance with its view of present law, the Company will vote the shares of
the Trust held in the Variable Account in accordance with instructions received
from all persons having a voting interest in the Trust. The Company will vote
shares for which it has not received instructions in the same proportion as it
votes shares for which it has received instructions. The Company will vote its
own shares in the same proportion as it votes shares for which it has received
instructions.
If the applicable law with respect to voting rights is amended or if the
interpretation of the law changes, and it is determined that the Company has
authority to vote the shares of the Trust in its own right, it may elect to do
so.
Shares of the Trust are offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with the Company. Shares of the Balanced
Portfolio are also sold directly to qualified plans. The Trust and Managers
Trust believe that offering their shares in this manner will not be
disadvantageous to you.
SUBSTITUTION OF SECURITIES
If a 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.
10
<PAGE> 14
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.
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
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.
Example: Amount requested: $1,000
Assume 5% contingent deferred sales charge: $ 50
Total amount withdrawn from Contract Value: $1,000
Amount you receive: $ 950
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.
11
<PAGE> 15
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 amount of reduction and the
criteria for qualification, but in no event will reduction or elimination of the
contingent deferred sales charge or of any other provision of the Contract be
permitted if it will be unfairly discriminatory to any person.
DEDUCTION FOR MORTALITY AND EXPENSE RISK PREMIUM
The mortality and expense risk premium is equal, on an annual basis, to 1.20%
of the average daily net asset value of the Variable Account. This charge
compensates the Company for all the insurance benefits provided by the Contract,
e.g., guarantee of annuity rates, the death benefit, for certain expenses of the
Contract, and for assuming the risk (expense risk) that the current charges will
be 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
12
<PAGE> 16
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.
TRUST EXPENSES
There are other deductions from and expenses paid out of the assets of Neuberger
Berman Advisers Management Trust which are described in the accompanying Trust
Prospectus.
THE CONTRACT
The assets of the Variable Account are divided into Subaccounts within the
Variable Account. Each Subaccount invests in one Portfolio of the Trust. Subject
to the terms and conditions of the Company, your 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.
13
<PAGE> 17
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 30 days after the
Company receives it. In addition, you may not make a transfer if it is
thin seven calendar days of the date your first annuity payment is due.
(5) Prior to the Income Date, you may make transfers from the Liquid Asset
Portfolio and/or the Limited Maturity Bond Portfolio to the Growth Portfolio
or the Balanced Portfolio on a pre-authorized basis. The transfers will only
be made if you enter into a written agreement with the Company. These
transfers will be made monthly, with a minimum transfer amount of $250 per
month.
(6) While the Company does not currently charge a transfer fee, it may do so in
the future. In the event the Company imposes a transfer fee, you will be
notified in advance. The amount of the transfer fee will not be guaranteed
and the Company may change it at any time. The fee will be deducted from the
amount transferred.
(7) The Company reserves the right to terminate, suspend or modify the transfer
privileges described above at any time and without notice to any person.
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
14
<PAGE> 18
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.
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.
15
<PAGE> 19
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 75th
birthday, unless the Contract is issued pursuant to a qualified plan that
requires an earlier date.
CHANGING THE INCOME DATE
You may change the Income Date by submitting a signed and dated written notice
to the Company at least 30 days prior to the change. If you change the Income
Date, it must still fall on the first day of a calendar month. It cannot be
deferred beyond the first day of the calendar month following the Annuitant's
75th birthday, unless the Contract is issued pursuant to a qualified plan that
requires an earlier date.
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
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.
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<PAGE> 20
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
- - 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.
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<PAGE> 21
- - 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 is his or her own
name. (The Contingent Owner must be your spouse.)
If the owner of the Contract is a non-natural person, for purposes of the death
benefit, the Annuitant will be treated as the Contract Owner and the death of
the Annuitant or a change of the Annuitant will be treated as the death of the
Contract Owner.
18
<PAGE> 22
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
employer-sponsored $ 50 $ 50
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 Period, the Company determines the Accumulation Unit value.
It does this by
1. determining the total amount of money invested in the particular
Subaccount;
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<PAGE> 23
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 and
Exchange Act of 1934 and are members of the National Association of Securities
Dealers, Inc. Sentry Equity is paid first-year and renewal commissions, not to
exceed 4.7% of purchase payments, for its services in distributing the Contract.
Sentry Equity, in turn, pays all or a portion of these amounts to the selling
agent or agency.
SURRENDERS
While the Contract is in effect, and before the earlier of the Income Date or
the Annuitant's death, the Company will allow you to make a surrender of all or
a portion of the Contract for its surrender 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> 24
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 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 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.
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.
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.
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<PAGE> 25
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.
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
22
<PAGE> 26
annuity contract for purposes of determining the tax consequences of any
distribution. Such treatment may result in adverse tax consequences including
more rapid taxation of the distributed amounts from the combination of
contracts. For purposes of this rule, Contracts received in a Section 1035
exchange will be considered issued in the year of the exchange. You should
consult your tax adviser before purchasing more than one non-qualified annuity
contract in any calendar year.
OWNER OTHER THAN NATURAL 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.
Effective January 1, 1993, certain distributions from retirement
plans qualified under Sections 401 or 403(b) of the Code that are not directly
rolled over to another qualified retirement plan, an individual retirement
account, or an individual retirement annuity, are subject to a mandatory 20%
withholding for federal income tax. The 20% withholding requirement generally
does not apply to
(1) a series of substantially equal payments made at least annually for
the life or life expectancy of the participant or joint and last
survivor expectancy of the participant and a designated
beneficiary, or distributions for a specified period of 10 years or
more; or
(2) distributions that are required minimum distributions; or
(3) the portion of the distribution that is not includable in gross
income (the return of any after-tax contributions); or
(4) hardship withdrawals.
You should consult your tax adviser regarding withholding requirements.
TAX TREATMENT OF WITHDRAWALS - NON-QUALIFIED CONTRACTS AND SECTION 457 CONTRACTS
Section 72 of the Code governs the treatment of distributions from annuity
contracts. It provides that if the Contract Value exceeds the aggregate purchase
payments made, any amount withdrawn under the Contract will be treated as first
coming from earnings and then, only after the earnings portion is exhausted, as
coming from the purchase payments. Earnings that are withdrawn must be included
in your gross income.
Section 72 further provides that a 10% penalty will apply to the earnings
portion of any distribution. However, the 10% penalty does not apply to amounts
received:
(1) after the taxpayer reaches age 59 1/2;
(2) after the Contract Owner's death;
(3) if the taxpayer is totally disabled (as defined in the Code);
23
<PAGE> 27
(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. You are
responsible for determining that contributions, distributions and other
transactions with respect to the Contract comply with applicable law.
Following are general descriptions of the types of qualified plans that can be
used with the Contract. The descriptions are not comprehensive and are for your
general information only. Tax laws and regulations regarding qualified plans are
very complex and have different applications depending on individual facts and
circumstances. You should consult your tax adviser before purchasing the
Contract under a qualified plan.
If the Contract is issued pursuant to a qualified plan, it may contain special
provisions that are more restrictive than the Contract provisions described in
this Prospectus. Generally, if the Contract is issued under a qualified plan,
the Contract is not transferable except if it is surrendered or annuitized.
Various penalties and excise taxes may apply to purchase payments
(contributions) or distributions made in violation of applicable limits. Certain
withdrawal penalties and restrictions may apply to surrenders from a Qualified
Contract.
The Contract is no longer available in connection with H.R. 10 (Keogh) Plans or
corporate pension and profit-sharing plans. The information provided below is
being included to provide disclosure to owners of Contracts that were issued
under these types of plans.
TAX SHELTERED ANNUITIES
The Code permits the purchase of tax-sheltered annuities by public schools
and certain charitable, educational and scientific organizations. Qualifying
employers may make contributions to these annuities on behalf of their
employees. The contributions are not included in the gross income of the
employees until the employees receive distributions from the annuities. The
amount of contributions is limited to certain maximums imposed by the Code.
The Code also provides restrictions on transferability, distributions,
nondiscrimination and withdrawals of tax-sheltered annuities. You should
consult with your tax adviser regarding the tax consequences of investing in
a tax-sheltered annuity.
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<PAGE> 28
INDIVIDUAL RETIREMENT ANNUITIES
The Code permits eligible individuals to contribute to an individual retirement
plan known as an "individual retirement annuity" or "IRA." Under applicable
limits, you can contribute certain amounts to an IRA that can be deducted from
your taxable income. There are also limits with respect to eligibility,
contributions, transferability and distributions. Under certain conditions,
distributions from other IRAs and other qualified plans may be rolled over or
transferred on a tax-deferred basis into an IRA. If the Contract is to be used
as an IRA, there are specific requirements imposed by the Code. In addition, the
Company is required to give you additional informational disclosure if you
purchase the Contract as an IRA. However, you should consult with your tax
adviser regarding the tax consequences and suitability of investing in an IRA.
Roth IRA. In 1998, a new type of IRA became available, known as a Roth IRA.
