<PAGE> 1
1933 Act File No. 2-98441
1940 Act File No. 811-4327
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 12 TO FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust: Sentry Variable Life Account I
B. Name of Depositor: Sentry Life Insurance Company
C. Complete Address of Depositor's Principal Executive Offices:
1800 North Point Drive, Stevens Point, WI 54481
D. Name and Address of Agent for Service:
William M. O'Reilly, Esq.
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
COPIES TO:
Judith A. Hasenauer
Blazzard, Grodd & Hasenauer, P.C.
P.O. Box 5108
Westport, CT 06881
(203) 226-7866
E. Title and Amount of Securities Being Registered: Individual Flexible
Premium Variable Life Insurance Policies
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b) of Rule 485
----
X on May 1, 1996, pursuant to paragraph (b) of Rule 485
----
60 days after filing pursuant to paragraph (a)(i) of Rule 485
----
on (date) pursuant to paragraph (a)(i) 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.
Registrant has registered an indefinite number or amount of securities under
the Securities Act of 1993 pursuant to Investment Company Act Rule 24f-2 (17 CFR
270.24f-2) and the Rule 24f-2 Notice for Registrant's fiscal year 1995 was
filed on or about February 27, 1996.
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
<S> <C>
1 . . . . . . . . . . . . . . . . . . . . . . The Company, The Variable Life Account
2 . . . . . . . . . . . . . . . . . . . . . . The Company
3 . . . . . . . . . . . . . . . . . . . . . . Custodian
4 . . . . . . . . . . . . . . . . . . . . . . Distribution of the Policy
5 . . . . . . . . . . . . . . . . . . . . . . The Variable Life Account
6(a) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . . . . . Not Applicable
9 . . . . . . . . . . . . . . . . . . . . . . Legal Proceedings
10 . . . . . . . . . . . . . . . . . . . . . . The Policy
11 . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable Life Account
12 . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable Life Account
13 . . . . . . . . . . . . . . . . . . . . . . Charges and Deductions
14 . . . . . . . . . . . . . . . . . . . . . . The Policy
15 . . . . . . . . . . . . . . . . . . . . . . The Variable Life Account
16 . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable Life Account
17 . . . . . . . . . . . . . . . . . . . . . . Policy Benefits and Rights
18 . . . . . . . . . . . . . . . . . . . . . . The Policy
19 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
20 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
21 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
22 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
23 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
24 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
25 . . . . . . . . . . . . . . . . . . . . . . The Company
26 . . . . . . . . . . . . . . . . . . . . . . Management of the Company
27 . . . . . . . . . . . . . . . . . . . . . . The Company
28 . . . . . . . . . . . . . . . . . . . . . . The Company, Management of the Company
29 . . . . . . . . . . . . . . . . . . . . . . The Company
30 . . . . . . . . . . . . . . . . . . . . . . The Company
31 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
32 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
33 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
34 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
35 . . . . . . . . . . . . . . . . . . . . . . The Company
37 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
38 . . . . . . . . . . . . . . . . . . . . . . Distribution of the Policy
39 . . . . . . . . . . . . . . . . . . . . . . Distribution of the Policy
40 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
41(a) . . . . . . . . . . . . . . . . . . . . . . Distribution of the Policy
42 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
43 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
44 . . . . . . . . . . . . . . . . . . . . . . The Policy
45 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
46 . . . . . . . . . . . . . . . . . . . . . . Policy Benefits and Rights
47 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
48 . . . . . . . . . . . . . . . . . . . . . . Custodian
49 . . . . . . . . . . . . . . . . . . . . . . Custodian
50 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
51 . . . . . . . . . . . . . . . . . . . . . . The Company, The Policy
52 . . . . . . . . . . . . . . . . . . . . . . Investments of the Variable Life Account
53 . . . . . . . . . . . . . . . . . . . . . . Tax Status
54 . . . . . . . . . . . . . . . . . . . . . . Financial Statements
55 . . . . . . . . . . . . . . . . . . . . . . Not Applicable
</TABLE>
<PAGE> 3
[SENTRY LOGO]
- --------------------------------------------------------------------------------
Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[GRAPHIC]
PROSPECTUS
MAY 1, 1996
SENTRY LIFE INSURANCE COMPANY
<PAGE> 4
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
ISSUED BY
SENTRY VARIABLE LIFE ACCOUNT I
AND
SENTRY LIFE INSURANCE COMPANY
The Individual Variable Life Insurance Policy ("Policy") described in
this Prospectus is a flexible premium policy. The Policy is designed for
maximum flexibility in meeting the insurance needs of individuals. The Policy
provides death protection until the Policy Anniversary following the Insured's
95th birthday.
The Cash Value of the Policy will be allocated to a segregated investment
account of Sentry Life Insurance Company ("Company") which account has been
designated Sentry Variable Life Account I ("Variable Life Account"). The
Variable Life Account invests in shares of Neuberger & Berman Advisers
Management Trust at net asset value. Neuberger & Berman Advisers Management
Trust is an open-end diversified management investment company which currently
is comprised of seven separate Portfolios with different investment objectives,
four of which are available in connection with the Policy offered under this
Prospectus. The Owner of the Policy bears the complete investment risk for all
amounts allocated to the Variable Life Account. The Cash Value and, under
certain circumstances, the Death Benefit of the Policy may increase or decrease
depending on the investment experience of the Variable Life Account.
------------------------------------------------
IT MAY NOT BE ADVANTAGEOUS TO PURCHASE THE POLICY ISSUED BY THE VARIABLE LIFE
ACCOUNT AS A REPLACEMENT FOR ANOTHER TYPE OF LIFE INSURANCE. IT ALSO MAY NOT BE
ADVANTAGEOUS TO PURCHASE FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE TO OBTAIN
ADDITIONAL INSURANCE PROTECTION IF THE PURCHASER ALREADY OWNS ANOTHER FLEXIBLE
PREMIUM LIFE INSURANCE CONTRACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST PROSPECTUS ACCOMPANIES THIS
PROSPECTUS.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
SENTRY LIFE INSURANCE COMPANY
1800 North Point Drive
Stevens Point, WI 54481
THE DATE OF THIS PROSPECTUS IS MAY 1, 1996.
<PAGE> 5
CHARGES AND DEDUCTIONS ASSOCIATED WITH VARIABLE LIFE CONTRACTS
FROM PREMIUM
Front-end sales expense charge - 5% of each Premium payment. (There is also a
Deferred Sales Charge of 25% of the Target Surrender Premium or 25% of the
actual Premium paid in the first Policy Year, if less. Together these charges
total 30%. See "Charges and Deductions - Deductions from Surrendered
Values.")
Premium taxes - premium taxes are assessed by the Policy Owner's state of
domicile. Premium taxes currently vary from state to state and range from 0%
to 4%.
FROM THE VARIABLE LIFE ACCOUNT
Mortality and Expense Risk Premium - equal on an annual basis to 0.90% of the
daily net asset value of the Variable Life Account.
Death Benefit Guarantee Risk Charge - equal on an annual basis to 0.15% of
the daily net asset value of the Variable Life Account.
Taxes - the Company has reserved the right to make a provision for income
taxes which have resulted from the investment operation of any Subaccount.
The Company is not currently deducting for taxes.
FROM CASH VALUE
Monthly Deduction - deducted from Cash Value at the beginning of each Policy
Month and consists of:
Cost of Insurance for the Policy and any additional benefits provided by
rider for the Policy Month; and
Monthly Administrative Fee - $5 per Policy Month.
FROM SURRENDERED VALUES
Partial Surrender Charge - a percentage of the Full Surrender Charge.
Partial Surrender Administrative Fee - the lesser of 2% of the amount
surrendered or $25.
Full Surrender Charge - remains the same for the first five Policy Years and
declines in Policy Years six through nine until it is zero and is the sum of
the following:
Contingent Deferred Administrative Expense Charge - $3.50 per $1,000 on
the first $100,000 of Specified Amount plus $1.50 per $1,000 on the excess
above first $100,000 of Specified Amount. The maximum Contingent Deferred
Administrative Expense Charge is $750; and
Deferred Sales Charge - 25% of the Target Surrender Premium or of the
actual Premium paid in the first Policy Year, if less; and
Additional Contingent Deferred Administrative Expense Charge and Deferred
Sales Charge which result from an increase in the Specified Amount.
OTHER CHARGES AND FEES
Maximum Transfer Fee - $25
Maximum Service Fee for Additional Projections - $25
For a more complete description of these charges, see "Charges and
Deductions" and "The Policy - Illustrations."
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
The investment manager and administrator (Neuberger & Berman Management
Incorporated) for Neuberger & Berman Advisers Management Trust (the "Trust")
is paid a fee for its services based upon each Portfolio's net assets which are
described in the accompanying Trust prospectus.
2
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions ................................... 5
Summary ....................................... 6
The Company ................................... 8
The Variable Life Account ..................... 8
Investments of the Variable Life Account ...... 9
Initial Investment Period ................... 9
Transfers ................................... 9
Neuberger & Berman Advisers Management Trust. 10
Substitution of Securities .................. 11
The Policy .................................... 11
General ..................................... 11
Insurance Underwriting ...................... 11
Right to Exchange the Policy ................ 12
Illustrations ............................... 12
Premiums ...................................... 12
Initial Premium ............................. 12
Net Premiums ................................ 12
First Year Minimum Premium .................. 12
Planned Premiums ............................ 13
Additional Premiums ......................... 13
Maximum Premium Limitations ................. 13
Death Benefit Guarantee ..................... 13
Grace Period ................................ 14
Reinstatement ............................... 14
Charges and Deductions ........................ 14
Deductions from Premiums .................... 14
Deductions from the Variable Life Account ... 14
Deductions from Cash Value .................. 14
Deductions from Surrendered Values .......... 15
Group Arrangements .......................... 16
Policy Benefits and Rights .................... 17
Death Benefit ............................... 17
Corridor Percentages ........................ 17
Illustrations of Death Benefit Options ...... 18
Change of Death Benefit Option .............. 18
Change in the Specified Amount .............. 19
Maturity Benefits ........................... 20
Cash Value .................................. 20
Determination of Accumulation Unit .......... 20
Partial Surrender ........................... 20
Full Surrender .............................. 21
Surrender Requirements ...................... 21
Policy Loans ................................ 21
</TABLE>
3
<PAGE> 7
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Other Policy Provisions ............................. 22
Policy Owner ...................................... 22
Contingent Policy Owner ........................... 22
Change of Policy Owner or Contingent Policy Owner . 22
Assignment ........................................ 22
Beneficiary ....................................... 22
Change of Beneficiary ............................. 22
Incontestability .................................. 22
Misstatement of Age or Sex ........................ 23
No Dividends ...................................... 23
Optional Settlement Plans ......................... 23
Suspension of Payments .............................. 23
Tax Status .......................................... 23
Introduction ...................................... 24
Diversification ................................... 24
Tax Treatment of the Policy ....................... 25
Policy Proceeds ................................... 25
Tax Treatment of Loans and Surrenders ............. 25
Multiple Policies ................................. 26
Tax Treatment of Assignments ...................... 26
Qualified Plans ................................... 26
Variable Life Account Voting Rights ................. 26
Disregard of Voting Instructions .................. 27
Management of the Company ........................... 27
Directors and Officers ............................ 27
Distribution of the Policy .......................... 27
Custodian ........................................... 28
Other Policies Issued by the Company ................ 28
State Regulation .................................... 28
Reports to Owners ................................... 28
Legal Proceedings ................................... 28
Experts ............................................. 28
Legal Opinions ...................................... 29
Financial Statements ................................ 29
Appendix A - Illustrations of Benefits .............. 57
</TABLE>
4
<PAGE> 8
DEFINITIONS
ACCUMULATION UNIT - An accounting unit of measure used to calculate Policy
values.
AGE - Age last birthday as determined on the Policy Anniversary on or preceding
the current date.
ANNIVERSARY - The same day and month each year as the Policy Date.
BENEFICIARY - The Beneficiary is named in the application unless changed, and
receives the death benefit at the Insured's death.
CASH SURRENDER VALUE - The Cash Value of the Policy less any Indebtedness and
less the Full Surrender Charge.
COMPANY - Sentry Life Insurance Company at its Home Office located at 1800
North Point Drive, Stevens Point, Wisconsin 54481.
CASH VALUE - The sum of all Subaccount Cash Value and any Cash Value held in
the General Account to secure Policy debt.
ELIGIBLE MUTUAL FUND(S) - The mutual funds designated in the Policy as eligible
investments of the Variable Life Account.
GENERAL ACCOUNT - The general ledger account of the Company.
IN EFFECT - When the Insured's life is covered under the Policy.
INITIAL INVESTMENT PERIOD - A 30 day period commencing on the Policy Issue
Date.
INSURED - The person whose life is covered under the Policy.
MATURITY DATE - The Maturity Date is the date on which the Company will pay the
Policy's Cash Value less any outstanding indebtedness if the Policy is In
Effect on such date.
MONTHLY PROCESSING DAY - The day from which Policy Months are determined.
NET PREMIUMS - Gross Premiums less the charge for front-end sales load and
premium taxes.
PAYEE - A person receiving payments from the Company under an Optional
Settlement Plan.
POLICY DATE - The day, month and year the Policy is put In Effect.
POLICY ISSUE DATE - The day, month and year that underwriting is completed and
the Policy is issued by the Company.
POLICY MONTH - A period of time commencing on any Monthly Processing Day and
ending on the day preceding the next Monthly Processing Day.
POLICY OWNER - The Policy Owner is named in the application, unless changed,
and has all rights under the Policy.
POLICY YEAR - A period of time commencing on any Anniversary and ending on the
day preceding the next Anniversary.
PORTFOLIO - A segment of an Eligible Mutual Fund which constitutes a separate
and distinct class of shares.
SPECIFIED AMOUNT - The amount of the initial death benefit provided by the
Policy plus or minus any changes in the Specified Amount.
SUBACCOUNT - A segment of the Variable Life Account which invests in an
Eligible Mutual Fund or Portfolio.
TARGET SURRENDER PREMIUM - The Premium, shown on the Policy Specifications
Page, that is used to calculate the Deferred Sales Charge. The Target Surrender
Premium is based on the guideline annual premium pursuant to rules adopted
under the Investment Company Act of 1940.
VALUATION DATE - Each day that the New York Stock Exchange is open for
business, which is Monday through Friday, except for New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
VALUATION PERIOD - The period commencing at 4:00 p.m. New York time on each
Valuation Date and ending at 4:00 p.m. New York time for the next succeeding
Valuation Date.
VARIABLE LIFE ACCOUNT - A separate investment account of the Company into which
Net Premiums under the Policy will be allocated.
5
<PAGE> 9
SUMMARY
THE POLICY
The Policy described in this Prospectus is a flexible premium variable
life insurance policy. The Policy, while providing certain investment features,
is a life insurance policy which provides for death benefits, cash values, and
other features that are traditionally associated with life insurance.