Under a Roth IRA, contributions are made with after-tax dollars, but the
earnings are distributed tax-free if certain conditions are met. This differs
from a traditional IRA where contributions may be deducted from gross income and
are taxed, along with the earnings, when they are distributed.
Purchase payments for a Roth IRA are limited to a maximum of $2,000 per year.
Lower maximum limits apply to individuals with adjusted gross incomes between
$95,000 and $110,000 in the case of single taxpayers, between $150,000 and
$160,000 in the case of married taxpayers filing a joint tax return, and between
$0 and $10,000 in the case of married taxpayers filing separate tax returns. An
overall $2,000 annual limit continues to apply to all of a taxpayer's IRA
contributions, including Roth IRAs and non-Roth IRAs.
Qualified distributions from a Roth IRA are entirely free from federal income
taxes. A distribution is qualified if the Roth IRA has been held for at least
five years AND it meets one of the following requirements:
- the distribution is made after age 59 1/2 or the taxpayer has died or is
disabled; OR
- the distribution is being used for a qualified first-time home purchase,
subject to a $10,000 lifetime maximum, by the taxpayer, a spouse, child,
grandchild, or ancestor.
If the distribution is not qualified, the earnings portion of the distribution
is taxed. Because distributions are treated as coming from contributions first,
there is no tax until the contributions have been fully distributed. The 10%
penalty tax and the regular IRA exceptions to the 10% penalty tax apply to
taxable distributions from a Roth IRA.
You may roll over amounts from one Roth IRA to another Roth IRA. You may also
make a rollover contribution from a non-Roth IRA to a Roth IRA, unless you have
adjusted gross income over $100,000 or if you are married and file a separate
tax return. You must pay tax on any portion of the IRA being rolled over that
represents earnings or a previously deductible IRA contribution.
If you are considering a Roth IRA, you should consult with your tax adviser
regarding the tax implications and suitability.
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.
25
<PAGE> 29
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) under limited conditions, distributions from an IRA to purchase
medical insurance;
(8) under limited conditions, distributions from an IRA for qualified
higher education expenses; and
(9) 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 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.
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<PAGE> 30
Withdrawals for hardship are restricted to the portion of the Contract
Value represented by your contributions and does not include investment
earnings. The limitations on withdrawals became effective January 1, 1989, and
apply only to:
- salary reduction contributions made after December 31, 1988;
- income attributable to such contributions; and
- income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect rollovers or transfers between
certain qualified plans. Tax penalties may also apply. You should consult your
tax adviser regarding any withdrawals from a 403(b) annuity.
SECTION 457 - DEFERRED COMPENSATION PLANS
Under Section 457 of the Code, governmental and certain other tax-exempt
employers may establish deferred compensation plans, which may invest in annuity
contracts, for the benefit of their employees. As with qualified plans, the Code
establishes limits and restrictions on eligibility, contributions, and
distributions. Under a Section 457 plan, contributions made for the benefit of
employees will not be included in the employees' gross income until they are
distributed from the plan. Under a Section 457 plan, the plan assets remain
solely the property of the employer, subject only to the claims of the
employer's general creditors, until such time as they are available for
distribution to the employee or the employee's beneficiary. However, for plans
established after August 20, 1996, it is required that plan assets be held in
trust for the benefit of employees and not be subject to claims by the
employer's general creditors. After January 1, 1999, this requirement is
mandatory for all Section 457 plans.
LEGAL PROCEEDINGS
Neither the Variable Account nor the underwriter, Sentry Equity, is a party to
any legal proceedings. The Company is engaged in routine litigation which, in
the opinion of the Company, is not material in relation to the total capital and
surplus of the Company.
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<PAGE> 31
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 OF LIQUID ASSET SUB-ACCOUNT............ 3
PERFORMANCE INFORMATION.................................. 4
ANNUITY PAYMENTS......................................... 5
Annuity Unit........................................... 5
Amount of Annuity Payments............................. 5
Net Investment Factor.................................. 6
FINANCIAL STATEMENTS..................................... 6
28
<PAGE> 32
UNDERWRITER FOR THE CONTRACT INDEPENDENT ACCOUNTANTS
Sentry Equity Services, Inc. FOR SENTRY LIFE INSURANCE COMPANY
Stevens Point, Wisconsin OF NEW YORK
PricewaterhouseCoopers LLP
Chicago, Illinois
LEGAL OPINIONS FOR NEUBERGER BERMAN ADVISERS
Blazzard, Grodd & Hasenauer, P.C. MANAGEMENT TRUST
Westport, Connecticut Ernst & Young L.L.P.
Boston, Massachusetts
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR FOR NEUBERGER BERMAN
ADVISERS MANAGEMENT TRUST
Neuberger Berman Management Inc.
New York, New York
VARIABLE ACCOUNT I
The Variable Account is a segregated asset account registered as a unit
investment trust. The assets of the Account are the property of Sentry Life
Insurance Company of New York.
INVESTMENTS
Purchases applied to the Variable Account are invested in one or more of the
Portfolios of Neuberger Berman Advisers Management Trust. Currently, Neuberger
Berman Advisers Management Trust consists of eight separate Portfolios, the
following four of which are currently available in connection with the Contract
offered under this Prospectus:
- Liquid Asset Portfolio
- Growth Portfolio
- Limited Maturity Bond Portfolio
- Balanced Portfolio
[SENTRY LIFE INSURANCE COMPANY OF NEW YORK LOGO]
251 Salina Meadows Parkway
North Syracuse, NY 13212
<PAGE> 33
PART B
<PAGE> 34
STATEMENT OF ADDITIONAL INFORMATION
INDIVIDUAL FLEXIBLE PURCHASE PAYMENT DEFERRED
VARIABLE ANNUITY CONTRACT
ISSUED BY
SENTRY VARIABLE ACCOUNT I
AND
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
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,
1999.
<PAGE> 35
TABLE OF CONTENTS
ITEM PAGE
THE COMPANY ................................................................ 3
DISTRIBUTION OF THE CONTRACT ............................................... 3
INDEPENDENT ACCOUNTANT ..................................................... 3
LEGAL OPINIONS ............................................................. 3
YIELD CALCULATION FOR LIQUID ASSET SUB-ACCOUNT ............................. 3
PERFORMANCE INFORMATION .................................................... 4
ANNUITY PAYMENTS ........................................................... 5
Annuity Unit ...................................................... 5
Amount of Annuity Payments ........................................ 5
Net Investment Factor ............................................. 6
FINANCIAL STATEMENTS ....................................................... 6
2
<PAGE> 36
THE COMPANY
Sentry Life Insurance Company of New York (the "Company") is a stock life
insurance company incorporated in 1966 pursuant to the laws of the State of New
York. Its home office is located at 251 Salina Meadows Parkway, North Syracuse,
New York. It is licensed to conduct life, annuity and accident and health
insurance business in Minnesota, New York and North Dakota. The company is a
wholly-owned subsidiary of Sentry Life Insurance Company, which in turn 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 Equity Services, Inc.
DISTRIBUTION OF THE CONTRACT
Sentry Equity Services, Inc. ("Sentry Equity"), 1800 North Point Drive, Stevens
Point, Wisconsin, a wholly-owned subsidiary of SIAMCO, serves as the principal
underwriter of the Contract. The Contract is sold through licensed insurance
agents in those states where the Contract may be lawfully sold. The agents are
registered representatives of broker-dealers that are registered under the
Securities Exchange Act of 1934 and are members of the National Association of
Securities Dealers, Inc. Sentry Equity will be paid first-year and renewal
commissions for its services in distributing the Contract, not to exceed 4.7% of
purchase payments. Sentry Equity will, in turn, pay all or a portion of these
amounts to the selling agent or agency. The Contract is sold on a continuous
basis.
Sentry Equity also acts as principal underwriter for Sentry Fund, Inc., an
open-end management investment company. Sentry Equity was paid underwriter
commissions in the aggregate for the years 1996, 1997 and 1998 of $338,226,
$309,674, and $392,706, respectively. Of those amounts, it retained $286,484,
$259,161, and $236,907, respectively.
INDEPENDENT ACCOUNTANT
The statutory financial statements of the Company as of December 31, 1998 and
1997, and for the years then ended, and the financial statements of the Variable
Account as of December 31, 1998 and 1997, and for each of the two years in the
period then ended, have been audited by PricewaterhouseCoopers LLP, 203 North
LaSalle Street, 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 LIQUID ASSET SUBACCOUNT
The Liquid Asset subaccount of the Variable Account will calculate its current
yield based on the seven days ended on the date of calculation. For the seven
calendar days ended December 31, 1998, the annualized yield for the Liquid Asset
subaccount was 3.14%.
The current yield of the Liquid Asset subaccount is computed by determining the
net change (exclusive of capital changes) in the value of a hypothetical
pre-existing contract owner account having a balance of one accumulation unit of
the subaccount at the beginning of the period, subtracting the mortality and
expense risk premium and contract maintenance charge, dividing the difference by
the value of the account at the beginning of the same period to obtain the base
period return and multiplying the result by (365/7).
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not.
The yields quoted should not be considered a representation of the yield of the
Liquid Asset Subaccount in the future since the yield is not fixed. Actual
yields will depend not only on the type, quality and maturities of the
investments held by the Liquid Asset Subaccount and changes in the interest
rates on such investments, but also on changes in the Liquid Asset Subaccount's
expenses during the period.
3
<PAGE> 37
Yield information may be useful in reviewing the performance of the Liquid Asset
Subaccount and for providing a basis of comparison with other investment
alternatives. However, the Liquid Asset Subaccount's yield fluctuates, unlike
bank deposits or other investments which typically pay a fixed yield for a
stated period of time. The yield information does not reflect the deduction of
any applicable contingent deferred sales charge at the time of the surrender.
(See "Charges and Deduction - Contingent Deferred Sales Charge" in the
Prospectus.)
PERFORMANCE INFORMATION
The average annual total return figures and the cumulative total return figures
for the one- five- and ten-year periods to December 31, 1998, are as follows:
<TABLE>
<CAPTION>
AVERAGE ANNUAL CUMULATIVE
TOTAL RETURN TOTAL RETURN
TEN YEARS OR TEN YEARS OR
ONE YEAR FIVE YEARS SINCE INCEPTION ONE YEAR FIVE YEARS SINCE INCEPTION
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Liquid Asset
Portfolio (1.96%) 13.89% 39.07% (1.96%) 2.64% 3.35%
Limited Maturity
Bond Portfolio (3.36%) 11.94% 51.74% (3.36%) 2.28% 4.26%
Growth Portfolio 8.57% 86.87% 214.48% 8.57% 13.32% 12.14%
Balanced Portfolio* 5.02% 56.81% 121.74% 5.02% 9.41% 10.08%
</TABLE>
*Date of inception is September 17, 1990.
The above figures include the deduction of a 1.20% mortality and expense risk
premium, a $30 contract maintenance charge and the investment management and
administration fees and other expenses paid by the Trust's portfolios and their
corresponding series of Managers Trust. As of May 1, 1995, the fees paid to the
manager changed. Such fees and the Trust's operating expenses are disclosed and
explained in the Fee Table within the Prospectus. The returns reported above
also reflect the deduction of the Contract's contingent deferred sales charge
from each Portfolio's one year total return, when such charge equals 5% of a
surrendered purchase payment, and from each Portfolio's five year total return,
when such charge equals 1% of a surrendered purchase payment.
The hypothetical value of a Contract purchase for the time periods described
above is determined by using the actual Accumulation Unit values for an initial
$1,000 purchase payment and deducting any applicable contract maintenance
charges and any applicable contingent deferred sales charge 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- and
ten-year periods to December 31, 1998 (or fractional portion
thereof), of a hypothetical $1,000 payment made at the beginning of
each period presented to December 31, 1998.
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.
4
<PAGE> 38
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, 1997, were redeemed on December 31, 1998.
(2) The five-year figure assumes that values based on a $1,000 payment made
on December 31, 1993, were redeemed on December 31, 1998.
(3) For the Liquid Asset, Growth and Limited Maturity Bond portfolios, the
ten-year figures assume that values based on a $1,000 payment made on
December 31, 1988, were redeemed on December 31, 1998. For the Balanced
portfolio, the figures for the period since inception assume that
values based on a $1,000 payment on September 17, 1990, were redeemed
on December 31, 1998.
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
The dollar amount of annuity payments after the first payment is determined as
follows:
(1) The dollar amount of the first annuity payment is divided by the value
of an Annuity Unit as of the income date. This establishes the number
of Annuity Units for each monthly payment. The number of Annuity Units
remains fixed during the annuity payment period, subject to any
transfers.
(2) The fixed number of Annuity Units is multiplied by the Annuity Unit
value for the last Valuation Period of the month preceding the month
for which the payment is due. This result is the dollar amount of the
payment.
The total dollar amount of each 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 is the
accumulated value of $1.00 deposited at the beginning of such period at
the assumed investment rate of 4%.
5
<PAGE> 39
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 OF NEW YORK
SENTRY VARIABLE ACCOUNT I
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
7
<PAGE> 41
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE ACCOUNT I:
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
net assets present fairly, in all material respects, the financial position of
the Sentry Variable Account I, and the Liquid Asset Portfolio, Growth Portfolio,
Limited Maturity Bond Portfolio and Balanced Portfolio thereof, at December 31,
1998, the results of each of their operations and changes in each of their net
assets for each of the two years in the period then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Sentry Life Insurance Company of New York's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998, by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 11, 1999
8
<PAGE> 42
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 119,593
shares (cost $119,593) $ 119,593
Growth Portfolio, 56,282
shares (cost $1,318,719) 1,479,645
Limited Maturity Bond Portfolio, 7,368
shares (cost $100,573) 101,828
Balanced Portfolio, 18,112
shares (cost $283,335) 295,940
----------
Total investments 1,997,006
Dividends receivable 436
----------
Total assets 1,997,442
LIABILITIES:
Accrued expenses 1,659
----------
NET ASSETS $1,995,783
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
9
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
Sentry Variable Account I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
-------------------------- -----------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income:
Dividends $ 5,206 $ 5,340 $ -- $ --
Expenses:
Mortality and expense charges 1,382 1,406 17,252 16,886
----------- ----------- ----------- -----------
Net investment income (loss) 3,824 3,934 (17,252) (16,886)
----------- ----------- ----------- -----------
Realized net investment gain (loss) -- -- 2,114 50,208
Unrealized appreciation (depreciation), net -- -- (184,860) 190,613
Capital gain distributions received -- -- 392,329 110,632
----------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 209,583 351,453
----------- ----------- ----------- -----------
Net increase in net assets
from operations 3,824 3,934 192,331 334,567
----------- ----------- ----------- -----------
Purchase payments 7,706 7,759 10,802 21,166
Transfers between subaccounts, net -- -- 926 6,066
Withdrawals (568) (33,219) (176,196) (271,847)
Contract maintenance fees (245) (248) (1,608) (1,873)
Surrender charges -- (131) (1,489) (1,976)
----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from principal transactions 6,893 (25,839) (167,565) (248,464)
----------- ----------- ----------- -----------
Total increase (decrease) in net assets 10,717 (21,905) 24,766 86,103
Net assets at beginning of year 108,749 130,654 1,454,779 1,368,676
----------- ----------- ----------- -----------
Net assets at end of year $ 119,466 $ 108,749 $ 1,479,545 $ 1,454,779
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
10
<PAGE> 44
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
-------------- --------- -----
1998 1997 1998 1997 1998 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 6,445 $ 9,357 $ 6,179 $ 4,981 $ 17,830 $ 19,678
1,257 1,623 3,203 3,261 23,094 23,176
- ----------- ----------- ----------- ----------- ----------- -----------
5,188 7,734 2,976 1,720 (5,264) (3,498)
- ----------- ----------- ----------- ----------- ----------- -----------
26 (1,724) 552 5,364 2,692) 53,848
(2,035) 1,024 (18,268) 22,275 (205,163) 213,912
-- -- 43,400 12,785 435,729 123,417
- ----------- ----------- ----------- ----------- ----------- -----------
(2,009) (700) 25,684 40,424 233,258 391,177
- ----------- ----------- ----------- ----------- ----------- -----------
3,179 7,034 28,660 42,144 227,994 387,679
- ----------- ----------- ----------- ----------- ----------- -----------
-- 1 25,229 16,644 43,737 45,570
(926) (6,066) -- -- -- --
(3,299) (78,000) (20,843) (60,881) (200,906) (443,947)
(161) (198) (567) (651) (2,581) (2,970)
-- (609) (439) (721) (1,928) (3,437)
- ----------- ----------- ----------- ----------- ----------- -----------
(4,386) (84,872) 3,380 (45,609) (161,678) (404,784)
- ----------- ----------- ----------- ----------- ----------- -----------
(1,207) (77,838) 32,040 (3,465) 66,316 (17,105)
102,797 180,635 263,142 266,607 1,929,467 1,946,572
- ----------- ----------- ----------- ----------- ----------- -----------
$ 101,590 $ 102,797 $ 295,182 $ 263,142 $ 1,995,783 $ 1,929,467
=========== =========== =========== =========== =========== ===========
</TABLE>
11
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Account I (the Variable Account) is a segregated
investment account of the Sentry Life Insurance Company of New York (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
24, 1983 and commenced operations on May 3, 1984. Accordingly, it is an
accounting entity wherein all segregated account transactions are reflected.
The financial statements have been prepared in conformity with generally
accepted accounting principles which permit management to make certain
estimates and assumptions at the date of the financial statements. Actual
results could differ from those estimates.
The assets of the Variable Account are invested in one or more of the
portfolios of Neuberger Berman Advisers Management Trust (the Trust) at the
portfolio's net asset value in accordance with the selection made by the
contract owners.
A copy of the Neuberger Berman Advisers Management Trust Annual Report is
included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued at the reported net asset values of such
portfolios, which value their investment securities at fair value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the ex-dividend
date. The cost of investments sold and the corresponding investment gains
and losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable Account are part of
the total operations of the Company and are not taxed as a separate entity.