The Policy is called "flexible" because, unlike the fixed premiums of an
ordinary whole life insurance policy, the frequency and amount of Premium
payments can vary; any form of insurance coverage can be simulated by changing
the Specified Amount of insurance and the death benefit may be changed between
Options 1 and 2.
The Policy is called "variable" because, unlike the fixed benefits of an
ordinary whole life insurance policy, the Cash Value and, under certain
circumstances, the death benefit of the Policy may increase or decrease
depending on the investment experience of the assets underlying the Policy.
Policy Owners bear the complete investment risk for all amounts allocated to
the Variable Life Account. However, if the minimum Premium requirement as set
forth in the Policy is met, the Policy is guaranteed not to lapse, even if the
investment performance causes the full Cash Surrender Value to be insufficient
to cover the Monthly Deductions when due. (See "Premiums - Death Benefit
Guarantee" for a further explanation). There is no guaranteed minimum Cash
Value. For a more complete description of the Policy, see "Policy Benefits and
Rights."
The minimum Specified Amount for which the Company will issue the Policy
is $50,000. If the Death Benefit Guarantee is not In Effect, and if the Cash
Surrender Value is not sufficient to cover the Monthly Deduction when due, a
grace period of 61 days will be allowed for the payment of a Premium sufficient
to cover the Monthly Deduction. If a Premium or a loan repayment sufficient to
cover the Monthly Deduction is still unpaid by the end of the grace period, the
Policy will lapse and all coverage under the Policy will terminate without
value.
The Policy has been designed to comply with the definition of life
insurance contained in Section 7702 of the Internal Revenue Code of 1986, as
amended (the "Code"). However, the law in this regard is very complex and
unclear. While every attempt has been made to comply, there is the risk that
the Internal Revenue Service will not concur with the Company's interpretations
of Section 7702 that were made in determining such compliance. For a further
discussion, see "Tax Status - Tax Treatment of the Policy."
THE VARIABLE LIFE ACCOUNT
The Variable Life Account is a separate account established by the Company
pursuant to the insurance laws of the State of Wisconsin and registered as a
unit investment trust under the Investment Company Act of 1940. Net Premiums
will be allocated to the Variable Life Account and are currently invested in
shares of Neuberger & Berman Advisers Management Trust at their net asset
value. Policy Owners bear the complete investment risk for amounts allocated to
the Variable Life Account. For a more complete description, see "The Variable
Life Account" and "Investments of the Variable Life Account."
PREMIUMS
The initial Premium is due on or prior to the Policy Date. The frequency
and amount of subsequent Premium payments can vary. Therefore, an unlimited
number of Premium payment patterns are possible, including single premium,
level premium, limited premium, increasing premium, decreasing premium, and
stop and go premiums. While the Policy provides for flexible Premium payments,
Policy Owners can establish a Planned Premium Payment Plan which may provide
for Premiums to be made annually, semi-annually, quarterly or by automatic bank
check. The Planned Premiums are subject to certain minimum amounts. There are
certain minimum Premium payment requirements that must be met in order to have
the Death Benefit Guarantee in effect.
The Company reserves the right to limit the frequency and amount of
additional Premiums. (See "Premiums.")
MODIFIED ENDOWMENT CONTRACTS
The Code alters the tax treatment accorded to loans and certain
distributions from life insurance policies which are deemed to be "modified
endowment contracts."
Generally, a Policy will not be a modified endowment contract. Section
7702A of the Code sets forth the rules for determining when a life insurance
policy will be deemed to be a modified endowment contract. A modified endowment
contract is a contract which is entered into or materially changed on or after
June
6
<PAGE> 10
21, 1988, and fails to meet the 7-pay test. A Policy fails to meet the 7-pay
test when the cumulative amount paid under the Policy at any time during the
first 7 Policy Years exceeds the sum of the net level premiums that would have
been paid on or before such time if the Policy provided for paid-up future
benefits after the payment of 7 level annual premiums. A material change would
include any increase in the future benefits or addition of qualified additional
benefits provided under a policy unless the increase is attributable to (1) the
payment of premiums necessary to fund the lowest death benefit and qualified
additional benefits payable in the first 7 policy years; or (2) the crediting
of interest or other earnings (including policyholder dividends) with respect
to such premiums.
Furthermore, any Policy received in exchange for a policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988, is unclear. However, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988, will be considered entered
into as of the date of the exchange and therefore subject to Section 7702A.
Due to the flexible premium nature of the Policy, the determination of
whether it qualifies for treatment as a modified endowment contract depends on
the individual circumstances of each Policy. Policy Owners should consult their
tax adviser with respect to any changes they wish to make to their Policies.
If a Policy is a modified endowment contract, partial or full surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in-first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments
may also be subject to an additional 10% federal income tax penalty applied to
the income portion of loans or surrenders. The penalty shall not apply to any
distribution (1) made on or after the date on which the taxpayer reaches age
59 1/2; (2) which is attributable to the taxpayer becoming disabled (within the
meaning of Section 72(m)(7) of the Code); or (3) which is part of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his or her beneficiary. Policy Owners
should consult a tax adviser regarding the possible tax consequences of loans
and/or surrenders from the Policy. See "Tax Status - Tax Treatment of Loans
and Surrenders."
MULTIPLE CONTRACTS
The Internal Revenue Code provides that multiple modified endowment
contracts that are issued within a calendar year to the same Policy Owner by
one company or its affiliates are treated as one modified endowment contract
for purposes of determining the taxable portion of any loans or distributions.
Such treatment may result in adverse tax consequences including more rapid
taxation of the loans or distributed amounts from such combination of
contracts. Policy Owners should consult a tax adviser prior to purchasing more
than one modified endowment contract in any calendar year.
DEATH BENEFIT GUARANTEE
The Policy will not lapse if the minimum Premium requirement is met, even
if the Cash Surrender Value is insufficient to cover the Monthly Deduction when
due. (See "Premiums - Death Benefit Guarantee.")
GRACE PERIOD
If the Death Benefit Guarantee is not in effect and if the full Cash
Surrender Value is not sufficient to cover the Monthly Deduction when due, a
grace period of 61 days will be allowed for the payment of a Premium or a loan
repayment sufficient to cover the Monthly Deduction. The Policy will continue
to be In Effect during this grace period. If a Premium or a loan repayment
sufficient to cover the Monthly Deduction is still unpaid by the end of the
grace period, the Policy will lapse and all coverage under the Policy will
terminate without value. (See "Premiums - Grace Period.") After a Policy
lapse, the Policy Owner may request that the Policy be put back In Effect. The
Company will reinstate the Policy subject to certain conditions. (See
"Premiums - Reinstatement.")
FREE LOOK PROVISION
Unless otherwise required by state law, the Policy may be returned within
10 days after the Policy Owner receives the Policy, within 10 days after the
mailing to the Policy Owner of the notice of the right of withdrawal, or within
45 days after the Policy Owner completes Part I of the application for
insurance, whichever is later. The returned Policy can be mailed or delivered
to either the Company or the agent
7
<PAGE> 11
who sold the Policy. The returned Policy will be treated as if the Company
never issued it and the Company will refund all Premiums paid. The Free Look
Provision is also applicable when there is an increase the Specified Amount
when such increase is not the result of a change in death benefit option. When
Premiums are paid after an increase in the Specified Amount, all such premiums
paid up to the Target Surrender Premium (see "Charges and Deductions -
Deductions From Surrendered Values") are attributed to the increase. Premiums
in excess of the Target Surrender Premium are attributed to the base plan as
long as the base plan maximum Premium limit is not exceeded. If the maximum is
exceeded the Premiums are again attributed to the increase in the Specified
Amount. All Premiums paid during the Free Look Period that are attributed to
the increase would be refunded upon exercise of the Free Look Provision.
DEATH BENEFIT
A Policy Owner may elect one of two options to calculate the amount of
death benefit payable under the Policy. Under Option 1 the death benefit will
be equal to the greater of the Specified Amount or the Cash Value multiplied by
the applicable corridor percentage. Under Option 2 the death benefit is the
greater of the Specified Amount plus the Cash Value or the Cash Value
multiplied by the applicable corridor percentage.
There is a Guaranteed Death Benefit under the Policy while the Policy is
In Effect equal to the Specified Amount, less any Policy indebtedness, provided
that minimum Premiums are paid and subject to certain other conditions. (See
"Premiums - Death Benefit Guarantee.") A Policy Owner may change the death
benefit option as well as the Specified Amount, subject to certain conditions.
(See "Policy Benefits and Rights.")
POLICY LOAN
A Policy Owner may obtain a cash loan from the Company secured by the
Policy. The maximum loan amount is 90% of the Cash Value minus the Full
Surrender Charge determined at the end of the Valuation Period during which the
loan request is received. The maximum amount that may be borrowed at any time
is the maximum loan amount reduced by any outstanding Policy indebtedness. The
loan will incur interest at an annual rate of 8%. The amount of the loan will
be transferred from the Subaccounts of the Variable Life Account to the
Company's General Account. Cash Value in the General Account will accrue
interest daily at an annual rate of 6%. (See "Policy Benefits and Rights -
Policy Loans" and "Tax Status - Tax Treatment of Loans and Surrenders.")
THE COMPANY
Sentry Life Insurance Company (the "Company") is a stock life insurance
company incorporated in 1958 pursuant to the laws of the State of Wisconsin.
Its Home Office is located at 1800 North Point Drive, Stevens Point, Wisconsin.
It is licensed to conduct life, annuity, and accident and health insurance
business in the District of Columbia and in all states, except New York. The
Company is a wholly-owned subsidiary of Sentry Insurance a Mutual Company
("SIAMCO"). SIAMCO is a mutual insurance company incorporated under the laws
of Wisconsin with headquarters at 1800 North Point Drive, Stevens Point,
Wisconsin. SIAMCO owns and controls directly, or through subsidiary companies,
a group of insurance and related companies, including Sentry Life Insurance
Company of New York and Sentry Equity Services, Inc.
THE VARIABLE LIFE ACCOUNT
The Board of Directors of the Company adopted a resolution to establish a
segregated asset account pursuant to Wisconsin insurance laws on February 12,
1985. This segregated asset account has been designated "Sentry Variable Life
Account I" (the "Variable Life Account"). The Company has caused the
Variable Life Account to be registered with the Securities and Exchange
Commission as a unit investment trust pursuant to the provisions of the
Investment Company Act of 1940. Such registration does not involve supervision
of the management of the Variable Life Account or the Company by the Securities
and Exchange Commission.
The assets of the Variable Life Account are the property of the Company.
The assets of the Variable Life Account, equal to the reserves and other policy
liabilities with respect to the Variable Life Account, are not chargeable with
liabilities arising out of any other business the Company may conduct. The
Company does not guarantee the investment performance of the Variable Life
Account. The Cash Values, Cash Surrender Values and, under some circumstances,
death benefits will vary with the value of the assets which underlie the
Variable Life Account and will also vary with the charges deducted from the
Cash Value.
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<PAGE> 12
Income, gains and losses, whether or not realized, are, in accordance with
the Policy, credited to or charged against the Variable Life Account without
regard to other income, gains and losses of the Company. Company obligations
arising under the Policies are general corporate obligations of the Company.
INVESTMENTS OF THE VARIABLE LIFE ACCOUNT
Currently, Net Premiums applied to the Variable Life Account will be
invested in one or more of the Portfolios of Neuberger & Berman Advisers
Management Trust at net asset value. The assets of the Variable Life Account
are segregated by Portfolio (see "Neuberger & Berman Advisers Management
Trust"), thus establishing a series of Subaccounts within the Variable Life
Account. The Company may, from time to time, add new mutual funds, and, when
appropriate, portfolios within a mutual fund as Eligible Mutual Funds.
The selection of investments is subject to the terms and conditions
imposed by the Company. The Policy Owner may change a selection prospectively
without fee, penalty or other charge upon written notice to the Company. The
change shall be effective for Net Premiums received after receipt of such
notice. The Company may impose certain terms and conditions on these
transactions.
INITIAL INVESTMENT PERIOD
Prior to and during the Initial Investment Period (a 30-day period
commencing on the Policy Issue Date), Net Premiums are applied to the Variable
Life Account and will be invested in the Liquid Asset Portfolio notwithstanding
any selection made by the Policy Owner in the application. At the end of the
Initial Investment Period, the Cash Value then in the Liquid Asset Portfolio is
transferred to the Eligible Mutual Fund(s) or Portfolio(s) in accordance with
the selection made by the Policy Owner in the application. Such transfer will
be made automatically by the Company and without charge.
After the Initial Investment Period has expired, Net Premiums are applied
to the Variable Life Account in accordance with the selection made by the
Policy Owner in the application. The transfer of Net Premiums to the Variable
Life Account is not deemed to be a transfer for purposes of the limitation on
the number of transfers that may be made nor for the purposes of imposing the
Transfer Fee.
TRANSFERS
The Policy Owner may direct the transfer of all or part of the Subaccount
Cash Values between Portfolio(s) subject to the following conditions:
(1) The Company has reserved the right to deduct a Transfer Fee for
transfers, which will be deducted from the amounts which are
transferred. The Company does not currently deduct a Transfer Fee but in
the event that it does in the future, the fee will not exceed $25.
(2) The minimum amount which may be transferred is $250, or, if smaller,
the remaining Subaccount Cash Value.
(3) Any transfer direction must clearly specify:
(a) the amount which is to be transferred; and
(b) the Portfolio(s) which are to be affected.
(4) Four transfers may be made in any Policy Year. Additional transfers
during the year are subject to approval by the Company.
(5) Transfers shall be effected during the Valuation Period next
following receipt by the Company of a written transfer direction
containing all required information.
A transfer request for a transfer from one Portfolio to two Portfolios or
from two Portfolios to one Portfolio will count as one transfer transaction.
The Company reserves the right, at any time and without prior notice to
any party, to terminate, suspend or modify the transfer privilege.
When new Eligible Mutual Funds or Portfolios are added, the Policy Owner
may be permitted to select such Eligible Mutual Funds or Portfolios as
investments to underlie the Policy. However, the right to make any such
selection will be limited by the terms and conditions imposed on such
transactions by the Company.
Subject to the above-identified restrictions on transfers, a Contract
Owner may elect to effect transfers between Eligible Mutual Fund(s) or
Portfolio(s) by telephone by completing the applicable section of the
Application.
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<PAGE> 13
The Company will employ reasonable procedures to confirm that telephone
transfer requests are genuine. If it does not, the Company may be liable for
any losses due to unauthorized or fraudulent instructions. The Company will not
be liable for complying with telephone transfer requests it believes to be
genuine and for which it followed reasonable procedures to ensure legitimacy.
A telephone transfer may be effected by contacting the Company's Home
Office identified on Page 1 and providing specific account information,
including the Contract Owner's name, Contract number, social security number
and/or date of birth. The Company may request additional information concerning
the account and/or Contract Owner to verify the validity of the request. The
Company maintains the right to reject any telephone transfer request.