Under Federal income tax law, net investment income and net realized
investment gains of the Variable Account which are applied to increase net
assets are not taxed.
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
$1,659 at December 31, 1998.
12
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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 to deduct the premium taxes from a contract
owner's contract value at the time of annuitization or surrender.
4. NET ASSETS
Net Assets are represented by accumulation units in the related Variable
Account.
At December 31, 1998 ownership of the Variable Account was represented by
the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
----- ---------- -----
<S> <C> <C> <C>
Liquid Asset Portfolio 6,654 $17.95 $ 119,466
Growth Portfolio 25,635 57.72 1,479,545
Limited Maturity Bond Portfolio 4,056 25.05 101,590
Balanced Portfolio 13,054 22.61 295,182
----------
Total net assets $1,995,783
==========
</TABLE>
At December 31, 1998 significant concentrations of ownership were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 3 50.9
Growth Portfolio 1 22.5
Limited Maturity Bond Portfolio 2 56.7
Balanced Portfolio 1 13.3
</TABLE>
13
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
At December 31, 1997 ownership of the Variable Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
----- ---------- -----
<S> <C> <C> <C>
Liquid Asset Portfolio 6,264 $17.36 $ 108,749
Growth Portfolio 28,775 50.56 1,454,779
Limited Maturity Bond Portfolio 4,233 24.28 102,797
Balanced Portfolio 12,900 20.40 263,142
----------
Total net assets $1,929,467
==========
</TABLE>
5. PURCHASES AND SALES OF SECURITIES
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$498,222 and $230,340, 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 $12,909 $404,052 $ 6,445 $ 74,816 $498,222
Proceeds on sales 1,813 197,291 6,386 24,850 230,340
</TABLE>
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$201,312 and $485,936, 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 $ 16,205 $141,339 $ 9,357 $34,411 $201,312
Proceeds on sales 38,639 296,170 85,875 65,252 485,936
</TABLE>
14
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
15
<PAGE> 49
[PriceWaterhouseCoopers LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Sentry Life Insurance Company of New York
We have audited the accompanying statutory-basis balance sheets of Sentry Life
Insurance Company of New York (the Company) as of December 31, 1998, and 1997,
and the related statutory-basis statements of operations, changes in capital
stock and surplus, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the insurance department of the State of New York, which practices
differ from generally accepted accounting principles (GAAP). We have only been
engaged by the Company to audit the accompanying financial statements on a
statutory basis of accounting. The Company is not required to prepare GAAP
financial statements and does not prepare GAAP financial statements. The effects
on the financial statements of the variances between the statutory basis of
accounting and GAAP, although not reasonably determinable, are presumed to be
material. We are therefore required in the following paragraph to issue an
adverse opinion on GAAP.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Sentry Life Insurance Company of New York as of December 31, 1998, and 1997,
or the results of its operations and its cash flows for the years then ended.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company of New York as of
December 31, 1998, and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with accounting practices
prescribed or permitted by the insurance department of the State of New York.
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
Supplemental Schedule of Assets and Liabilities is presented to comply with the
National Association of Insurance Commissioners' annual statement instructions
and is not a required part of the statutory-basis financial statements. Such
information has been subjected to the auditing procedures applied in our audit
of the statutory basis financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the statutory-basis financial
statements taken as a whole.
PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 12, 1999
16
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds....................................... $30,245,180 $32,038,060
Policy loans................................ 1,950,724 1,942,843
Cash and short-term investments............. 1,673,085 1,425,720
----------- -----------
Total investments...................... 33,868,989 35,406,623
Accrued investment income..................... 526,301 557,863
Premiums deferred and uncollected............. 235,815 171,908
Other assets.................................. 16,402 5,408
Assets held in separate accounts.............. 3,660,854 2,813,454
----------- -----------
Total admitted assets................. $38,308,361 $38,955,256
=========== ===========
<CAPTION>
LIABILITIES
- -----------
Future life policy benefits:
Life....................................... $16,061,165 $16,092,335
Accident and health........................ 622,870 715,312
Annuity.................................... 1,732,502 1,941,485
Policy and contract claims:
Life....................................... 436,249 234,529
Accident and health........................ 548,597 716,088
Premium and other deposit funds.............. 3,968,105 5,126,314
Other policyholder funds..................... 188,998 147,219
Accounts payable and other liabilities....... 598,431 569,323
Federal income taxes accrued................. 625,827 506,987
Asset valuation reserve...................... 148,652 141,600
Interest maintenance reserve................. 186,194 137,497
Liabilities related to separate accounts..... 3,657,831 2,808,920
----------- -----------
Total liabilities................... $28,775,421 $29,137,609
=========== ===========
<CAPTION>
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $20 par value; authorized, issued, and
outstanding 50,000 shares in 1998 and 1997.. 1,000,000 1,000,000
Paid-in surplus.............................. 3,500,000 3,500,000
Earned surplus:
Appropriated............................... 205,221 140,384
Unappropriated............................. 4,827,719 5,177,263
----------- -----------
Total capital stock and surplus........ 9,532,940 9,817,647
----------- -----------
Total liabilities, capital stock
and surplus............................ $38,308,361 $38,955,256
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
17
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations ................ $6,544,741 $7,759,711
Other fund deposits ................................ 607,029 572,226
Net investment income .............................. 2,627,438 2,783,625
Other income ....................................... 131,580 124,644
---------- -----------
Total premiums and other income ........... 9,910,788 11,240,206
---------- -----------
Benefits and expenses:
Policyholder benefits and fund withdrawals ......... 8,381,224 8,456,924
Decrease in future life policy benefits
and other reserves ........................ (1,455,223) (73,746)
Commissions ........................................ 328,358 486,197
Other expenses ..................................... 1,207,119 1,160,966
Transfers from separate accounts, net .............. 226,511 (112,780)
---------- -----------
Total benefits and expenses ............... 8,687,989 9,917,561
---------- -----------
Income before federal income tax expense
and net realized losses on investments ............. 1,222,799 1,322,645
Federal income tax expense, excluding tax
on capital gains and transfers to the IMR .......... 432,736 410,069
---------- -----------
Income before net realized losses on investments ............ 790,063 912,576
Net realized losses on investments.................. (130,524) (148,137)
Net income................................................... $659,539 $764,439
========== ===========
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
18
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Capital stock, beginning and end of year ........................... $ 1,000,000 $ 1,000,000
---------- -----------
Paid-in surplus, beginning and end of year ......................... 3,500,000 3,500,000
----------- -------------
Earned surplus:
Appropriated:
Balance at beginning of year ................................... 140,384 166,550
Increase (decrease) for year transfer from (to)
unappropriated earned surplus .................................. 64,837 (26,166)
----------- -------------
Balance at end of year ........................................... 205,221 140,384
----------- -------------
Unappropriated:
Balance at beginning of year ..................................... 5,177,263 4,933,949
Net income ....................................................... 659,539 764,439
Change in non-admitted assets .................................... 70 1,010
Change in liability for reinsurance .............................. (57,264) -
Change in asset valuation reserve ................................ (7,052) 201,699
Transfer (to) from appropriated earned surplus ................... (64,837) 26,166
Dividend to stockholder .......................................... (880,000) (750,000)
----------- ------------
Balance at end of year .......................................... 4,827,719 5,177,263
----------- ---------
Total capital stock and surplus ............................... $ 9,532,940 $ 9,817,647
=========== ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
19
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Premiums and annuity considerations ........................... $ 6,481,395 $ 7,876,328
Other fund deposits ........................................... 607,029 572,226
Other premiums, considerations and deposits ................... - 8,434
Allowances and reserve adjustments received on
reinsurance ceded .................................... 16,835 10,757
Investment income received (excluding realized gains
and losses and net of investment expenses) ........... 2,513,986 2,550,289
Other income received ......................................... 133,092 116,049
Life and accident and health claims paid ...................... (5,950,922) (7,386,906)
Surrender benefits ............................................ (2,381,692) (1,154,885)
Other benefits to policyholders paid .......................... (8,661) (26,343)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) ..................... (1,650,285) (1,693,039)
Net transfers (to) from separate accounts ..................... 226,511 112,780
Federal income taxes paid ..................................... (356,229) (198,161)
Net (increase) decrease in policy loans ....................... (7,881) 25,109
----------- -----------
Net cash from operations .................... (829,844) 812,638
----------- -----------
Proceeds from investments sold, matured, or repaid:
Bonds ................................................ 6,419,122 4,147,703
Tax on net capital gains ............................. (146,931) 38,721
----------- -----------
Total cash proceeds ......................... 6,272,191 4,186,424
Other cash provided ........................................... 94,125 19,895
------ -----------
Total cash provided ......................... 5,536,472 5,018,957
----------- -----------
Cost of investments acquired .................................. 4,373,792 3,916,619
Other cash applied
Dividend to stockholder .............................. 880,000 750,000
Other applications, net .............................. 35,315 48,154
------ -----------
Total cash applied .......................... 5,289,107 4,714,773
----------- -----------
Net change in cash and short-term investments 247,365 304,184
Cash and short-term investments
Beginning of year .................................... 1,425,720 1,121,536
----------- -----------
End of year .......................................... $ 1,673,085 $ 1,425,720
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
20
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT STATUTORY-BASIS
ACCOUNTING POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company of New York (the Company) is a
wholly-owned subsidiary of Sentry Life Insurance Company (SLIC), which
is a wholly-owned subsidiary of Sentry Insurance a Mutual Company
(SIAMCO). The Company writes life and health insurance products in New
York primarily through independent agents. The Company emphasizes
individual life insurance and annuities and group health and pensions.