Telephone transfer requests received on any business day before 3 p.m.,
Central Standard Time, will effect transfers as of that day. Telephone transfer
requests received after 3 p.m,, Central Standard Time, will effect transfers on
the business day next following the request.
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
Neuberger & Berman Advisers Management Trust (the "Trust") is the
funding vehicle for the Policies. Each Portfolio of the Trust invests all of
its net investable assets in its corresponding series (each a "Series") of
Advisers Managers Trust ("Manager's Trust"), an open-end management investment
company. All Series of Managers Trust are managed by Neuberger & Berman
Management Incorporated ("N&B Management"). Each Series invests in securities
in accordance with an investment objective, policies, and limitations identical
to those of its corresponding Portfolio. This "master/feeder fund" structure is
different from that of any other investment companies which directly acquire
and manage their own portoflios of securities. For more information regarding
this structure, see the Trust's prospectus.
Shares of the Trust are issued and redeemed in connection with investment
in and payments under variable contracts issued through separate accounts of
the life companies which may or may not be affiliated with the Trust. Shares of
the Balanced Portfolio of the Trust are also offered directly to qualified
pension and retirement plans ("Qualified Plan"). Shares of the Trust are
purchased and redeemed at net asset value. The Boards of Trustees of the Trust
and Managers Trust have undertaken to monitor the Trust and Managers Trust,
respectively, for the existence of any material irreconcilable conflict between
the interests of the variable contracts owners of the life companies and to
determine what action, if any, should be taken in the event of a conflict. The
life companies and N&B Management are responsible for reporting any potential
or existing conflicts to the Boards. Due to differences of tax treatment and
other considerations, the interests of various variable contract owners
participating in the Trust and Managers Trust and the interests of Qualified
Plans investing in the Trust and Managers Trust may conflict. If such a
conflict were to occur, one or more life company separate accounts or Qualified
Plans might withdraw their investment in the Trust. This might force Manager's
Trust to sell portfolio securities at disadvantageous prices.
There are seven Portfolios, four of which are currently available in
connection with the Policy. In that the investment objective of each Portfolio
matches that of its corresponding Series, the following information is
presented in terms of the applicable Series of Managers Trust.
The investment objective of each Series follows:
AMT LIQUID ASSET INVESTMENTS. The investment objective of AMT Liquid
Asset Investments is to provide the highest current income consistent with
safety and liquidity. The Series invests in high quality U.S.
dollar-denominated money market instruments of U.S. and foreign issuers,
including governments and their agencies and instrumentalities, banks and other
financial institutions, and corporations, and may invest in repurchase
agreements with respect to these instruments. An investment in the Liquid Asset
Portfolio is neither insured nor guaranteed by the U.S. Government.
AMT GROWTH INVESTMENTS. AMT Growth Investments seeks capital appreciation
without regard to income by investing in securities believed to have the
maximum potential for long-term capital appreciation. It does not seek to
invest in securities that pay dividends or interest, and any such income is
incidental. The Series expects to be almost fully invested in common stocks,
often of companies that may be temporarily out of favor in the market.
AMT LIMITED MATURITY BOND INVESTMENTS. The investment objective of AMT
Limited Maturity Bond Investments is to provide the highest current income
consistent with low risk to principal and liquidity, and secondarily, total
return. The Series invests in a diversified portfolio of fixed and variable
rate debt securities and seeks to increase income and preserve or enhance total
return by actively
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<PAGE> 14
managing average portfolio maturity in light of market conditions and
trends. These are short-to-intermediate term debt securities. The Series'
dollar-weighted average portfolio maturity may range up to five years.
AMT BALANCED INVESTMENTS. The investment objective of AMT Balanced
Investments is long-term capital growth and reasonable current income without
undue risk to principal. The investment adviser anticipates that the Series'
investments will normally be managed so that approximately 60% of the Series'
total assets will be invested in common stocks and the remaining assets will be
invested in debt securities. However, depending on the investment adviser's
view regarding current market trends, the common stock portion of the Series'
investments may be adjusted downward to as low as 50% or upward to as high as
70%. At least 25% of the Series' assets will be invested in fixed-income senior
securities.
SUBSTITUTION OF SECURITIES
If the shares of any of the Eligible Mutual Funds, or any Portfolio within
an Eligible Mutual Fund, should no longer be available for investment by the
Variable Life Account or, if in the judgment of the Company's Board of
Directors, further investment in such shares should become inappropriate in
view of the purpose of the Policy, the Company may substitute shares of another
mutual fund for fund shares already purchased or to be purchased in the future
by Net Premiums under the Policy. No substitution of securities in any
Subaccount may take place without prior approval of the Securities and Exchange
Commission and under such requirements as it may impose.
THE POLICY
GENERAL
The Policy offered by this Prospectus is an individual flexible premium
variable life insurance policy. The Policy is designed to provide the Policy
Owner with lifetime insurance protection and significant flexibility in
connection with the frequency and amount of Premium payments and the level of
life insurance proceeds payable under the Policy. Unlike traditional life
insurance, the Policy will not lapse if Premium payments are not made. However,
the Policy will lapse if the Cash Surrender Value is insufficient to pay the
monthly charges due under the Policy and the grace period expires without
sufficient additional Premium payments or a loan repayment having been made.
(See "Premiums - Grace Period.") The Policy allows the Policy Owner to vary
the Premium payments. The Policy provides for a Death Benefit Guarantee,
subject to certain conditions including the payment of minimum Premiums. (See
"Premiums - Death Benefit Guarantee.") In addition, the Policy allows the
Policy Owner to adjust the level of life insurance proceeds payable under the
Policy by increasing or decreasing the Specified Amount of insurance without
having to purchase a new policy. Any increase in the Specified Amount may
require evidence of insurability.
To purchase a Policy, a completed application must be sent to the Company
at its Home Office at 1800 North Point Drive, Stevens Point, Wisconsin 54481.
The Initial Premium is due on or prior to the Policy Date. The initial
Specified Amount cannot be less than $100,000 unless the Company's current
administrative rules specify a lower amount. Acceptance of the application is
subject to the Company's underwriting rules and the Company may, at its sole
discretion, reject any application or Premium for any reason.
INSURANCE UNDERWRITING
Insurance underwriting is designed to group applicants of the same age and
sex into classifications which can be expected to produce mortality experience
consistent with the actuarial structure for that class. The Company uses
established underwriting guidelines which may or may not require a medical
examination.
Medical examinations are not normally required if the proposed Insured's
age is 45 or less and the initial insurance amount (the initial Specified
Amount plus any additional amounts provided by riders) is not more than the
amounts shown in the following table:
<TABLE>
<CAPTION>
ISSUE AGE INITIAL INSURANCE AMOUNT
--------- ------------------------
<S> <C>
0-30 $300,000
31-35 $200,000
36-40 $125,000
41-45 $ 75,000
</TABLE>
In other situations, paramedical or medical underwriting is used.
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<PAGE> 15
Policies will be issued as either standard non-smoker, substandard smoker
or medically substandard. The monthly cost of insurance charges will depend on
the underwriting classification. (See "Charges and Deductions - Deductions
from Cash Value" for a discussion of the cost of insurance.)
RIGHT TO EXCHANGE THE POLICY
The Policy may be exchanged for a policy of permanent fixed premium fixed
benefit life insurance on the life of the Insured. This exchange may only be
made within 24 months after the Policy Date. No evidence of insurability is
required. All Policy indebtedness must be repaid before the exchange is made.
The exchange will become effective when the Company receives:
(1) proper written request for the Policy exchange;
(2) surrender of the Policy being exchanged; and
(3) any amount due the Company on exchange.
The new Policy will have the same Policy Date and issue age as the
original Policy and will have the same risk classification. The basic amount of
insurance of the new Policy will be equal to either the initial Specified
Amount of the original Policy or the net amount at risk under the original
Policy on the date of exchange, as selected by the Policy Owner. For purposes
of this provision, net amount at risk is defined as the difference between the
death benefit and the Policy Cash Value. The Policy Owner and Beneficiary of
the new Policy will be the same as those of the original Policy on the
effective date of the exchange.
If there is an increase in the Specified Amount and such increase is not
the result of a change in death benefit option, the Policy Owner will be
granted an exchange privilege with respect to the increase, subject to the
conditions applicable to an exchange of the entire Policy. The Policy Owner
will also have the option to transfer to the new Policy, without charge, on the
exchange date, Cash Value attributable to the increase. The Cash Value
attributable to the increase is the amount by which the total premiums paid
exceed the Maximum Premium Limitation for the Policy calculated as if the
increase had not occurred. However, amounts of Cash Value will not be applied
to the exchange if they would cause the Cash Surrender Value of the remaining
Policy to become negative.
ILLUSTRATIONS
This Prospectus contains illustrations of both future Cash Values and
death benefits given certain assumed Variable Life Account yields, and which
may be helpful in understanding how the Policy works (see Appendix A). For
illustrations not shown, the Policy Owner should contact his or her agent.
The Policy Owner may request a projection of illustrative future death
benefits and Policy values at any time. Such a request must be in writing. The
Company may charge a maximum service fee of $25 for this projection. The
illustration will be based on assumptions as to the Specified Amount,
anticipated earnings and future Premium payments specified by the Policy Owner,
and other assumptions as are necessary and agreed upon by the Company and the
Policy Owner.
PREMIUMS
INITIAL PREMIUM
The Initial Premium is due on or prior to the Policy Date. It must be paid
to the Company at its Home Office. Coverage under the Policy does not take
effect until the Policy has been issued and the Premium paid during the
Insured's lifetime.
NET PREMIUMS
The Net Premium is equal to 95% of the Premium less any applicable premium
taxes. The 5% deduction is for the front-end sales expense charge.
FIRST YEAR MINIMUM PREMIUM
The Initial Premium together with the first year Planned Premiums must be
sufficient to meet the minimum Premium requirement under the Death Benefit
Guarantee for the first year.
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<PAGE> 16
PLANNED PREMIUMS
While the Policy provides for flexible Premium payments, Policy Owners can
establish a Planned Premium Payment Plan which may provide for Premiums to be
made annually, semi-annually, quarterly or by automatic bank check. The Planned
Premiums are subject to the following minimum amounts unless the Company's then
current administrative rules specify lower amounts:
<TABLE>
<CAPTION>
PLANNED PREMIUM
MODE OF PAYMENT MINIMUM AMOUNT
--------------- ---------------
<S> <C>
Annual $200
Semi-Annual 125
Quarterly 75
Automatic Bank Check 15
</TABLE>
The Policy Owner may change the frequency and amount of Planned Premiums
by sending the Company a written notice. The Company reserves the right to
limit the amount of any increase of the Planned Premium. Any Premium which
exceeds the Planned Premium will be considered an Additional Premium subject to
the "Additional Premiums" provision of the Policy described below.
Payment of a Planned Premium will not guarantee that the Policy will
remain In Effect because even if a Premium payment is made, the Policy will
lapse any time the Cash Surrender Value is insufficient to pay the monthly
charges and the grace period expires without a sufficient Premium payment or
loan repayment having been made. However, the Death Benefit Guarantee may be in
effect which will provide a death benefit even if the Cash Surrender Value is
insufficient, provided that certain conditions are met. (See "Premiums - Death
Benefit Guarantee" and "Premiums - Grace Period.")
ADDITIONAL PREMIUMS
Additional Premium payments of at least $50 may be made at any time prior
to the Maturity Date. The Company reserves the right to limit the amount of
Additional Premium payments to those that conform to the requirements of the
Internal Revenue Code and the regulations thereunder. Even if there is a loan
outstanding, unless the Policy Owner directs to the contrary, all payments will
be deemed to be Premium payments. Premium limitations for the Policy are set
out on the Policy Specifications Page of the Policy.
MAXIMUM PREMIUM LIMITATIONS
In order to conform to the requirements of the Internal Revenue Code, the
Company will limit the total amount of Premiums, both Planned and Additional,
that may be paid during each Policy Year (the "Maximum Premium Limitation").
Because the Maximum Premium Limitation is in part dependent on the Specified
Amount for each Policy, changes in the Specified Amount may affect this
limitation. In the event that a Premium is paid that exceeds the Maximum
Premium Limitation, the Company will accept only the portion of the Premium up
to the maximum limitation and return the excess to the Policy Owner.
Thereafter, no additional Premiums will be accepted until allowed by the
Maximum Premium Limitation.
DEATH BENEFIT GUARANTEE
If the minimum Premium requirement described below is met, the Policy will
not lapse, even if the Cash Surrender Value is insufficient to cover the
Monthly Deduction when due.
The minimum Premium requirement is met if the sum of all Premiums paid is
not less than:
(1) the sum of all monthly Death Benefit Guarantee Premiums as shown on
the Policy Specifications Page of the Policy, plus
(2) the current Policy indebtedness, plus
(3) the sum of all partial surrenders, Partial Surrender Charges and
Partial Surrender Administrative Fees, plus
(4) the sum of all Monthly Deductions for any additional benefits
provided by a rider.
All sums in the minimum Premium requirement include values for the current
Policy Month.
The initial monthly Death Benefit Guarantee Premium is shown on the Policy
Specifications Page. This Premium will change upon any increase or decrease in
the Specified Amount or a change in the Death Benefit Option. At the time of
the change, the Company will recalculate the monthly Death Benefit Guarantee
Premium based on the Insured's Age, the Death Benefit Option chosen and the new
Specified Amount. Any change in the monthly Death Benefit Guarantee Premium
will be shown on a Policy amendment.
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<PAGE> 17
GRACE PERIOD
If the Death Benefit Guarantee is not In Effect, and if the Cash Surrender
Value is not sufficient to cover the Monthly Deduction when due, a grace period
of 61 days will be allowed for the payment of a Premium or loan repayment
sufficient to cover the Monthly Deduction. The grace period begins on the
Monthly Processing Day during which there was insufficient Cash Surrender
Value. The Company will mail a notice that the grace period is In Effect to the
Policy Owner's last known address.
The Policy will continue to be In Effect during this grace period. During
the grace period the death benefit will equal the amount of death benefit In
Effect immediately prior to the grace period, less any indebtedness and due and
unpaid charges.
If a Premium or loan repayment sufficient to cover the Monthly Deduction
is still unpaid at the end of the grace period, the Policy will lapse and all
coverage under the Policy will terminate without value.
Under certain circumstances, even if there is insufficient Cash Surrender
Value to cover the Monthly Deduction, the Policy will not lapse if the Death
Benefit Guarantee is In Effect. (See "Premiums - Death Benefit Guarantee.")
REINSTATEMENT
After a lapse, the Policy Owner may request that the Policy be put back In
Effect. The Company will reinstate the Policy subject to the following
conditions:
(1) the request is in writing and received by the Company within three
years from the date of lapse;
(2) the Company receives satisfactory proof that the Insured is still
insurable; and
(3) a Premium sufficient to cover the Monthly Deductions for the first
two Policy Months following reinstatement is paid.