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 New
York. Prescribed statutory accounting principles include a variety of
publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The Company does not employ any
material permitted practices in the preparation of its statutory
financial statements.
The accompanying statutory-basis financial statements of the Company
have been prepared in conformity with the accounting practices
prescribed or permitted by the Insurance Department of the State of New
York which requires 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-BASIS 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 at 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). 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 investment.
Realized gains and losses are determined on the specific
identification method and are recorded directly in the statements
of operations, net of federal income taxes and after transfers to
the Interest Maintenance Reserve, as prescribed by the NAIC.
Income on mortgage-backed securities is recognized using an
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.
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
The Company issues group annuity contracts. 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. Deposits for these 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
21
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
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. If the contract has
been in effect at least six years, there is no surrender charge.
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 $0 and $70 at
December 31, 1998 and 1997, respectively.
D. POLICY BENEFITS
Liabilities for traditional and limited-payment contracts are
computed using methods, mortality and morbidity tables, and
interest rates which conform to the valuation laws of the State of
New York. 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 and the net level premium method with interest rates
ranging from 3% to 6%. Additional statutory policy deficiency
reserves have been provided where the valuation net premium
exceeds the gross premium.
Future policy benefits for annuity contracts, primarily for
individual deferred annuities, were primarily determined using the
Commissioner's annuity reserve valuation method with interest
rates ranging from 5.25% to 9.5%.
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 surplus. For GAAP purposes, there is no
such reserve.
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the value 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.
22
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and
limited-payment contracts are taken into income when due. For
investment contracts without mortality risk (such as deferred
annuities and immediate annuities with benefits paid for a period
certain) and contracts that permit the insured to make changes in
the contract terms (such as universal life products), deposits are
recorded as revenue when received. Under GAAP, deposits are
recorded as increases to liabilities and revenue is recognized as
mortality and other assessments are charged to policyholders.
As the Company utilizes the data processing services of the Sentry
Group, utilizes SIAMCO's direct writing sales force for a portion
of its production and purchases various other insurance services
under a management service contract with SIAMCO, the Company
incurred expenses of $561,069 and $486,331 for 1998 and 1997,
respectively, for these services.
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 investment
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 expense is allocated
to the Company.
23
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
AT DECEMBER 31, 1998 ----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 3,017,875 $ 179,286 $ - $ 3,197,161
Corporate securities 21,436,340 1,489,084 (139,127) 22,786,297
Mortgage-backed securities 5,790,965 395,909 $ - 6,186,874
----------- ---------- ----------- -----------
Total $30,245,180 $2,064,279 $ (139,127) $32,170,332
=========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
AT DECEMBER 31, 1997 ----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 4,161,395 $ 267,696 $ (73,667) $ 4,355,424
Corporate securities 21,718,742 1,324,820 (70,480) 22,973,082
Mortgage-backed securities 6,157,923 558,560 $ - 6,716,483
----------- ---------- ----------- -----------
Total $32,038,060 $2,151,076 $ (144,147) $34,044,989
=========== ========== =========== ===========
</TABLE>
Book value and estimated market value of bonds at December 31, 1998, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain issuers may 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, these securities are listed below in a separate category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- ---------
<S> <C> <C>
Due in one year or less $ 898,535 $ 908,892
Due after one year through five years 2,557,471 2,694,975
Due after five years through ten years 10,469,993 11,075,891
Due after ten years 10,528,216 11,303,700
----------- -----------
Subtotal 24,454,215 25,983,458
Mortgage-backed securities 5,790,965 6,186,874
----------- -----------
Total $30,245,180 $32,170,332
=========== ===========
</TABLE>
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1998 is summarized as follows:
Aaa 29.17%
Aa 8.36%
A 33.13%
Baa 28.08%
Ba & below and not rated 1.26%
------
100%
Generally, bonds with ratings Baa and above are considered to be
investment grade.
24
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
Proceeds from sales of long-term bonds during 1998 and 1997, including
maturities and calls, were $6,419,236 and $4,147,063, respectively. In 1998
and 1997, respectively, gross gains of $208,204 and $750, and gross losses
of $40,376 and $4,194 were realized on these sales before transfer to the
IMR liability.
At December 31, 1998 and 1997, investments carried at $242,152 and $240,566,
respectively, were on deposit with the State of New York as required by law.
(3) APPROPRIATED EARNED SURPLUS
In 1998 and 1997, appropriated earned surplus consists of variable annuity
special reserves, as required by the Insurance Department of the State of
New York, totaling $52,250 and $50,931, respectively.
In 1998 and 1997, a group contingency reserve was set up as prescribed by
the State of New York, totaling $72,592 and $89,993, respectively.
In 1998, the surplus from the New York state specified medical condition
pool was distributed to insurers. The state requires that the return amount
of $80,379 be held as appropriated surplus until offset in rates. The rate
offset will occur in 1999.
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
Interest:
<S> <C> <C>
Bonds $2,388,634 $2,541,136
Short-term investments 85,601 82,570
Other investments 115,592 119,228
Amortization of IMR 60,392 66,692
---------- ----------
Total investment income 2,650,219 2,809,626
Investment expense 22,781 26,001
---------- ----------
Net investment income $2,627,438 $2,783,625
========== ==========
</TABLE>
The components of net realized gains (losses) which are reflected in the
accompanying statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Bonds $ 167,828 $ (3,444)
Capital gains tax $(189,264) (146,932)
Pre-IMR capital gains, net of tax $ (21,436) (150,376)
IMR capital gains transferred into
the reserved net of taxes $(109,088) $ 2,239
---------- ----------
$(130,524) $(148,137)
========== ==========
</TABLE>
25
<PAGE> 59
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(5) INCOME TAXES
Federal income tax expense in the statutory-basis statements of operations
differs from that computed based on the federal corporate income tax rate of
35%. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal income tax calculated at statutory rate of
35% of income benefit before federal income tax
and net realized gains on investments $ 427,980 $ 462,926
Market discount amortization $ (64,867) $ (62,455)
Adjustment for tax deferred acquisition costs $ (3,730) $ (6,411)
Different basis used to compute future
policy benefits 111,773 (45,639)
Other, net (38,420) 61,648
---------- ----------
$ 432,736 $ 410,069
========== ==========
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of a life
insurance company's again 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 $978,080 and $3,068,864, respectively, at December 31, 1998.
Federal income tax returns of the Company have been examined through 1994
and the Company and the Internal Revenue Service have reached agreement on
all issues relating to 1994 and prior years. In the opinion of management,
the Company has adequately provided for the possible effect of future
assessments.
(6) REINSURANCE
The Company has entered into assumed reinsurance contracts for participation
in reinsurance pools. Assumed life insurance in force amounts to 78% and 77%
of total in force (before ceded reinsurance) at December 31, 1998 and 1997,
respectively. Assumed premiums and benefits totaled $1,144,593 and
$1,133,090 in 1998 and $1,122,131 and $1,097,483 in 1997, respectively.
The Company has entered into reinsurance ceded contracts to limit the net
loss potential arising from large risks. Generally, life benefits in excess
of $50,000 and group medical claims in excess of $1.0 million are ceded to
reinsurers. The total premiums, benefits and commissions ceded was $384,986,
$715,070, and $16,835 in 1998, and $473,329, $20,008 and $10,757 in 1997,
respectively. Most of this reinsurance was with SLIC.
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. Liabilities for future
policy benefits for life and accident and health policies are stated net of
deductions for reinsurance of $75,958 and $-0- at December 31, 1998, and
$70,637 and $-0- at December 31, 1997, respectively.
(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 employees.
The benefits are based on years of service, the average of the three highest
of the last fifteen years of an employee's compensation and primary social
security benefits, as defined in the plan. The Company is not a separately
assignable entity for purposes of allocation of accumulated plan benefits or
assets. The Company was allocated pension expense by SIAMCO of approximately
$3,000 in 1998, and $15,000 in 1997.
26
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
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% 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 $7,000 by SIAMCO
for 401k Plan benefits in 1998 and $6,200 in 1997.
In addition to the above-mentioned benefits, the Company, with SIAMCO and
its affiliated subsidiaries, provides certain health care, dental and life
insurance benefits for retired employees and their covered dependents. The
retiree health care benefits allocated to the Company by SIAMCO were
approximately $27,000 for 1998 and $36,000 for 1997.