The Policy will be reinstated on the next Valuation Date following the
date that all of the above conditions have been satisfied. The Company will not
reinstate a Policy surrendered for its full Cash Surrender Value.
CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUMS
SALES CHARGE - The Company deducts a front-end sales expense charge of 5%
from each Premium Payment. The amount of sales load deducted in any Policy Year
cannot be specifically related to the actual sales expenses incurred in that
year. To the extent that the sales loads are insufficient to recover the actual
sales expenses, such expenses may be recovered from sources other than charges
deducted from Premiums including amounts derived indirectly from the charge for
mortality and expense risks, the deferred sales charge and from mortality
gains.
PREMIUM TAX - The Company deducts the amount of any premium taxes levied
by any state or governmental entity. Premium taxes currently vary from state to
state and range from 0% to 4%.
DEDUCTIONS FROM THE VARIABLE LIFE ACCOUNT
MORTALITY AND EXPENSE RISK PREMIUM - The Company deducts a Mortality and
Expense Risk Premium equal on an annual basis to 0.90% of the daily net asset
value of the Variable Life Account to compensate the Company for the mortality
and expense risks assumed under the Policy. The mortality risk assumed by the
Company is that the Insureds, as a group, may not live as long as expected. The
expense risk assumed by the Company is that actual expenses may be greater than
those assumed. The Company is responsible for all administration of the
Policies and the Variable Life Account. (See "Deductions from Cash Value -
Monthly Deduction.")
DEATH BENEFIT GUARANTEE RISK CHARGE - The Company deducts a Death Benefit
Guarantee Risk Charge equal on an annual basis to 0.15% of the daily net asset
value of the Variable Life Account to compensate the Company for assuming risks
associated with the Death Benefit Guarantee.
TAXES - The Company reserves the right to make a provision for any income
taxes which result from the investment operation of any Subaccount. The Company
does not currently deduct for taxes.
DEDUCTIONS FROM CASH VALUE
TRANSFER FEE - The Company may deduct a Transfer Fee for each transfer.
The Transfer Fee will be deducted from the amounts which are transferred. The
Transfer Fee will not exceed $25.
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<PAGE> 18
MONTHLY DEDUCTION - The Company makes a Monthly Deduction from the Cash
Value of the Policy at the beginning of each Policy Month that is equal to the
sum of the following:
(1) the cost of insurance for the Policy and any additional benefits
provided by rider for the Policy Month;
(2) a $5 monthly administrative fee. This charge reimburses the Company
for the administration of the Policy and the Variable Life
Account. Such administration includes Policy issuance, underwriting,
maintenance of Policy records, Policy Owner service, premium billing
and collection, reports to Policy Owners and all accounting, reserve
calculations, regulatory and reporting requirements, and auditing of
the Variable Life Account.
The monthly deduction will result in the cancellation of Accumulation
Units (see "Definitions" and "Policy Benefits and Rights - Determination of
Accumulation Unit") from each applicable Subaccount in the ratio that the
value of the Subaccount bears to the sum of the Subaccount Cash Values.
The COST OF INSURANCE for the Policy is determined on a Policy Month
basis. This amount will vary from month to month and is dependent upon the
Death Benefit Option In Effect, the Cash Value, the Insured's Sex and Age, as
well as the risk class of the Policy. The cost of insurance is determined by
multiplying the difference between the Death Benefit In Effect divided by
1.0040741 and the Cash Value by the monthly MORTALITY CHARGE. Because insurance
investment performance or the level of Premium payments will affect the Death
Benefit or the Cash Value, they will also affect the cost of insurance.
The cost of insurance for any rider is calculated separately for each
rider.
The monthly MORTALITY CHARGE is based on the Company's current mortality
rates. The current mortality rates are based on the Insured's age, sex, and
risk class. The risk class will be determined separately for the initial
Specified Amount and for any subsequent increase in the Specified Amount
requiring evidence of insurability. Current mortality rates are determined by
the Company according to expectations of future mortality experience. These
rates are not guaranteed and may be changed from time to time, but will never
exceed the maximum rates shown in the Table of Guaranteed Maximum Mortality
Rates which is set out in the Policy. Any change in mortality rates will apply
to all Insureds of the same age, sex, and risk class. The guaranteed rates for
standard risks are based on the 1980 Commissioner's Standard Ordinary Mortality
Table, Age Last Birthday ("1980 CSO Table"). The guaranteed rates for
Insureds classified as smokers or medically substandard are based on a multiple
of the 1980 CSO Table. Such multiples could be as high as five times the 1980
CSO Table.
DEDUCTIONS FROM SURRENDERED VALUES
FULL SURRENDER CHARGE - In the event that the Policy is totally
surrendered prior to the Maturity Date, a Full Surrender Charge may be
assessed. Full surrender of the Policy during the first nine (9) years will
result in the imposition of the Full Surrender Charge, the amount of which is
the total (or a percentage thereof) of the four charges ((1) through (4))
below. The Full Surrender Charge will be reduced during that time until it
reaches zero in the tenth year. The amount of the charge due is determined by
multiplying the applicable percentage in the Table set out under (5) below by
the sum of the four charges.
(1) CONTINGENT DEFERRED ADMINISTRATIVE EXPENSE CHARGE. This charge is
calculated as $3.50 per $1,000 on the first $100,000 of the
Specified Amount plus $1.50 per $1,000 on the excess above $100,000
of the Specified Amount. The maximum Contingent Deferred
Administrative Expense Charge is $750. This charge is designed to
cover the administrative expenses incurred in connection with issuing
a Policy. Such expenses include processing applications, initial
underwriting review, medical examinations, inspection reports,
attending physician's statements, insurance underwriting costs,
establishing permanent Policy records, policy issuance costs,
preparation of illustrations to accompany the Policy, preparation of
riders, and initial confirmations.
(2) DEFERRED SALES CHARGE. This charge is calculated as 25% of the Target
Surrender Premium or 25% of the actual premiums paid in the
first Policy Year, if less. The Target Surrender Premium is shown on
the Policy Specifications Page of the Policy and is calculated to be
less than or equal to the guideline annual premium as defined in the
applicable rules and regulations pursuant to the Investment Company
Act of 1940.
(3) ADDITIONAL CONTINGENT DEFERRED ADMINISTRATIVE EXPENSE CHARGE. This
charge may result from an increase in the Specified Amount. The
maximum additional Contingent Deferred Administrative Expense Charge
is calculated as $3.50 per $1,000 on the first $100,000 of the
increase in the Specified Amount plus $1.50 per $1,000 on the excess
above $100,000 of the
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<PAGE> 19
increase in the Specified Amount. The maximum Contingent Deferred
Administrative Expense Charge is $750 for each increase in the Specified
Amount.
(4) ADDITIONAL DEFERRED SALES CHARGE. This charge may result from an
increase in the Specified Amount. This charge is 25% of the lesser of:
(a) the Target Surrender Premium for the increase in the Specified
Amount as shown on the Policy amendment; or
(b) the portion of the actual Premiums paid in the first twelve
(12) Policy Months following the effective date of the increase
in the Specified Amount that exceeds the Target Surrender
Premium for the Policy that was in effect prior to the increase
in the Specified Amount.
The Target Surrender Premium is based on the Insured's sex and age on the
effective date of the change. The Company reserves the right to require a
minimum Premium payment during the first 12 months following the effective
date of the increase in the Specified Amount.
(5) The applicable percentage is shown in the following Table where Year
is the number of full Policy Years from the original Policy Date or from
the Policy Anniversary on or preceding the date of each increase in the
Specified Amount to the date of surrender.
<TABLE>
<CAPTION>
COMPLETED POLICY YEARS APPLICABLE PERCENTAGE
---------------------- ---------------------
<S> <C>
0-4 100
5 80
6 60
7 40
8 20
9+ 0
</TABLE>
However, in no event will the sum of the front-end sales charges and the
Deferred Sales Charges exceed the sales load limitations of applicable federal
securities laws.
The Full Surrender Charge, as calculated above, is reduced by the sum of
all Partial Surrender Charges previously deducted. In no event will the Full
Surrender Charge be less than zero.
A decrease in the Specified Amount will not change any existing surrender
charges.
PARTIAL SURRENDER CHARGE - In the event that the Policy is partially
surrendered, a Partial Surrender Charge may be assessed. The Policy Owner has
the right to partially surrender the Policy by withdrawing Cash Value. (See
"Policy Benefits and Rights - Partial Surrender.") A partial surrender will
result in the imposition of a portion of the Full Surrender Charge described
above which will be equal to the percentage of Cash Surrender Value that the
withdrawal represents. For example, if the partial withdrawal amounts to 20% of
the Policy's Cash Surrender Value (measured at the end of the Valuation Period
following the request for a partial surrender), 20% of the applicable Full
Surrender Charge will be imposed.
PARTIAL SURRENDER ADMINISTRATIVE FEE - In the event that the Policy is
partially surrendered, a Partial Surrender Administrative Fee is assessed. This
charge is the lesser of 2% of the amount surrendered or $25, and compensates
the Company for the administrative expenses incurred in processing a partial
surrender.
The Policy Owner may designate from which Subaccounts the Partial
Surrender Administrative Fee and Partial Surrender Charge will be made if they
are not to be deducted proportionately from all the Subaccounts in which the
Policy is invested. These charges are in addition to the amounts surrendered.
GROUP ARRANGEMENTS
The front-end sales charge, monthly administrative charge, Deferred Sales
Charge, Deferred Administrative Expense Charge, minimum Premium, and minimum
amount of insurance may be reduced or eliminated when the Policy is issued to
individuals or a group of individuals in such a manner that results in a
savings of sales or administrative expenses. The entitlement to such a
reduction will be determined by the Company in the following manner:
(1) The size and type of group to which sales are to be made will be
considered. Generally, the sales expenses for a larger group are less
than for a smaller group because of the ability to issue large numbers
of Policies with fewer sales contacts.
(2) The total amount of Premiums to be received will be considered. Per
Policy sales expenses are likely to be less on larger Premium payments
than on smaller ones.
16
<PAGE> 20
(3) Any prior or existing relationship with the Company will be
considered. Per Policy sales and administrative expenses are likely to
be less when there is a prior or existing relationship because of the
likelihood of issuing the Policies with fewer sales contacts and less
administrative effort.
(4) There may be other circumstances of which the Company is not
presently aware that could result in reduced sales or administrative
expenses.
The Company may modify from time to time, on a uniform basis, both the
amounts of reductions and the criteria for qualification. In no event will
reductions or elimination of these charges or other Policy provisions be
permitted where such reductions or elimination will be unfairly discriminatory
to any person.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
A death benefit will be paid upon the death of the Insured so long as the
Policy is In Effect. The death benefit payable will be reduced by any
indebtedness and any due and unpaid charges.
The death benefit under the Policy is payable to the named Beneficiary
when the Insured dies. All or part of the death benefit may be paid in cash or
applied under one or more of the optional settlement plans.
There are two death benefit options and the amount of death benefit
payable under the Policy will depend upon the death benefit option In Effect at
the time of the Insured's death. A Policy Owner may elect one of two options to
determine the amount of death benefit payable under the Policy. Under Option 1
the death benefit equals the greater of the Specified Amount or the Cash Value
multiplied by the applicable corridor percentage. Under Option 2 the death
benefit is the greater of the Specified Amount plus the Cash Value or the Cash
Value multiplied by a corridor percentage. The Specified Amount and Policy Cash
Value will be calculated at the end of the next Valuation Period following the
date of death of the Insured.
CORRIDOR PERCENTAGES
The Corridor Percentages shown in the following table are based on the
Insured's Age.
<TABLE>
<CAPTION>
AGE % AGE % AGE %
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C>
40 or less 250 55 150 70 115
41 243 56 146 71 113
42 236 57 142 72 111
43 229 58 138 73 109
44 222 59 134 74 107
45 215 60 130 75 105
46 209 61 128 76 105
47 203 62 126 77 105
48 197 63 124 78 105
49 191 64 122 79-90 105
50 185 65 120 91 104
51 178 66 119 92 103
52 171 67 118 93 102
53 164 68 117 94 101
54 157 69 116 95+ 100
</TABLE>
The effect of an increase in Cash Value differs under the two death
benefit options. Under either option, both Premium payments and favorable
investment results will increase Cash Value. Under Death Benefit Option 1,
increased Cash Value will decrease the amount of the Monthly Deductions and,
therefore, the amount of additional Premium necessary to keep the Policy In
Effect. Under Death Benefit Option 2, increased Cash Value does not reduce the
amount of the Monthly Deductions but does increase the death benefit. Under
either death benefit option, an increase in Cash Value results in greater
amounts being available to the Policy Owner for policy loans or surrenders.
The insurance goals of the Policy Owner determine the appropriate death
benefit option. Policy Owners who prefer to have favorable investment results
reflected partly in the form of an increased death benefit should choose Option
2. Policy Owners who are satisfied with the amount of their insurance coverage
and wish to have favorable investment results and additional Premium reflected
to the maximum extent in increasing Cash Values should choose Option 1.
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<PAGE> 21
The differences between the death benefit options may be shown graphically
as follows:
ILLUSTRATIONS OF DEATH BENEFIT OPTIONS
DEATH BENEFIT OPTION 1 - Pays a death benefit equal to the Specified
Amount unless exceeded by the Cash Value multiplied by the Corridor Percentages
(as illustrated at Point A).
[GRAPH]
Death Benefit
Specified Amount
Less Cash Value
Specified Amount
Cash Value
Point A
DEATH BENEFIT OPTION 2 - Pays a death benefit equal to the Specified
Amount plus the Policy's Cash Value unless exceeded by the Cash Value
multiplied by the Corridor Percentages.
[GRAPH]
Death Benefit
Specified Amount
Specified Amount
Cash Value
CHANGE OF DEATH BENEFIT OPTION
The Policy Owner may change the death benefit option In Effect by sending
the Company a written request. Upon the Company's acceptance, the effective
date of the change will be the Monthly Processing Day next following receipt of
the request. Such a change may result in a new Specified Amount and may be
subject to evidence of insurability satisfactory to the Company before the
change will be made.
A change from Option 2 to Option 1 will increase the Specified Amount by
the Policy's Cash Value calculated at the end of the Valuation Period following
the effective date of the change. When there is a change from Option 2 to
Option 1, the Company may require evidence of insurability.
A change from Option 1 to Option 2 will decrease the Specified Amount by
the Policy's Cash Value calculated at the end of the Valuation Period following
the effective date of the change.
A change of death benefit option will change the cost of insurance charge
for the duration of the Policy. (See "Charges and Deductions - Deductions from
Cash Value.") The mortality charge is the same under both options, but the
difference between the death benefit and the Cash Value varies directly with
Cash Value under Option 1, but is constant under Option 2 unless the death
benefit is derived from the application of the Corridor Percentages.