(8) 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 statutory-basis financial statements.
State guaranty funds can assess the Company for losses of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company
believes that its accrual for these assessments is not expected to have a
material adverse effect on the financial statements.
(9) DIVIDEND RESTRICTIONS
The amount of dividends which can be paid to shareholders of insurance
companies domiciled in New York is not limited to a proportion of profit
from non-participating business; however, approval of the insurance
department is required. The Company made dividend payments to SLIC of
$880,000 and $750,000 in 1998 and 1997, respectively. Permission was
granted by the State of New York for the distributions.
(10) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Life and annuity reserves and deposits of approximately $9.1 million and
$9.7 million in 1998 and 1997, respectively, are subject to withdrawal at
the discretion of the annuity contract holders. Approximately 89% and 89%,
respectively, carry surrender charges.
(11) LIABILITY FOR ACCIDENT AND HEALTH BENEFITS
Activity in the liability for accident and health benefits is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance January 1 $ 1,341,872 $ 1,622,975
----------- -----------
Incurred Related to:
Current year 3,855,301 5,253,186
Prior years (398,156) (360,695)
----------- -----------
Total incurred 3,457,145 4,892,491
----------- -----------
Paid related to:
Current year 2,810,074 3,975,843
Prior years 894,203 1,197,751
----------- -----------
Total Paid 3,704,277 5,173,594
----------- -----------
Balance at December 31 1,094,740 1,341,872
----------- -----------
Reserves not subject to development 76,727 89,528
----------- -----------
Total accident and health reserves $ 1,171,467 $ 1,431,400
=========== ===========
</TABLE>
27
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
29
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1997
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>
<CAPTION>
Investment Income Earned:
<S> <C>
Government Bonds ........................................ $ 17,211
Other bonds (unaffiliated) .............................. 2,371,423
Premium notes, policy loans and liens ................... 115,592
Short-term investments .................................. 85,601
-------------
Gross investment income ................................. $ 2,589,827
=============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ........................... $ 1,528,889
Over 1 year through 5 years ........................... 6,248,903
Over 5 years through 10 years ......................... 11,663,252
Over 10 years through 20 years ........................ 5,478,254
Over 20 years ......................................... 5,325,882
-------------
Total by Maturity ..................................... $ 30,245,180
=============
Bonds by Class - Statement Value
Class 1 ............................................... $ 21,811,786
Class 2 ............................................... 8,085,948
Class 3 ............................................... 347,446
-------------
Total by Class ........................................ $ 30,245,180
=============
Total Bonds Publicly Traded ........................... $ 30,245,180
=============
Total Bonds Privately Placed .......................... $ 0
=============
Short-Term Investments - Book Value ......................... $ 1,492,910
=============
Cash on Deposit ............................................. $ 180,175
=============
</TABLE>
30
<PAGE> 63
<TABLE>
<S> <C>
Life Insurance In Force (000's omitted):
Ordinary .............................................. $ 93,379
=============
Group Life ............................................ $ 622,489
=============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted)..................................... $ 6,040
=============
Life Insurance Policies with Disability Provisions In Force:
Ordinary .............................................. 1,331
=============
Group Life ............................................ 20
=============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Income Payable ...................................... $ 2,190
=============
Ordinary - Involving Life Contingencies
Income Payable ...................................... $ 600
=============
Annuities:
Ordinary
Immediate - Amount of Income Payable ................ $ 88,132
=============
Deferred - Fully paid account balance ............... $ 395,371
=============
Deferred - Not fully paid account balance ........... $ 3,110,161
=============
Group
Amount of income payable ............................ $ 1,287
=============
Fully paid account balance .......................... $ 7,116
=============
Not fully paid account balance ...................... $ 5,548,483
=============
Accident and Health Insurance - Premiums In Force:
Ordinary ............................................ $ 34,867
=============
Group ............................................... $ 3,555,064
=============
Claim Payments 1998:
Group Accident and Health Year - Ended December 31, 199X
1998................................................. $ 2,784,070
=============
1997................................................. $ 870,425
=============
1996................................................. $ 8,208
=============
Other Accident & Health
1998................................................. $ 26,004
=============
1997................................................. $ 9,428
=============
1996................................................. $ 6,142
=============
</TABLE>
31
<PAGE> 64
PART C
<PAGE> 65
PART C
OTHER INFORMATION
ITEM 24 Financial Statements and Exhibits
(a) Financial Statements of Sentry Variable Account I
Included in Part A:
Condensed Financial Information
Included in Part B:
Report of Independent Accountants
Statement of Assets, Liabilities and Contract Owners'
Equity, December 31, 1998
Statements of Operations and Changes in Contract Owners'
Equity for the years ended December 31, 1998 and 1997
Notes to Financial Statements, December 31, 1998 and
1997
Financial Statements of Sentry Life Insurance Company of New
York
Included in Part B:
Report of Independent Accountants
Statutory-Basis Balance Sheets, December 31, 1998 and
1997
Statutory-Basis Statements of Operations for the years
ended December 31, 1998 and 1997
Statutory-Basis Statements of Changes in Capital Stock
and Surplus for the years ended December 31, 1998 and
1997
Statutory-Basis Statements of Cash Flow for the years
ended December 31, 1998 and 1997
Notes to Statutory-Basis Financial Statements
Supplemental Schedule of Assets and Liabilities for the
Year Ended December 31, 1998
<PAGE> 66
ITEM 24
(b) Exhibits
(1) Resolutions of the Board of Directors of Sentry Life
Insurance Company of New York*
(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 of New York*
(6)(ii) Bylaws*
(7) Not Applicable
(8)(i) Sales Agreement (Fund Participation Agreement)*
(8)(ii) Assignment and Modification Agreement**
(9) Opinion and Consent of Counsel
(10) Consent of Independent Accountants
(11) Not Applicable
(12) Agreement Governing Contribution to Sentry Variable
Account I*
(13) Calculation of Performance Information
(27) Not applicable
* Exhibits (1), (3)(i), (3)(ii), (3)(iii), (4)(i), (4)(ii), (5),
(6)(i), (6)(ii),(8)(i), and (12) are incorporated herein by
reference to such exhibit in Registrant's Post-Effective Amendment
No. 17 to Form N-4 filed electronically on or about April 30,
1997.
** Exhibit (8)(ii) is incorporated herein by reference to such
exhibit in Registrant's Post-Effective Amendment No. 16 to Form
N-4 filed electronically on or about April 29, 1996.
ITEM 25 Directors and Officers of the Depositor
The following persons are the officers and directors of Sentry
Life Insurance Company of New York. 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 Chairman of the Board
Harold A. Rice President, Chief Operating Officer and
Director
Anthony Campagna, Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Treasurer
Steven R. Boehlke Director
Robert E. Reko Director
John D. Marshall Director
Dennis R. Cabrey Director
Larry R. Leatherman Director
<PAGE> 67
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 New York corporation, is a wholly-owned subsidiary of
Sentry Life Insurance Company, a Wisconsin corporation.
2. Sentry Life Insurance Company is a wholly-owned subsidiary of Sentry
Insurance a Mutual Company ("Sentry Insurance"), a Wisconsin
corporation.
3. The following companies are also wholly-owned subsidiaries of Sentry
Insurance:
(a) Middlesex Insurance Company ("Middlesex"), a Wisconsin corporation;
(b) Dairyland Insurance Company ("Dairyland"), a Wisconsin corporation;
(c) Sentry Fund, Inc., a Maryland corporation;
(d) Parker Stevens Agency, Inc., a Wisconsin corporation;
(e) Parker Stevens Agency of Mass., Inc., a Massachusetts corporation;
(f) Sentry Investment Management, Inc., a Delaware corporation;
(g) Sentry Equity Services, Inc., a Delaware corporation;
(h) Sentry Services, Inc., a Wisconsin corporation;
(i) Sentry Aviation Services, Inc., a Wisconsin corporation; and
(j) WAULECO, Inc., a Wisconsin corporation.
4. Sentry Insurance is also affiliated with Sentry Insurance Foundation,
Inc., a Wisconsin corporation.
5. Sentry Insurance is also affiliated with Sentry Lloyd's of Texas, a
Texas Lloyd's corporation.
6. Patriot General Insurance Company, a Wisconsin corporation, is a
wholly-owned subsidiary of Middlesex.
7. Dairyland County Mutual Insurance Company of Texas, a Texas
corporation, is affiliated with Dairyland.
ITEM 27 Number of Contract Owners
As of April 1, 1999 there were 64 qualified contract owners and 15 non-qualified
contract owners.
ITEM 28 Indemnification
Under the Bylaws of Sentry Life Insurance Company of New York, each director and
officer of the Company shall be indemnified by the Company against all costs and
expenses actually and necessarily incurred by him or her in connection with the
defense of any action, suit or proceeding in which he or she is made a party by
reason of his or her being or having been a director or officer of the Company,
whether or not he or she continues to be a director or officer at the time of
incurring such costs or expense, except in relation to matters as to which he or
she shall be adjudged in such action, suit or proceeding to be liable for gross
negligence or willful misconduct in the performance of his or her duties as such
director or officer. This right of indemnification shall not be exclusive of
other rights to which any director or officer may be entitled as a matter of law
or agreement.