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<PAGE> 22
CHANGE IN THE SPECIFIED AMOUNT
The Policy Owner may increase or decrease the Specified Amount. Written
requests must be received by the Company and any change is subject to the
following conditions:
(1) No changes in the Specified Amount may be made during the first
Policy Year.
(2) The Specified Amount may be changed only one time in any Policy Year.
(3) The Specified Amount cannot be less than the minimum Specified Amount
of $100,000 unless the Company's current administrative rules
specify a lower amount.
(4) DECREASES IN THE SPECIFIED AMOUNT - Any decrease will become
effective on the Monthly Processing Day following the date the
request is received (see also item (3) above). Decreases in the
Specified Amount will be effected on a last-in-first-out basis. That
is, for purposes of determining cost of insurance (see "Charges and
Deductions - Deductions from Cash Value"), a decrease will apply to
the Specified Amount provided by the most recent increase, then the
next most recent increase successively, then to the initial Specified
Amount. The Company will not allow a decrease in the Specified Amount
if such decrease causes the Policy to violate the Maximum Premium
Limitation. There is no Deferred Sales Charge assessed at the time of
a decrease in the Specified Amount.
(5) INCREASES IN THE SPECIFIED AMOUNT - Any request for an increase must
be submitted on a supplemental application. Satisfactory
evidence of insurability must be supplied. Any approved increase will
become effective on the next Monthly Processing Day following the
Company's approval. An increase will not become effective if the
Policy's Cash Surrender Value is insufficient to cover the Monthly
Deduction for the Policy Month following the increase. When there is
an increase in the Specified Amount, the Policy Owner is granted a
free-look and exchange privilege. (See "Summary - Free Look Provision"
and "The Policy - Right to Exchange the Policy.")
Any change in the Specified Amount will result in a change in the
cost of insurance charge because this charge is dependent upon the
difference between the Death Benefit In Effect and the Cash Value.
(See "Charges and Deductions - Deductions from Cash Value" for a
discussion of cost of insurance.) (See also "Policy Benefits and
Rights - Illustrations of Death Benefit Options.")
Any change in the Specified Amount may affect the Premium
requirement for the minimum Death Benefit Guarantee.
Increases in the Specified Amount will result in the assessment
of a new Full Surrender Charge, unless the increase is due to a
change from Death Benefit Option 2 to Death Benefit Option 1 as if a
new policy had been issued for that Specified Amount. No increase
will be allowed if the Policy does not have sufficient Cash Surrender
Value to support the additional Deferred Charges. The Company
reserves the right to require the payment of an additional Premium in
an amount equal to the First Year Minimum Premium which would be
charged based on the then Age and risk class for a newly-issued
Policy with a Specified Amount equal to the amount of increase, as a
condition following an increase. (See "Charges and Deductions -
Deductions from Surrendered Values - Full Surrender Charge." ) Since
the cost of insurance varies directly with the difference between the
death benefit and the Cash Value of the Policy, an increase in the
Specified Amount will generally require higher Premium payments to
support the Policy. (See "Premiums - Grace Period.")
For example, assume a 40-year old male non-smoker buys a $100,000 policy
and chooses Option 1. Also assume that all Policy charges and deductions are
made and that the net investment return after all asset-based charges are
deducted is 6% (8.08% gross investment return). The following table shows the
effect on Cash Values and Cash Surrender Values under three alternatives: the
Specified Amount is not changed; the Specified Amount is increased to $250,000;
or the Specified Amount is decreased to $50,000. The changes occur five years
after issue.
<TABLE>
<CAPTION>
NO CHANGE IN INCREASE IN SPECIFIED DECREASE IN SPECIFIED
SPECIFIED AMOUNT AMOUNT TO $250,000 AMOUNT TO $50,000
------------------- ------------------------ ------------------------
CASH CASH CASH
END OF CASH SURRENDER CASH SURRENDER CASH SURRENDER
POLICY YR. VALUE VALUE VALUE VALUE VALUE VALUE
- ---------- -------- --------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
5 $ 6,586 $ 6,004 $ 6,586 $ 6,004 $ 6,586 $ 6,004
6 8,105 7,668 10,528 8,932 7,300 6,863
7 9,696 9,405 14,663 13,212 8,046 7,755
10 14,940 14,940 28,328 27,400 10,495 10,495
20 38,636 38,636 90,775 90,775 21,359 21,359
Age 65 55,504 55,504 135,742 135,742 28,941 28,941
</TABLE>
19
<PAGE> 23
The Premium paid in all cases was assumed to be equal to the minimum
Premium requirement for the Death Benefit Guarantee. This Premium requirement
is $1,511 at issue, increases to $4,368 when the Specified Amount increases to
$250,000 and decreases to $558 when the Specified Amount decreases to $50,000.
MATURITY BENEFITS
If the Policy is In Effect on the Maturity Date, the Company will pay the
Policy's Cash Value, less any outstanding Policy indebtedness, calculated at
the end of the Valuation Period following the Maturity Date. Benefits may be
paid in a lump-sum or under any optional settlement plan acceptable to the
Company.
CASH VALUE
Each Policy will have a Cash Value which may change each Valuation Date.
Cash Values will be determined at the end of every Valuation Period. The Cash
Value of the Policy is equal to the sum of the Subaccount Cash Values and any
Cash Value held in the General Account to secure a Policy debt. The Cash Value
varies with the investment performance of the underlying Portfolios and with
the charges imposed in connection with the Policy. (See "Charges and
Deductions.") THERE IS NO GUARANTEED MINIMUM CASH VALUE.
DETERMINATION OF ACCUMULATION UNIT
The Cash Value for a Subaccount on any Valuation Date is determined by
multiplying the number of Accumulation Units attributable to that Subaccount by
the value of an Accumulation Unit for the Subaccount. The Subaccount Cash
Values will vary with the investment performance of the underlying Portfolios.
For each Subaccount, Net Premiums result in Accumulation Units being
credited to the Policy Owner's account. Monthly Deductions and all other
charges and fees affecting the Subaccount will result in the cancellation of
Accumulation Units from the Subaccount. The number of Accumulation Units
credited to or cancelled from the Subaccount is determined by dividing the
dollar value of the transaction by the value of an Accumulation Unit for the
Subaccount. The Subaccount Cash Value is determined by multiplying the number
of Accumulation Units attributable to the Subaccount by the value of an
Accumulation Unit for the Subaccount.
The Accumulation Unit value for each Subaccount was arbitrarily set
initially at $10. The Accumulation Unit value for any later Valuation Period is
determined by subtracting (2) from (1) and dividing the result by (3) where:
(1) is the net result of
(a) the assets of the Subaccount, i.e., the aggregate value of the
underlying Eligible Mutual Fund or Portfolio shares held at the
end of the Valuation Period; plus or minus
(b) the cumulative charge or credit for taxes reserved which is
determined by the Company to have resulted from the investment
operation of the Subaccount (the Company is not currently
making a charge for taxes);
(2) is the cumulative unpaid charge for the mortality and expense and
death benefit guarantee risks; and
(3) is the number of Accumulation Units outstanding at the end of such
Valuation Period.
The Accumulation Unit value may increase or decrease from Valuation Period
to Valuation Period.
PARTIAL SURRENDER
While the Policy is In Effect, the Policy Owner may request a partial
surrender of the Policy upon written request to the Company subject to the
following terms and the Surrender Requirements Provision. The Policy Owner may
specify from which Subaccount the Cash Value is to be withdrawn. Partial
Surrenders will result in the cancellation of Accumulation Units, and unless
directed otherwise by the Policy Owner, will be deducted from each applicable
Subaccount in the ratio that the Cash Value of each Subaccount bears to the sum
of the Subaccount Cash Values.
There is a Partial Surrender Administrative Fee, which is the lesser of 2%
of the amount surrendered or $25. There may also be a Partial Surrender Charge
(which is a portion of the Full Surrender Charge) assessed as a result of the
partial surrender. (See "Charges and Deductions.")
20
<PAGE> 24
The Cash Value and death benefit will be reduced by the sum of any partial
surrenders, Partial Surrender Charges and Partial Surrender Administrative
Fees. If the Policy Owner has selected Death Benefit Option 1, the Specified
Amount will also be reduced by the sum of any partial surrenders, Partial
Surrender Charges, and Partial Surrender Administrative Fees.
The Company reserves the right to limit the number of partial surrenders
made in a Policy Year. There is currently no limit.
There may be tax consequences to a partial surrender to the extent that
the surrender amount exceeds the Premiums for the Policy. Policy Owners may
find it advantageous to obtain a Policy loan if the need for cash is temporary.
Policy Owners should consult their own tax adviser. (See "Policy Loans"
below.)
FULL SURRENDER
While the Policy is In Effect, the Policy Owner may completely surrender
the Policy for its full Cash Surrender Value upon written request. A full
surrender will terminate the Policy.
The full Cash Surrender Value is the Cash Value calculated at the end of
the Valuation Period next following the date on which the request for a
surrender is received, less any indebtedness against the Policy, and less the
applicable surrender charge. The applicable surrender charge is determined by
calculating the Full Surrender Charge as of the end of the Valuation Period
next following the date on which the request for a surrender is received. (For
a complete discussion of Surrender Charges, see "Charges and Deductions.")
SURRENDER REQUIREMENTS
A request for a partial or full surrender of the Policy is subject to the
following: (1) it must be in writing; (2) it must be made during the Insured's
lifetime; (3) it must be made prior to the Maturity Date; and (4) it must be
made while the Policy is In Effect.
Surrender proceeds will be paid within seven days of the effective date of
the surrender unless a Suspension of Payments is in effect. (See "Suspension
of Payments.")
POLICY LOANS
LOAN VALUE OF THE POLICY
As long as the Policy is In Effect, the Policy Owner may borrow from the
Company at any time after the first Policy Anniversary using the Policy as the
only security for the loan. Requests for Policy loans must be in writing. The
maximum loan amount is 90% of the Cash Value minus the Full Surrender Charge at
the end of the Valuation Period during which the loan request is received. The
maximum amount that may be borrowed at any time is the maximum loan amount
reduced by any outstanding Policy indebtedness. Policy loans will normally be
paid within seven days after the Company receives a loan request. Payments may
be postponed under situations detailed under "Suspension of Payments."
Generally, a Policy will not be a modified endowment contract. However, if
a Policy is a modified endowment contract, loan proceeds may be taxable. (See
"Tax Status - Tax Treatment of Loans and Surrenders.")
ALLOCATION OF LOANS
At the end of the Valuation Period during which the loan becomes
effective, a portion of the Policy's Cash Value equal to the amount of the loan
will be transferred from the Subaccounts of the Variable Life Account to the
Company's General Account. The amount transferred to the General Account does
not participate in the investment experience of the Variable Life Account. Any
loan interest that is due and unpaid will also be transferred. Such transfers
result in the cancellation of Accumulation Units within the Subaccounts of the
Variable Life Account. Accumulation Units will be cancelled from each
applicable Subaccount in the ratio that the Cash Value of the Subaccounts bears
to the sum of the Subaccount Cash Values. The Policy Owner must specify in
writing in advance which units are to be cancelled if other than this method is
desired.
INTEREST CREDITED
Cash Value in the General Account will accrue interest daily at an annual
rate of 6%. This interest will be credited at the end of each Policy Year and
transferred to the Subaccounts of the Variable Life Account in the same manner
that Premiums are being allocated to the Subaccounts.
INTEREST CHARGED
The Company will charge an annual effective interest rate of 8% on all
Policy loans. Interest is due at the end of each Policy Year. Unpaid interest
will be added to the existing Policy indebtedness and will be charged interest
at the same rate.
21
<PAGE> 25
LAPSE DUE TO LOAN
Policy indebtedness equals the sum of all outstanding Policy loans and
accrued interest thereon. If the Policy indebtedness causes the Cash Surrender
Value to equal zero or become negative, and the Death Benefit Guarantee is not
in effect, the Company will notify the Policy Owner and any collateral assignee
of record. A payment at least equal to the excess of the Policy indebtedness
over the Cash Value less any remaining surrender charges must be made to the
Company within 61 days from the date notice is sent, or the Policy will lapse
and terminate without value. Policy indebtedness will affect the applicability
of the Death Benefit Guarantee. (See "Premiums -- Death Benefit Guarantee.")
LOAN REPAYMENT
Policy indebtedness may be repaid in full or in part at any time while the
Policy is In Effect. Outstanding Policy indebtedness is subtracted from death
benefit payable on the Insured's death, from the Cash Value upon full cash
surrender, and from Cash Value payable at the Maturity Date. During the
Valuation Period during which a repayment is made, the Policy's Cash Value in
the General Account securing the repaid portion of the Policy loan will be
transferred to the Subaccounts of the Variable Life Account in the same manner
that Premiums are then being allocated to the Subaccounts. Payments received by
the Company will be treated as Premium payments and not as a repayment of an
outstanding loan unless directed to the contrary by the Policy Owner.
OTHER POLICY PROVISIONS
POLICY OWNER
The Policy Owner is the Insured, unless otherwise specified in the
application. The Policy Owner may exercise all Policy rights and privileges
while the Insured is living without the consent of any revocable Beneficiary.
CONTINGENT POLICY OWNER
The Policy Owner, if not the Insured, may name a Contingent Policy Owner.
If the Policy Owner dies before the Insured, the Contingent Policy Owner named
in the application will become the Policy Owner and will possess all rights of
a Policy Owner. If the Contingent Policy Owner is dead, or if no Contingent
Policy Owner has been named at the death of the Policy Owner, ownership passes
to the Policy Owner's estate.
CHANGE OF POLICY OWNER OR CONTINGENT POLICY OWNER
The Policy Owner may change the Policy Owner or the Contingent Policy
Owner. The change requires satisfactory written notice to the Company. After
the Company records it, the change is effective on the date of the signed
notice. The Insured does not have to be living when the Company records a
change of Policy Owner for it to be effective. The Policy Owner does not have
to be living when the Company records a change of Contingent Policy Owner for
it to be effective. The Company will not be responsible for any payment made or
other action taken before any change is recorded.
ASSIGNMENT
The Policy Owner may assign the Policy as collateral. The Company is not
responsible for the validity or effect of any collateral assignment. The
interest of any revocable Beneficiary will be subject to the terms of the
assignment. The Company will not be responsible for knowledge of any assignment
until the written notice has been recorded.
BENEFICIARY
The Beneficiary is named in the application. If there is no Beneficiary at
the time of the Insured's death, the Company will pay the death benefit to the
Policy Owner or the Policy Owner's estate. If any Beneficiary dies at the same
time or within 10 days of the Insured, the death benefit will be paid as though
the Beneficiary died before the Insured.
CHANGE OF BENEFICIARY
The Policy Owner may change the Beneficiary. The change requires
satisfactory written notice to the Company. Once the Company records the
change, it becomes effective from the date the written notice was signed. The
Insured does not have to be living at the time the Company records the change
for it to be effective. The Company will not be responsible for any payment
made or other action taken before the change has been recorded.
INCONTESTABILITY
Except for failure to pay Premiums, the Company will not contest the
validity of the Policy after it has been In Effect during the Insured's
lifetime for two years from the Policy Date. This will not apply
22
<PAGE> 26
to any riders attached to the Policy. Any increase in the Specified Amount
after the Policy Date will be incontestable only after such increase has been
In Effect during the Insured's lifetime for two years following the effective
date of such increase.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex has been misstated in an application, the
Policy proceeds will be adjusted by the difference between the Monthly
Deductions actually deducted and the Monthly Deductions which would have been
deducted at the correct age and sex. The adjustment will be accumulated based
on investment returns that were credited to the Cash Value.
NO DIVIDENDS
The Policy is a nonparticipating Policy. It does not pay dividends and
will not share in the Company's profits or surplus.
OPTIONAL SETTLEMENT PLANS
Any proceeds payable under this Policy will be paid in one lump sum unless
an Optional Settlement Plan is chosen. While the Insured is living, the Policy
Owner may request one of the plans. If no plan has been requested prior to the
Insured's death, the Beneficiary may request a plan. The request requires
satisfactory written notice to the Company. Upon the Company's acceptance, the
request is effective from the date the notice was signed. The Company will not
be responsible for any payment made or other action taken before the request
has been recorded by the Company.
The Policy proceeds payable upon settlement of the Policy may be paid
under one of the following plans or any other plan acceptable to the Company.
PLAN 1. PROCEEDS HELD AT INTEREST. The Company will hold the Policy
proceeds and make payments at the times and in the amounts agreed upon, as
long as the Policy remains In Effect. The Company will credit the Policy
proceeds held with an annual effective interest rate of at least 4%. When
the payee dies, any remaining Policy proceeds will be paid to his or her
estate, unless otherwise specified.
PLAN 2. LIFETIME PAYMENTS WITH A GUARANTEE. The Company will make
monthly payments for as long as the payee lives. A guaranteed number of
payments may be chosen. If the payee dies before the guaranteed number of
payments has been made, the Company will continue the payments until the
guaranteed number of payments has been made.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone any payment under
the Policy 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 as a result of which disposal of securities held
in the Variable Life Account is not reasonably practicable or it is
not reasonably practicable to determine the value of the Variable Life
Account's net assets; or
(4) during any other period when the Securities and Exchange Commission,
by order, so permits for the protection of security holders;
provided that applicable rules and regulations of the Securities
and Exchange Commission shall govern as to whether the conditions
described in (2) and (3) exist.
TAX STATUS
NOTE: The following description is based upon the Company's understanding of
current federal income tax law applicable to life insurance in general. The
Company cannot predict the probability that any changes in these laws will be
made. Purchasers are cautioned to seek competent tax advice regarding the
possibility of any changes. Section 7702 of the Internal Revenue Code of 1986,
as amended (the "Code"), defines the term "life insurance contract" for the
purposes of the Code. The Company believes that the Policy qualifies as a
"life insurance contract" under Section 7702. However, the Company does not
guarantee the tax status of the Policy. Purchasers bear the complete risk that
the Policy may not be treated as "life insurance" under federal income tax
laws. Purchasers should consult their own tax adviser. It should be further
understood that the following discussion is not exhaustive and that special
rules not described in this Prospectus may be applicable in certain situations.
Moreover, no attempt has been made to consider any applicable state or other
tax laws.
23
<PAGE> 27
INTRODUCTION
The discussion contained herein is general in nature and is not intended
as tax advice. Each person concerned should consult a competent tax adviser. No
attempt is made to consider any applicable state or other tax laws. Moreover,
the discussion herein is based on the Company's understanding of current
federal income tax laws as they are currently interpreted. No representation is
made regarding the likelihood of continuation of those current federal income
tax laws or of the current interpretations by the Internal Revenue Service.
The Company is taxed as a life insurance company under the Code. For
federal income tax purposes, the Variable Life Account is not a separate entity
from the Company and its operations form a part of the Company.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on
the underlying assets of variable life insurance policies. The Code provides
that a variable life insurance policy will not be treated as life insurance for
any period (and any subsequent period) for which the investments are not, in
accordance with regulations prescribed by the United States Treasury Department
("Treasury Department"), adequately diversified. Disqualification of the
Policy as a life insurance contract would result in imposition of federal
income tax to the Policy Owner with respect to earnings allocable to the Policy
prior to the receipt of payments under the Policy. The Code contains a safe
harbor provision which provides that life insurance policies such as the Policy
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the diversification standards for a regulated investment
company and no more than 55% of the total assets consist of cash, cash items,
U.S. Government securities and securities of other regulated investment
companies. There is an exception for securities issued by the U.S. Treasury in
connection with variable life insurance policies.
On March 2, 1989, the Treasury Department issued regulations (Treas. Reg.
1.817-5), which established diversification requirements for the investment
portfolios underlying variable life insurance policies such as the Policy. The
regulations amplify the diversification requirements for variable contracts set
forth in the Code and provide an alternative to the safe harbor provision
described above. Under the regulations, an investment portfolio will be deemed
adequately diversified if (1) no more than 55% of the value of the total assets
of the portfolio is represented by any one investment; (2) no more than 70% of
the value of the total assets of the portfolio is represented by any two
investments; (3) no more than 80% of the value of the total assets of the
portfolio is represented by any three investments; and (4) no more than 90% of
the value of the total assets of the portfolio is represented by any four
investments. For purposes of these regulations, all securities of the same
issuer are treated as a single investment. The Code provides that for
purposes of determining whether or not the diversification standards imposed on
the underlying assets of variable contracts by Section 817(h) of the Code have
been met, "each United States government agency or instrumentality shall be
treated as a separate issuer."
The Company intends that all Eligible Mutual Funds underlying the Policy
will be managed by the investment adviser(s) for the Eligible Mutual Funds so
as to comply with these diversification requirements.
The Treasury Department has indicated that the diversification regulations
do not provide guidance regarding the circumstances in which Policy Owner
control of the investments of the Variable Life Account will cause the Policy
Owner to be treated as the owner of the assets of the Variable Life Account,
thereby resulting in the loss of favorable tax treatment for the Policy. At
this time it cannot be determined whether additional guidance will be provided
and what standards may be contained in such guidance.
The amount of Policy Owner control which may be exercised under the Policy
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 Policy Owner's ability to
transfer among investment choices or the number and type of investment choices
available, would cause the Policy Owner to be considered the owner of the
assets of the Variable Life Account.
In the event any forthcoming guidance or ruling is considered to set forth
a new position, such guidance or ruling will generally be applied only
prospectively. However, if such ruling or guidance was not considered to set
forth a new position, it may be applied retroactively resulting in the Policy
Owner being retroactively determined to be the owner of the assets of the
Variable Life Account.
Due to the uncertainty in this area, the Company reserves the right to
modify the Policy in an attempt to maintain favorable tax treatment.
24
<PAGE> 28
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of life
insurance contained in Section 7702 of the Code. Although some interim guidance
has been provided and proposed regulations have been issued, final regulations
have not been adopted. Section 7702 of the Code requires the use of reasonable
mortality and other expense charges. In establishing these charges, the Company
has relied on the interim guidance provided in IRS Notice 88-128 and proposed
regulations issued on July 5, 1991. Currently, there is even less guidance as
to a Policy issued on a substandard risk basis and thus it is even less clear
whether a Policy issued on such basis would meet the requirements of Section
7702 of the Code.
While every attempt has been made by the Company to comply with Section
7702, the law in this area is very complex and unclear. There is a risk,
therefore, that the Internal Revenue Service will not concur with the Company's
interpretations of Section 7702 that were made in determining such compliance.
In the event the Policy is determined not to comply, it would not qualify for
the favorable tax treatment usually accorded life insurance policies. Policy
Owners should consult their tax advisers with respect to the tax consequences
of purchasing the Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from
the Policy will depend on whether the Policy is considered to be a modified
endowment contract. (See "Tax Treatment of Loans and Surrenders.") Otherwise
the Policy should receive the same federal income tax treatment as any other
type of life insurance. As such, the death benefit thereunder is excludable
from the gross income of the Beneficiary under Section 101(a) of the Code.
Also, the Owner is not deemed to be in constructive receipt of the Cash Value
or Cash Surrender Value, including increments thereon, under a Policy until
actual surrender thereof, or borrowing if a "modified endowment contract."
(See below.)
Federal estate and state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
TAX TREATMENT OF LOANS AND SURRENDERS
Section 7702A of the Code sets forth the rules for determining when a life
insurance policy will be deemed to be a modified endowment contract. A modified
endowment contract is a contract which is entered into or materially changed on
or after June 21, 1988, and fails to meet the 7-pay test. A Policy fails to
meet the 7-pay test when the cumulative amount paid under the Policy at any
time during the first 7 Policy Years exceeds the sum of the net level premiums
which would have been paid on or before such time if the Policy provided for
paid-up future benefits after the payment of 7 level annual premiums. A
material change would include any increase in the future benefits or addition
of qualified additional benefits provided under a Policy unless the increase is
attributable to (1) the payment of premiums necessary to fund the lowest death
benefit and qualified additional benefits payable in the first 7 Policy Years;
or (2) the crediting of interest or other earnings (including policyholder
dividends) with respect to such premiums.
Furthermore, any policy received in exchange for a policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. The status of an exchange of a
contract issued before June 21, 1988, is unclear. However, the Internal Revenue
Service has taken the position in a Private Letter Ruling that a contract
received in an exchange on or after June 21, 1988, will be considered entered
into as of the date of the exchange and therefore subject to Section 7702A.
Due to the flexible premium nature of the Policy, the determination of
whether it qualifies for treatment as a modified endowment contract depends on
the individual circumstances of each Policy.
If a Policy is a modified endowment contract, partial or full surrenders
and/or loan proceeds are taxable to the extent of income in the Policy. Such
distributions are deemed to be on a last-in-first-out basis, which means the
taxable income is distributed first. Loan proceeds and/or surrender payments
may also be subject to an additional 10% federal income tax penalty applied to
the income portion of such distribution. The penalty shall not apply to any
distribution (1) made on or after the date on which the taxpayer reaches age
59 1/2; (2) which is attributable to the taxpayer becoming disabled (within the
meaning of Section 72(m)(7) of the Code); or (3) which is part of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the taxpayer or the joint lives (or joint
life expectancies) of such taxpayer and his or her beneficiary.
If a Policy is not classified as a modified endowment contract, then any
surrenders will be treated first as a recovery of the investment in the Policy
which would not be received as taxable income. However,
25
<PAGE> 29
if a distribution is the result of a reduction in benefits under the Policy
within the first 15 years after the Policy is issued in order to comply with
Section 7702, such distribution will under rules set forth in Section 7702, be
taxed as ordinary income to the extent of income in the Policy.
Any loan from a Policy that is not classified as a modified endowment
contract will be treated as indebtedness of the Owner and not as a
distribution.
Personal interest payable on a loan under a Policy owned by an individual
is generally not deductible. Furthermore, no deduction will be allowed for
interest on a loan under a Policy covering the life of any employee or officer
of the taxpayer or any person financially interested in the business carried on
by the taxpayer to the extent the indebtedness for such employee, officer or
financially interested person exceeds $50,000. The deductibility of interest
payable on Policy loans may be subject to further rules and limitations under
Sections 163 and 264 of the Code.
Policy Owners should seek competent advice on the tax consequences of
taking loans, surrendering any Policy issued since June 21, 1988, or making any
material modifications to their Policy.
MULTIPLE POLICIES
The 1988 Act further provides that multiple modified endowment contracts
that are issued within a calendar year period to the same Policy Owner by one
company or its affiliates are treated as one modified endowment contract for
purposes of determining the taxable portion of any loans or distributions. Such
treatment may result in adverse tax consequences including more rapid taxation
of the loans or distributed amounts from such combination of contracts. Policy
Owners should consult a tax adviser prior to purchasing more than one modified
endowment contract in any calendar year period.
TAX TREATMENT OF ASSIGNMENTS
An assignment or pledge of a Policy may be a taxable event. Policy Owners
should consult a competent tax adviser before assigning or pledging their
Policy.
QUALIFIED PLANS
The Policy may be used in conjunction with certain qualified retirement
plans. Because the rules governing such use are complex, a purchaser should
consult with a competent pension consultant.
VARIABLE LIFE ACCOUNT VOTING RIGHTS
In accordance with its view of present applicable law, the Company will
vote the shares of the Eligible Mutual Funds held in the Variable Life Account
at special meetings of the shareholders of the Eligible Mutual Funds in
accordance with instructions received from persons having a voting interest in
the Variable Life Account. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it
has received instructions. The Company will vote shares which it owns in the
same proportion as it votes shares for which it has received instructions.
However, if the Investment Company Act of 1940 or any regulation
thereunder should be amended, or if the present interpretation thereof should
change, and as a result the Company determines that it is permitted to vote the
shares of the Eligible Mutual Funds in its own right, it may elect to do so.
The voting interests of the Policy Owner (or the Beneficiary) in the
Eligible Mutual Funds will be determined as follows: Policy Owners may cast one
vote for each $100 of Cash Value of the Policy allocated to the Subaccount on
the record date for the shareholder meeting of the Fund. Fractional votes are
counted. If, however, a Policy Owner has taken a loan secured by the Policy,
amounts transferred from the Variable Life Account to the General Account in
connection with the loan will not be considered in determining the voting
interests of the Policy Owner.
The number of shares which a person has a right to vote will be determined
as of the date to be chosen by the Company not more than 60 days prior to the
meeting of the Eligible Mutual Fund. Voting instructions will be solicited by
written communication at least 14 days prior to such meeting.
Each person having a voting interest in the Variable Life Account will
receive periodic reports relating to the Eligible Mutual Fund in which he or
she has an interest, proxy material, and a form with which to give such voting
instructions with respect to the proportion of the shares held in the Variable
Life Account corresponding to his or her interest in the Variable Life Account.
Shares of the Trust are issued and redeemed in connection with investments
in and payments under certain variable annuity contracts and variable life
insurance policies issued through separate accounts of life insurance companies
(the "Life Companies") which may or may not be affiliated. Shares of the
Balanced Portfolio of the Trust are also offered directly to qualified pension
and retirement plans ("Qualified Plans"). The shares of the Trust are
purchased and redeemed at net asset value.
26
<PAGE> 30
The Trust does not foresee any disadvantage to Policy Owners arising out
of the fact that the Trust offers its shares for products offered by Life
Companies which are not affiliated or that it offers it shares to Qualified
Plans. Nevertheless, the Board of Trustees of the Trust and Manager's Trust
intends to monitor events in order to identify any material irreconcilable
conflict which may possibly arise and to determine what action, if any, should
be taken in response thereto. If such a conflict were to occur, one or more
insurance company separate accounts or Qualified Plans might withdraw their
investment in the Trust. This might force Manager's Trust to sell portfolio
securities at disadvantageous prices.