Sentry Equity Services, Inc., the principal underwriter, is a Delaware
corporation. The Delaware General Corporation Law, Section 145, provides for
indemnification of directors, officers, employees and agents as follows:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS -(a) A
corporation shall have power to indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that the person is or
was a director, officer, employee or agent of the corporation, or is or
was
<PAGE> 68
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
<PAGE> 69
indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office.
(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.
<PAGE> 70
ITEM 29 Principal Underwriter
(a) Sentry Equity Services, Inc., the Principal Underwriter for
the Contracts, also acts as Principal Underwriter for:
Sentry Variable Account II
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
Susan M. DeBruin President
Glen E. Scott Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
(c)
<TABLE>
<CAPTION>
Name of Net Underwriting
Principal Discounts & Compensation On Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ---------------- --------------- ----------- ------------
<S> <C> <C> <C> <C>
Sentry Equity
Services, Inc. $155,799 $ 0.00 $ 0.00 $392,706
</TABLE>
ITEM 30 Location of Accounts and Records
As required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder, Sentry
Equity Services, Inc. and Sentry Life Insurance Company of New
York 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.
<PAGE> 71
(d) Sentry Life Insurance Company of New York ("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.
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> 72
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 26th day of April, 1999.
Sentry Variable Account I
Registrant
By: Sentry Life Insurance Company of New York
By: s/Harold A. Rice
-----------------------------------------------
Harold A. Rice, President and
Chief Operating Officer
Sentry Life Insurance Company of New York
Depositor
By: s/Harold A. Rice
-----------------------------------------------
Harold A. Rice, President and
Chief Operating Officer
<PAGE> 73
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 26, 1999
- ---------------------------------------
Dale R. Schuh, Chairman of the Board
and Director
s/Harold A. Rice April 26, 1999
- ---------------------------------------
Harold A. Rice, President, Chief
Operating Officer and Director
s/Anthony Campagna, Jr. April 26, 1999
- ---------------------------------------
Anthony Campagna, Jr., Vice President
s/William M. O'Reilly April 26, 1999
- ---------------------------------------
William M. O'Reilly, Secretary and
Director
s/William J. Lohr April 26, 1999
- ---------------------------------------
William J. Lohr, Treasurer
s/Steven R. Boehlke April 26, 1999
- ---------------------------------------
Steven R. Boehlke, Director
s/Dennis R. Cabrey April 26, 1999
- ---------------------------------------
Dennis R. Cabrey, Director
s/Larry R. Leatherman April 26, 1999
- ---------------------------------------
Larry R. Leatherman, Director
s/John D. Marshall April 26, 1999
- ---------------------------------------
John D. Marshall, Director
s/Robert E. Reko April 26, 1999
- ---------------------------------------
Robert E. Reko, Director
<PAGE> 74
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 19
TO
FORM N-4
FOR
SENTRY VARIABLE ACCOUNT I
<PAGE> 75
INDEX TO EXHIBITS
Exhibit
- -------
99.B 9 Opinion and Consent of Counsel
99.B 10 Consent of Independent Accountants
99.B 13 Calculation of Performance Information
<PAGE> 1
Exhibit 9
Opinion and Consent of Counsel
<PAGE> 2
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
April 16, 1999
Board of Directors
Sentry Life Insurance Company of New York
251 Salina Meadows Parkway
North Syracuse, NY 13212
Re: Opinion of Counsel - Sentry Variable Account I
Gentlemen:
You have requested our Opinion of counsel in connection with the filing with the
Securities and Exchange Commission of Post-Effective Amendment No. 19 to a
Registration Statement on form N-4 for the Individual Deferred Variable Annuity
Contracts (the "Contracts") to be issued by Sentry Life Insurance Company of New
York and its separate account, Sentry Variable Account I.
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 I 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.
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.
You may use this opinion letter, or a copy thereof, as an exhibit to
Post-Effective Amendment No. 19 to the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/Lynn Korman Stone
-------------------
Lynn Korman Stone
<PAGE> 1
Exhibit (10)
Consent of Independent Accountants
<PAGE> 2
[PRICEWATERHOUSECOOPERS LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 19 to the
Registration Statement of Sentry Variable Account I (the "Account") on Form N-4
(File No. 2-87746) in the Statement of Additional Information of:
(1) Our report dated February 11, 1999, on our audits of the financial
statements of the Account; and
(2) Our report dated February 12, 1999, on our audits of the
statutory-basis financial statements of Sentry Life Insurance
Company.
We also consent to the reference to our Firm under the caption "Independent
Accountant" in the Statement of Additional Information.
s/ PricewaterhouseCoopers LLP
April 28, 1999
<PAGE> 1
Exhibit 13
Calculation of Performance Information
<PAGE> 2
SEC Rule 482 - Total Return
SLONY Variable Annuity - One Year
Original Purchase - 12/31/97
Valuation Date 12/31/98
LIQUID ASSET
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
---- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 Purchase 1,000.00 17.361076 57.600 57.600 $1.000.00
09/10/98 Contract Fee (3.69) 17.776652 (0.208) 57.393 $1,020.25
12/31/98 Value before Surr. Chg. 17.953784 0.000 57.393 $1,030.41
12/31/98 Surrender Charg 0.05 (50.00) 17.953784 (2.785) 54.608 $980.41
12/31/98 Remaining Value 17.953784 0.000 54.608 $980.41
</TABLE>
GROWTH
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
---- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 Purchase 1,000.00 50.556708 19.780 19.780 $1,000.00
09/10/98 Contract Fee (4.43) 42.957465 (0.103) 19.677 $845.26
12/31/98 Value before Surr. Chg. 57.716388 0.000 19.677 $1,135.66
12/31/98 Surrender Charg 0.05 (50.00) 57.716388 (0.866) 18.810 $1,085.66
12/31/98 Remaining Value 57.716388 0.000 18.810 $1,085.66
</TABLE>
<PAGE> 3
Bond
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
---- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 Purchase 1,000.00 24.283747 41.180 41.180 $1,000.00
09/10/98 Contract Fee (14.99) 24.976566 (0.600) 40.580 $1,013.54
12/31/98 Value before Surr. Chg. 25.048003 0.000 40.580 $1,016.44
12/31/98 Surrender Charg 0.05 (50.00) 25.048003 (1.996) 38.583 $966.44
12/31/98 Remaining Value 25.048003 0.000 38.583 $966.44
</TABLE>
Balanced
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
---- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/97 Purchase 1,000.00 20.399374 49.021 49.021 $1,000.00
09/10/98 Contract Fee (6.89) 18.817781 (0.366) 48.655 $915.58
12/31/98 Value before Surr. Chg. 22.612692 0.000 48.655 $1,100.22
12/31/98 Surrender Charg 0.05 (50.00) 22.612692 (2.211) 46.444 $1,050.22
12131/98 Remaining Value 22.612692 0.000 46.444 $1,050.22
</TABLE>
<PAGE> 4
SLONY
VA SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/98
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
----------------------- ----- ------- ---------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 1.00 980 -1.96% -1.96%
Growth $1,000 1.00 1,086 8.57% 8.57%
Bond $1,000 1.00 966 -3.36% -3.36%
Balanced $1,000 1.00 1,050 5.02% 5.02%
</TABLE>
<PAGE> 5
SEC Rule 482 - Total Return
SLONY Variable Annuity - Five Years