DISREGARD OF VOTING INSTRUCTIONS
The Company may, when required to do so by state insurance authorities,
vote shares of the Eligible Mutual Fund without regard to instructions from
Policy Owners if such instructions would require such shares to be voted to
cause the Eligible Mutual Fund to make (or refrain from making) investments
which would result in changes in the sub-classification or investment
objectives of the Eligible Mutual Fund. The Company may also disapprove changes
in the investment policy initiated by the Policy Owners or directors or
trustees of the Eligible Mutual Fund, if such disapproval is reasonable and is
based on a good faith determination by the Company that the change would
violate state law or the change would not be consistent with the investment
objective of the Eligible Mutual Fund or which varies from the general quality
and nature of investments and investment techniques used by other Eligible
Mutual Funds with similar investment objectives underlying other separate
accounts of the Company or of an affiliated life insurance company. In the
event the Company does disregard voting instructions, a summary of that action
and the reasons for such action will be included in the next semi-annual report
to the Policy Owners.
MANAGEMENT OF THE COMPANY
DIRECTORS AND OFFICERS
The Directors and Officers of the Company and their principal
occupations are as follows:
<TABLE>
<CAPTION>
NAME PRINCIPAL OCCUPATION
- ----------------------- -------------------------------------------------------------------------------------
<S> <C>
Larry C. Ballard Chairman of the Board, Chief Executive Officer and a Director of the Company and
SIAMCO.
Dale R. Schuh President, Chief Operating Officer and a Director of the Company. Mr. Schuh is
Executive Vice President and Chief Operating Officer of SIAMCO.
Richard A. Huseby Vice President of the Company. Mr. Huseby is Vice President of Life, Health, Annuity
and Pension Operations of SIAMCO.
William M. O'Reilly Secretary, General Counsel and a Director of the Company. Mr. O'Reilly is Vice
President, General Counsel and Corporate Secretary of SIAMCO.
Wayne R. Ashenberg Treasurer and a Director of the Company. Mr. Ashenberg is Senior Vice President,
Chief Financial Officer and Treasurer of SIAMCO.
Steven R. Boehlke A Director of the Company. Mr. Boehlke is Vice President of SIAMCO.
</TABLE>
DISTRIBUTION OF THE POLICY
Sentry Equity Services, Inc. ("SESI"), a wholly-owned subsidiary of
SIAMCO, serves as principal underwriter of the Policy. The Policy is sold by
individuals who, in addition to being licensed as life insurance agents for the
Company, are also NASD registered representatives for SESI or broker-dealers
who have entered into written sales agreements with SESI.
Agents are compensated for sales of the Policy on a commission and service
fee basis by SESI. The Company reimburses SESI for such compensation and for
other direct and indirect expenses actually incurred in connection with
marketing and selling the Policy. These expenses include field management
compensation, deferred compensation and insurance benefits of writing agents
and field management, advertising and promotion.
Where the Insured is over age 25 the registered representatives will
generally receive a first year commission of no more than 55% of the first year
Premium. Where the Insured is less than age 25 the first year commission may be
higher but in any case will not exceed 80% of the first year Premium. Renewal
year commissions paid to registered representatives will not exceed 2.25% of
renewal Premium.
27
<PAGE> 31
The registered representative may also receive a service fee which will not
exceed .30% of the Cash Value of the Policies attributable to the
representative. Representatives who meet certain production and persistency
requirements may be eligible for additional compensation.
The Policy may also be sold through other broker-dealers authorized by
applicable law and SESI.
CUSTODIAN
The Custodian of the assets of the Variable Life Account is State Street
Bank and Trust Company, a state chartered trust company having its principal
office located at 225 Franklin Street, Boston, Massachusetts.
OTHER POLICIES ISSUED BY THE COMPANY
The Company may, from time to time, offer other policies which may be
similar to the Policy offered herein.
STATE REGULATION
The Company is subject to the laws of Wisconsin governing insurance
companies and to regulation by the Wisconsin Insurance Department. An annual
statement in a prescribed form is filed with the Insurance Department each year
covering the operation of the Company for the preceding year and its financial
condition as of the end of such year. Regulation by the Insurance Department
includes periodic examination to determine the Company's Policy liabilities and
reserves so that the Insurance Department may certify the items are correct.
The Company's books and accounts are subject to review by the Insurance
Department at all times and a full examination of its operations is conducted
periodically by the National Association of Insurance Commissioners. Such
regulation does not, however, involve any supervision of management or
investment practices or policies. In addition, the Company is subject to
regulation under the insurance laws of other jurisdictions in which it may
operate.
REPORTS TO OWNERS
Policy Owners will receive a confirmation within seven days of the
transaction of the receipt of any premiums (except premiums received before the
Policy Issue Date); any change of allocation of premiums; any transfer between
Subaccounts; any loan, interest repayment, or loan repayment; any partial
surrenders; or any return of premium necessary to comply with applicable
maximum premium limitations. Upon request, a Policy Owner shall be entitled to
a receipt for any premium payment. The Policy Owner will also receive
confirmation within seven days of the transaction of (1) exercise of the
free-look privilege, (2) an exchange of the Policy, (3) full surrender of the
Policy, and (4) payment of the death benefit under the Policy.
Within 30 days after each Policy Anniversary an annual statement will be
sent to the Policy Owner. The statement will show the current amount of death
benefits payable under the Policy, the current Cash Value, the current Cash
Surrender Value and current Policy indebtedness. The statement will also show
premiums paid and all charges deducted during the Policy Year and will show all
transactions previously confirmed. The Company will also send to Policy Owners
annual and semi-annual reports of the Variable Life Account.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Life Account or the
Principal Underwriter is a party. The Company is engaged in various kinds of
routine litigation which, in the opinion of the Company, are not of material
importance in relation to the total capital and surplus of the Company.
EXPERTS
The statutory financial statements of the Company as of December 31, 1995
and 1994, and for the years then ended, and the financial statements of the
Variable Life Account as of December 31, 1995, and for each of the three years
in the period then ended, included in this Prospectus and the Registration
Statement have been audited by Coopers & Lybrand L.L.P., 203 North LaSalle
Street, Chicago, Illinois, independent accountants, whose reports thereon
appear herein and have been so included in reliance upon their authority as
experts in accounting and auditing.
28
<PAGE> 32
LEGAL OPINIONS
Legal matters in connection with the Policy described herein are being
passed upon by the law firm of Blazzard, Grodd & Hasenauer, P.C., Westport,
Connecticut.
FINANCIAL STATEMENTS
The financial statements of the Company included herein should be
considered only as bearing upon the ability of the Company to meet its
obligations under the Policy.
The most current financial statements of the Company are those as of the
end of the most recent fiscal year. The Company does not prepare financial
statements more often than annually and believes that any incremental benefit
to prospective policyholders that may result from preparing and delivering more
current financial statements, though unaudited, does not justify the additional
cost that would be incurred. In addition, the Company represents that there
have been no adverse changes in the financial condition or operations of the
Company between the end of the most current fiscal year and the date of this
Prospectus.
29
<PAGE> 33
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1995, 1994 AND 1993
31
<PAGE> 34
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE LIFE ACCOUNT I:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of the Liquid Asset Portfolio, Growth Portfolio, Limited
Maturity Bond Portfolio and Balanced Portfolio of the Sentry Variable Life
Account I as of December 31, 1995, and the related statements of operations and
changes in contract owners' equity for each of the three years in the period
then ended. These financial statements are the responsibility of Sentry Life
Insurance Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Liquid Asset Portfolio,
Growth Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio of the
Sentry Variable Life Account I as of December 31, 1995, and the results of
their operations and the changes in their contract owners' equity for each of
the three years in the period then ended in conformity with generally accepted
accounting principles.
Cooper & Lybrand L.L.P.
Chicago, Illinois
February 9, 1996
32
<PAGE> 35
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 221,017
shares (cost $221,017) $ 221,017
Growth Portfolio, 99,586
shares (cost $2,219,496) 2,575,285
Limited Maturity Bond Portfolio, 12,256
shares (cost $173,089) 180,327
Balanced Portfolio, 45,335
shares (cost $690,232) 794,229
----------
Total investments 3,770,858
Dividends receivable 900
----------
Total assets 3,771,758
LIABILITIES:
Accrued expenses 1,617
----------
CONTRACT OWNERS' EQUITY (NET ASSETS) $3,770,141
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
33
<PAGE> 36
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------------- ----------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 9,124 $ 6,269 $ 4,000 $ 4,390 $ 8,224 $ 10,005
Expenses:
Risk charges 1,940 1,979 1,800 23,650 17,946 15,480
-------- -------- -------- ---------- ---------- ----------
Net investment income (loss) 7,184 4,290 2,200 (19,260) (9,722) (5,475)
-------- -------- -------- ---------- ---------- ----------
Realized net investment gain (loss) -- -- -- 46,745 44,083 73,172
Unrealized appreciation (depreciation), net -- -- -- 473,452 (332,294) (1,361)
Capital gain distributions received -- 210 115 58,834 192,558 21,774
-------- -------- -------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- 210 115 579,031 (95,653) 93,585
-------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity from operations 7,184 4,500 2,315 559,771 (105,375) 88,110
-------- -------- -------- ---------- ---------- ----------
Purchase payments 90,888 195,485 245,524 478,225 461,504 386,443
Transfers between subaccounts, net (54,134) (155,730) (202,250) 62,754 162,021 84,408
Withdrawals and surrenders (1,034) (634) (63,267) (116,440) (159,695) (24,291)
Monthly deductions (12,109) (13,666) (12,891) (183,791) (158,175) (130,795)
Policy loans (31) (239) (2,541) (37,216) (55,443) (65,095)
-------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in contract owners'
equity derived from principal transactions 23,580 25,216 (35,425) 203,532 250,212 250,670
-------- -------- -------- ---------- ---------- ----------
Total increase (decrease) in contract
owners' equity 30,764 29,716 (33,110) 763,303 144,837 338,780
Contract owners' equity at beginning of year 190,683 160,967 194,077 1,811,605 1,666,768 1,327,988
-------- -------- -------- ---------- ---------- ----------
Contract owners' equity at end of year $221,447 $190,683 $160,967 $2,574,908 $1,811,605 $1,666,768
======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE> 37
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 9,541 $ 7,291 $ 6,571 $ 11,714 $ 9,450 $ 6,857 $ 34,769 $ 31,234 $ 27,433
1,908 1,906 2,038 7,621 6,379 5,612 35,119 28,210 24,930
------- -------- -------- -------- -------- -------- -------- -------- --------
7,633 5,385 4,533 4,093 3,071 1,245 (350) 3,024 2,503
------- -------- -------- -------- -------- -------- -------- -------- --------
1,206 (227) 2,338 19,996 11,174 15,051 67,948 55,030 90,561
8,032 (8,658) 2,380 114,203 (55,710) 11,383 595,686 (396,662) 12,402
-- 1,080 885 3,765 15,613 1,029 62,599 209,461 23,803
------- -------- -------- -------- -------- -------- -------- -------- --------
9,238 (7,805) 5,603 137,964 (28,923) 27,463 726,233 (132,171) 126,766
------- -------- -------- -------- -------- -------- -------- -------- --------
16,871 (2,420) 10,136 142,057 (25,852) 28,708 725,883 (129,147) 129,269
------- -------- -------- -------- -------- -------- -------- -------- --------
27,036 23,864 20,066 161,567 111,653 128,170 757,716 792,506 780,203
(3,276) 4,506 4,551 (5,344) (10,797) 113,291 -- -- --
(12,119) (40,827) (3,846) (29,762) (22,365) (13,625) (159,354) (223,521) (105,029)
(13,030) (13,342) (13,504) (81,053) (67,614) (64,263) (289,984) (252,797) (221,453)
(3,029) (10) (2,467) (1,715) (14,764) (11,149) (41,991) (70,456) (81,252)
------- -------- -------- -------- -------- -------- -------- -------- --------
(4,418) (25,809) 4,800 43,693 (3,887) 152,424 266,387 245,732 372,469
------- -------- -------- -------- -------- -------- -------- -------- --------
12,453 (28,229) 14,936 185,750 (29,739) 181,132 992,270 116,585 501,738
167,729 195,958 181,022 607,854 637,593 456,461 2,777,871 2,661,286 2,159,548
------- -------- -------- -------- -------- -------- -------- -------- --------
$ 180,182 $ 167,729 $ 195,958 $ 793,604 $ 607,854 $ 637,593 $3,770,141 $2,777,871 $2,661,286
========= ========= ========= ========= ========= ========= ========== ========== ==========
</TABLE>
35
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life Account) is a
segregated investment account of the Sentry Life Insurance Company (the
Company) and is registered with the Securities and Exchange Commission as a
unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. The Variable Life Account was established by the Company on
February 12, 1985 and commenced operations on January 13, 1987.
Accordingly, it is an accounting entity wherein all segregated account
transactions are reflected.
The assets of the Variable Life Account are invested in one or more of
the portfolios of Neuberger & Berman Advisers Management Trust (the Trust)
at the portfolio's net asset value in accordance with the selection made by
the contract owners.
A copy of the Neuberger & Berman Advisers Management Trust Annual Report
is included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are
based on the daily closing prices of the underlying securities in the
Trust's portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the
order to buy and sell is executed). Dividend income is recorded on the
ex-dividend date. The cost of investments sold and the corresponding
capital gains and losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of
the Internal Revenue Code. The operations of the Variable Life Account are
part of the total operations of the Company and are not taxed as a separate
entity.
Under Federal income tax law, net investment income and net realized
capital gains of the Variable Life Account which are applied to increase
contract owners' equity are not taxed.
3. EXPENSES
A mortality and expense risk premium and a death benefit guarantee risk
charge are deducted by the Company from the Variable Life Account on a
daily basis which is equal, on an annual basis, to 1.05% (.90% mortality
and expense risk and .15% death benefit guarantee risk charge) of the daily
net asset value of the Variable Life Account. These charges compensate the
Company for assuming these risks under the variable life contract. The
liability for accrued mortality and expense risk premium and death benefit
guarantee risk charge amounted to $1,617 at December 31, 1995.
At the beginning of each policy month, the company makes a deduction,
per contract holder, from the cash value of the policy by canceling
accumulation units. This deduction consists of the cost of insurance for
the policy and any additional benefits provided by rider, if any, for the
policy month and a $5 monthly administrative fee. The administrative fee
reimburses the Company for administrative expenses relating to the issuance
and maintenance of the contract.
36
<PAGE> 39
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in connection with
issuing a policy. The full surrender charge will be reduced during the
first nine contract years until it reaches zero in the tenth contract year.
The Company deducts from each premium payment the amount of premium
taxes levied by any state or government entity. Premium taxes up to 4% are
imposed by certain states.