Original Purcha 12/31/93
Valuation Date 12/31/96
LIQUID ASSET
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 Purchase 1,000.00 15.310831 65.313 65.313 $1,000.00
09/10/94 Contract Fee (5.56) 15.508169 (0.359) 64.955 $1,007.33
09/10/95 Contract Fee (5.06) 16.064606 (0.315) 64.640 $1,038.41
09/10/96 Contract Fee (3.90) 16.611965 (0.235) 64.405 $1,069.69
09/10/97 Contract Fee (3.48) 17.175889 (0.203) 64.202 $1,102.73
09/10/98 Contract Fee (3.69) 17.176652 (0.208) 63.995 $1,137.61
12/31/98 Value before Surr. Chg. 17.953784 0.000 63.995 $1,148.95
12/31/98 Surrender Charg 0.01 (10.00) 17.953784 (0.557) 63.438 $1,138.95
12/31/98 Remaining Value 17.953784 0.000 63.438 $1,138.95
</TABLE>
Growth
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 Purchase 1,000.00 30.098279 33.224 33.224 $1,000.00
09/10/94 Contract Fee (5.69) 29.235922 (0.195) 33.030 $965.66
09/10/95 Contract Fee (5.60) 38.489914 (0.145) 32.884 $1,265.72
09/10/96 Contract Fee (5.09) 36.333374 (0.140) 32.744 $1,189.71
09/10/97 Contract Fee (4.57) 50.496420 (0.091) 32.654 $1,648.90
09/10/98 Contract Fee (4.43) 42.957465 (0.103) 32.551 $1,398.29
12/31/98 Value before Surr. Chg. 57.716388 0.000 32.551 $1,878.71
12/31/98 Surrender Charg 0.01 (10.00) 57.716388 (0.173) 32.377 $1,868.71
12/31/98 Remaining Value 57.716388 0.000 32.377 $1,868.71
</TABLE>
<PAGE> 6
Bond
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/3l/93 Purchase 1,000.00 20.652913 48.419 48.419 $1,000.00
09/10/94 Contract Fee (13.89) 20.446641 (0.679) 47.740 $976.12
09/10/95 Contract Fee (16.09) 21.722485 (0.741) 46.999 $1,020.94
09/10/96 Contract Fee (15.08) 22.401036 (0.673) 46.326 $1,037.75
09/10/97 Contract Fee (15.21) 23.906974 (0.636) 45.890 $1,092.31
09/10/98 Contract Fee (14.99) 24.976568 (0.600) 45.090 $1,126.19
12/31/98 Value before Surr. Chg. 25.048003 0.000 45.090 $1,129.41
12/31/98 Surrender Charg 0.01 (10.00) 25.048003 (0.399) 44.690 $1,119.41
12/31/98 Remaining Value 25.048003 0.000 44.690 $1,119.41
</TABLE>
Balanced
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- ----------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/31/93 Purchase 1,000.00 14.010396 71.376 71.376 $1,000.00
09/10/94 Contract Fee (4.86) 13.714103 (0.354) 71.021 $973.99
09/10/95 Contract Fee (3.25) 16.661507 (0.195) 70.826 $1,180.07
09/10/96 Contract Fee (5.93) 16.213209 (0.366) 70.460 $1,142.39
09/10/97 Contract Fee (6.74) 20.302704 (0.332) 70.128 $1,423.80
09/10/97 Contract Fee (6.89) 20.302704 (0.339) 69.789 $1,416.91
12/31/98 Value before Surr. Chg. 22.612692 0.000 69.789 $1,578.12
12/31/98 Surrender Charg 0.01 (10.00) 22.612692 (0.442) 69.347 $1,568.12
12/31/98 Remaining Value 22.612692 0.000 69.347 $1,568.12
</TABLE>
<PAGE> 7
SLONY
A SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/98
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
- ----------- --------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 5.00 1,139 2.64% 13.89%
Growth $1,000 5.00 1,869 13.32% 86.87%
Bond $1,000 5.00 1,119 2.28% 11.94%
Balanced $1,000 5.00 1,568 9.41% 56.81%
</TABLE>
<PAGE> 8
SEC Rule 482 - Total Return
SLONY Variable Annuity - Ten Years
Original Purchase - 12/31/88 (3/1/89 Balanced Portfolio)
Valuation Date 12/31/98
LIQUID ASSET
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/88 Purchase 1,000.00 12.458975 80.263 80.263 $1,000.00
09/12/89 Contract Fee (3.69) 13.107002 (0.282) 79.982 $1,048.32
09/11/90 Contract Fee (5.15) 13.953219 (0.369) 79.613 $1,110.85
09/10/91 Contract Fee (4.12) 14.662450 (0.281) 79.332 $1,163.20
09/10/92 Contract Fee (3.73) 15.057642 (0.248) 79.084 $1,190.82
09/10/93 Contract Fee (4.63) 15.258026 (0.303) 78.781 $1,202.04
09/10/94 Contract Fee (5.56) 15.508169 (0.359) 78.422 $1,216.18
09/10/95 Contract Fee (5.06) 16.064606 (0.315) 78.107 $1,254.76
09/10/96 Contract Fee (3.90) 16.611965 (0.235) 77.872 $1,293.61
09/10/97 Contract Fee (3.48) 17.175889 (0.203) 77.670 $1,334.05
09/10/98 Contract Fee (3.69) 17.776652 (0.208) 77.462 $1,377.02
12/31/98 Value before Surr. Chg. 17.953784 0.000 77.462 $1,390.74
12/31/98 Surrender Charge 0.00 17.953784 0.000 77.462 $1,390.74
12/31/98 Remaining Value 17.953784 0.000 77.462 $1,390.74
</TABLE>
Growth
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -------- ---------------- ---- ------ ---------- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/88 Purchase 1,000.00 17.711141 56.462 56.462 $1,000.00
09/12/89 Contract Fee (4.14) 23.632300 (0.175) 56.286 $1,330.18
09/11/90 Contract Fee (5.93) 20.218175 (0.293) 55.993 $1,132.08
09/10/91 Contract Fee (6.95) 24.162236 (0.288) 55.706 $1,345.97
09/10/92 Contract Fee (8.04) 26.222802 (0.307) 55.399 $1,452.71
09/10/93 Contract Fee (7.05) 29.686989 (0.237) 55.161 $1,637.58
09/10/94 Contract Fee (5.69) 29.235922 (0.195) 54.967 $1,607.01
09/10/95 Contract Fee (5.60) 38.489914 (0.145) 54.821 $2,110.07
09/10/96 Contract Fee (5.09) 36.333374 (0.140) 54.681 $1,986.75
09/10/97 Contract Fee (4.57) 50.496420 (0.091) 54.591 $2,756.64
09/10/98 Contract Fee (4.43) 42.957465 (0.103) 54.488 $2,340.65
12/31/98 Value before Surr. Chg. 57.716388 0.000 54.488 $3,144.83
12/31/98 Surrender Charge 0.00 57.716388 0.000 54.488 $3,144.83
12/31/98 Remaining Value 57.716388 0.000 54.488 $3,144.83
</TABLE>
<PAGE> 9
Bond
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -------- ---------------- ---- ------ ---------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
12/30/88 Purchase 1,000.00 14.639353 68.309 68.309 $1,000.00
09/12/89 Contract Fee (14.56) 15.631961 (0.931) 67.378 $1,053.24
09/11/90 Contract Fee (13.66) 16.650894 (0.820) 66.557 $1,108.24
09/10/91 Contract Fee (18.15) 18.039834 (1.006) 65.551 $1,182.53
09/10/92 Contract Fee (16.79) 19.677253 (0.853) 64.698 $1,273.08
09/10/93 Contract Fee (16.31) 20.708926 (0.788) 63.910 $1,323.51
09/10/94 Contract Fee (13.89) 20.446641 (0.679) 63.231 $1,292.86
09/10/95 Contract Fee (16.09) 21.722485 (0.741) 62.490 $1,357.44
09/10/96 Contract Fee (15.08) 22.401036 (0.673) 61.817 $1,384.77
09/10/97 Contract Fee (15.21) 23.906974 (0.636) 61.181 $1,462.65
09/10/98 Contract Fee (14.99) 24.976566 (0.600) 60.581 $1,513.10
12/31/98 Value before Surr. Chg. 25.048003 0.000 60.581 $1,517.42
12/31/98 Surrender Charge 0.00 25.048003 0.000 60.581 $1,517.42
12/31/98 Remaining Value 25.048003 0.000 60.581 $1,517.42
</TABLE>
Balanced
============
<TABLE>
<CAPTION>
Units This Total Total
Date Transaction Type Rate Amount Unit Value Transaction Units Held Value
- -------- ---------------- ---- ------ ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
09/17/90 Purchase 1,000.00 10.000000 100.000 100.000 $1,000.00
09/10/91 Contract Fee (0.77) 11.539053 (0.067) 99.933 $1,153.14
09/10/92 Contract Fee (1.43) 12.638701 (0.113) 99.820 $1,261.60
09/10/93 Contract Fee (2.01) 13.887021 (0.145) 99.675 $1,384.19
09/10/94 Contract Fee (4.86) 13.714103 (0.354) 99.321 $1,362.10
09/10/95 Contract Fee (3.25) 16.661507 (0.195) 99.126 $1,651.59
09/10/96 Contract Fee (5.93) 16.213209 (0.366) 98.760 $1,601.22
09/10/97 Contract Fee (6.74) 20.302704 (0.332) 98.428 $1,998.36
09/10/98 Contract Fee (6.89) 18.817781 (0.366) 98.062 $1,845.31
12/31/98 Value before Surr. Chg. 22.612692 0.000 98.062 $2,217.45
12/31/98 Surrender Charg 0 0.00 22.612692 0.000 98.062 $2,217.45
12/31/98 Remaining Value 22.612692 0.000 98.062 $2,217.45
</TABLE>
<PAGE> 10
SLONY
VA SEC Ave. Annual Total Return
P(1+t)Nth power = ERV
Valuation Date 12/31/98
<TABLE>
<CAPTION>
Purchase Years Total Value of Avg. Annual Total
Portfolio Amount Invested Units Held Total Return Return
--------- ------ -------- -------------- ------------ ------
<S> <C> <C> <C> <C> <C>
Liquid Asset $1,000 10.00 1,391 3.35% 39.07%
Growth $1,000 10.00 3,145 12.14% 214.48%
Bond $1,000 10.00 1,517 4.26% 51.74%
Balanced $1,000 8.29 2,217 10.08% 121.74%
</TABLE>
(Since Inception)