4. INITIAL CAPITALIZATION
Initial capital of $500 was provided by the Company for the
establishment of the Variable Life Account. As an investor in the Variable
Life Account, the Company shares pro rata in the investment performance of
the Variable Life Account and is subject to the same valuation procedures
as are other contract owners in the Variable Life Account. The Company's
investment, at market value, was $724 at December 31, 1995.
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the
related Variable Life Account.
At December 31, 1995 ownership of the Variable Life 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 15,235 $14.54 $ 221,447
Growth Portfolio 122,318 21.05 2,574,908
Limited Maturity Bond Portfolio 11,223 16.05 180,182
Balanced Portfolio 47,615 16.67 793,604
----------
Total contract owners' equity $3,770,141
==========
</TABLE>
At December 31, 1994 ownership of the Variable Life 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 13,639 $13.98 $ 190,683
Growth Portfolio 112,195 16.15 1,811,605
Limited Maturity Bond Portfolio 11,473 14.62 167,729
Balanced Portfolio 44,673 13.61 607,854
----------
Total contract owners' equity $2,777,871
==========
</TABLE>
At December 31, 1993 ownership of the Variable Life 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 11,788 $13.65 $ 160,967
Growth Portfolio 97,052 17.17 1,666,768
Limited Maturity Bond Portfolio 13,246 14.79 195,958
Balanced Portfolio 44,822 14.23 637,593
----------
Total contract owners' equity $2,661,286
==========
</TABLE>
37
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. PURCHASES AND SALES OF SECURITIES
In 1995, purchases and proceeds on sales of the Trust's shares
aggregated $1,062,251 and $733,637, respectively, and were as follows:
<TABLE>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $141,210 $663,423 $ 48,185 $209,433 $1,062,251
Proceeds on sales 110,647 420,666 45,063 157,261 733,637
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$1,340,961 and $883,968, 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 $256,685 $879,777 $ 44,442 $160,057 $1,340,961
Proceeds on sales 227,423 446,780 63,883 145,882 883,968
</TABLE>
In 1993, purchases and proceeds on sales of the Trust's shares aggregated
$1,148,285 and $749,546, 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 $280,844 $549,530 $ 42,665 $275,246 $1,148,285
Proceeds on sales 314,118 282,083 32,408 120,937 749,546
</TABLE>
38
<PAGE> 41
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
39
<PAGE> 42
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Sentry Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Sentry Life
Insurance Company as of December 31, 1995 and 1994, and the related
statutory-basis statements of operations, changes in capital stock and surplus,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards; however, as discussed in the
following paragraph, we were not engaged to determine or audit the effects of
the variances between statutory accounting practices and generally accepted
accounting principles. Generally accepted auditing standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion on the accompanying
statutory-basis financial statements.
The Company presents its financial statements in conformity with accounting
practices prescribed or permitted by the Insurance Department of the State of
Wisconsin. When statutory-basis financial statements are presented for purposes
other than for filing with a regulatory agency, generally accepted auditing
standards require that an auditor's report on them state whether they are
presented in conformity with generally accepted accounting principles. The
accounting practices used by the Company vary from generally accepted
accounting principles, as explained in Note 1, and the Company has not
determined the effects of these variances. Accordingly, we were not engaged to
audit, and we did not audit, the effects of these variances. Since the
financial statements referred to above do not purport to be a presentation in
conformity with generally accepted accounting principles, we are not in a
position to express, and do not express, an opinion on the financial statements
referred to above as to fair presentation of financial position, results of
operations or cash flows in conformity with generally accepted accounting
principles.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company as of December 31,
1995 and 1994, and the results of its operations and its cash flows for the
years then ended, in conformity with accounting practices prescribed or
permitted by the Insurance Department of the State of Wisconsin.
Our audit was conducted for the purpose of expressing an opinion on the
statutory financial statements taken as a whole. The Supplemental Schedule of
Assets and Liabilities is presented to comply with the NAIC's Annual Statement
Instructions and is not a required part of the basic statutory financial
statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic statutory financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
statutory financial statements taken as a whole.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 16, 1996
40
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
- ------ -------------- --------------
<S> <C> <C>
Investments:
Bonds ....................................................... $1,052,280,485 $ 994,836,423
Investments in subsidiaries ................................. 9,802,566 12,480,135
Mortgage loans .............................................. 266,690 356,804
Policy loans ................................................ 26,032,529 25,955,860
Cash and short-term investments ............................. 24,511,847 19,790,643
-------------- --------------
Total investments ..................................... 1,112,894,117 1,053,419,865
Accrued investment income ..................................... 17,081,696 16,617,943
Premiums deferred and uncollected ............................. 4,314,558 4,052,318
Due from affiliates ........................................... 3,137,723 784,098
Other assets .................................................. 4,133,884 2,549,623
Assets held in separate accounts .............................. 353,150,081 297,679,331
-------------- --------------
Total assets .......................................... $1,494,712,059 $1,375,103,178
============== ==============
<CAPTION>
LIABILITIES 1995 1994
- ----------- -------------- --------------
<S> <C> <C>
Future policy benefits:
Life ........................................................ $ 249,333,860 $ 243,390,197
Accident and health ......................................... 5,440,914 6,538,298
Annuity ..................................................... 144,504,621 143,462,137
Policy and contract claims .................................... 3,950,311 4,856,792
Premium and other deposit funds ............................... 592,383,093 525,216,191
Other policyholder funds ...................................... 9,770,566 10,434,913
Accounts payable and other liabilities ........................ 3,157,210 4,572,053
Federal income taxes accrued .................................. 10,055,993 9,588,259
Asset valuation reserve ....................................... 11,347,291 11,064,225
Interest maintenance reserve .................................. 8,755,251 10,523,368
Liabilities related to separate accounts ...................... 353,150,081 297,679,331
-------------- --------------
Total liabilities ..................................... $1,391,849,191 $1,267,325,764
============== ==============
CAPITAL STOCK AND SURPLUS
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1995 and 1994 ............. 3,161,780 3,161,780
Paid-in surplus ............................................... 43,719,081 43,719,081
Earned surplus, unappropriated ................................ 55,982,007 60,896,553
-------------- --------------
Total capital stock and surplus ....................... 102,862,868 107,777,414
-------------- --------------
Total liabilities, capital stock and surplus .......... $1,494,712,059 $1,375,103,178
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
41
<PAGE> 44
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations ..................... $ 73,310,642 $ 74,979,487
Other fund deposits ..................................... 53,522,784 39,627,588
Commissions and expense allowances on
reinsurance ceded ..................................... 27,816,523 24,334,219
Net investment income ................................... 95,506,086 83,719,032
Other income ............................................ 7,337,287 7,441,791
------------ ------------
Total premiums and other income .................... 257,493,322 230,102,117
------------ ------------
Benefits and expenses:
Policyholder benefits and fund withdrawals .............. 139,196,562 141,216,295
Increase in future life policy benefits
and other reserves .................................... 74,468,971 45,952,969
Commissions ............................................. 15,210,518 12,497,493
Other expenses .......................................... 34,133,546 33,576,466
Transfers from separate accounts, net ................... (37,938,202) (24,934,339)
------------ ------------
Total benefits and expenses ........................ 225,251,395 208,308,884
------------ ------------
Income before federal income tax expense
and net realized gains (losses) on investments .......... 32,241,927 21,793,233
Federal income tax expense, less tax on net realized
(losses) gains tax and transfers to the IMR ....... 9,009,062 6,488,885
------------ ------------
Income before net realized gains (losses) on investments .. 23,232,864 15,304,348
Net realized gains (losses) on investments ......... (259,451) 6,430,844
------------ ------------
Net income ................................................ $ 22,973,414 $ 21,735,192
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
42
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Capital stock, beginning and end of year ........ $ 3,161,780 $ 3,161,780
------------ ------------
Paid-in surplus, beginning and end of year ...... 43,719,081 43,719,081
------------ ------------
Earned surplus, unappropriated:
Balance at beginning of year ................... 60,896,553 52,478,908
Net income ..................................... 22,973,414 21,735,192
Change in non-admitted assets .................. 28,536 18,706
Change in asset valuation reserve .............. (283,066) (425,824)
Dividend to stockholder ........................ (25,000,000) (8,000,000)
Change in net unrealized gains on investments .. (2,633,430) (4,910,429)
------------ ------------
Balance at end of year ......................... 55,982,007 60,896,553
------------ ------------
Total capital stock and surplus ........... $102,862,868 $107,777,414
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
43
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------------- --------------
<S> <C> <C>
Premiums and annuity considerations ................... $ 73,042,879 $ 74,315,388
Other fund deposits ................................... 53,522,784 39,627,588
Other premiums, considerations and deposits ........... 417,089 204,773
Allowances and reserve adjustments received on
reinsurance ceded ................................... 26,569,280 28,044,934
Investment income received (excluding realized gains
and losses and net of investment expenses) .......... 91,417,021 79,022,876
Other income received ................................. 6,920,198 7,237,018
Life and accident and health claims paid .............. (22,360,188) (21,794,823)
Surrender benefits .................................... (72,363,693) (76,370,684)
Other benefits to policyholders paid .................. (45,839,143) (42,260,670)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) .................... (48,454,751) (45,821,611)
Net transfers from separate accounts .................. 38,008,886 25,048,188
Dividends to policyholders paid ....................... (317,157) (323,365)
Federal income taxes paid ............................. (6,917,151) (5,609,555)
Net increase in policy loans .......................... (76,668) (866,376)
------------ ------------
Net cash from operations ............................ 93,569,386 60,453,681
------------ ------------
Proceeds from investments sold, matured, or repaid:
Bonds ............................................... 95,892,606 153,338,441
Stocks .............................................. 383,095 13,075,468
Mortgage loans ...................................... 90,113 149,858
Real estate ......................................... 0 44,000
Tax on net capital gains ............................ (1,572,115) (4,971,389)
------------ ------------
Total investment proceeds ...................... 94,793,699 161,636,378
------------ ------------
Other cash provided ................................... 54,568 1,881,903
------------ ------------
Total cash provided ............................ 188,417,653 223,971,962
------------ ------------
Cost of investments acquired:
Bonds ............................................... 151,782,015 231,872,615
Stocks .............................................. 392,158 -
------------ ------------
Total investments acquired ..................... 152,174,173 231,872,615
Other cash applied:
Dividend to stockholder ............................. 25,000,000 8,000,000
Other applications, net ............................. 6,522,276 2,152,877
------------ ------------
Total cash applied ............................. 183,696,449 242,025,492
------------ ------------
Net change in cash and short-term investments .. 4,721,204 (18,053,530)
Cash and short-term investments:
Beginning of year ................................... 19,790,643 37,844,173
------------ ------------
End of year ......................................... $ 24,511,847 $ 19,790,643
============ ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
44
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
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 (the Company) is a wholly-owned subsidiary
of Sentry Insurance a Mutual Company (SIAMCO). The accompanying
statutory-basis financial statements of the Company have been prepared in
conformity with the accounting practices prescribed or permitted by the
Insurance Department of the State of Wisconsin, which is a comprehensive
basis of accounting other than generally accepted accounting principles
(GAAP).
The Company writes life and health insurance products in all states
except New York primarily through direct writers to market the Company's
individual life insurance, annuities and group health and pension products.
The Company also uses direct mail and third party administrators for the
marketing of its group life and health products.
Prescribed statutory accounting principles include a variety of
publications of the National Association of Insurance Commissioners (NAIC),
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed. The Company does not employ any material permitted
practices in the preparation of its statutory financial statements.
The accompanying statutory-basis financial statements have been prepared
in accordance with statutory accounting principles. The preparation of
financial statements in conformity with statutory accounting principles
requires management to make estimates and assumptions that affect the
reported assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of
the National Association of Insurance Commissioners (NAIC). Bonds
which qualify for amortization are stated at amortized cost; bonds not
qualifying are carried at the lesser of amortized cost or NAIC market
values. For purposes of determining fair market disclosure, the market
value of bonds in these statutory financial statements is primarily
based on values supplied by independent pricing services. Under GAAP,
bonds would be classified as either trading, available for sale,
held-to-maturity. Bonds classified as trading or as available for sale
would be carried at market with unrealized gains and losses, net of
applicable taxes recognized as net income (trading securities) or as a
direct surplus adjustment (available for sale). Common stocks of the
Company's unconsolidated subsidiary is carried at its underlying
statutory capital and surplus. The change in the subsidiary's
underlying equity between years is reflected as a change in unrealized
gains (losses). Under GAAP, this entity's balance sheet and results of
operations would be consolidated with the Company. Mortgage loans on
real estate are carried at their aggregate unpaid principal balances.
Policy loans are carried at the aggregate of unpaid principal balances
plus accrued interest and are not in excess of cash surrender values
of the related policies.
Short-term investments are carried at amortized cost, which
approximates market value. Investment income is recorded when earned.
Market value adjustments are reflected in earned surplus as unrealized
gains (losses) on investments. Realized gains and losses are
determined on the specific identification method and are recorded
directly in the statements of operations, net of federal income taxes
and after transfers to the Interest Maintenance Reserve, as prescribed
by the NAIC.
Income on mortgage-backed securities is recognized using a
constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the effective yield
is recalculated to reflect actual payments to date and anticipated
future payments. The net investment in the
45
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
securities is adjusted to the amount that would have existed had the new
effective yield been applied since the acquisition of the securities. This
adjustment is reflected in net investment income.
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER
DEPOSIT FUNDS
The Company issues group annuity contracts both to affiliated companies
and others. The deposits received in connection with these contracts are
placed in deposit administration funds and in separate accounts. The
Company also issues variable annuity contracts and variable universal
life contracts. Deposits for those contracts are also placed in separate
accounts. A separate account is an accounting entity segregated as a
discrete operation within an insurance company. The stockholder of the
Company and its policyholders have no claim to assets held in the
separate accounts except for the Company's seed money investments. The
contract holders are the only persons having rights to any assets in the
separate accounts or to income arising from these assets. All separate
and variable accounts held by the Company are non-guaranteed and
represent funds where the benefit is determined by the performance of the
investments held in the separate account. Assets are carried at market
value and reserves are calculated using the cash value of the contract.
All reserves fall into the category allowing discretionary withdrawals at
market value. For the variable annuity, if the contract has been in
effect at least six years, there is no surrender charge. For the variable
life, there is a surrender charge through the ninth year. The admitted
asset value of separate accounts consists primarily of common stock.
C. NON-ADMITTED ASSETS
For statutory accounting purposes, certain assets designated as
"non-admitted" (principally certain receivables) have been excluded
from the statutory-basis balance sheets and charged to earned surplus.
Under GAAP, such assets would be recognized at net realizable value.
Non-admitted assets totaled $11,396 and $39,932 at December 31, 1995 and
1994, respectively.
D. POLICY BENEFITS
Liabilities for traditional life and limited-payment life contracts are
computed using methods, mortality and morbidity tables and interest rates
which conform to the valuation laws of the State of Wisconsin. The
liabilities are primarily calculated on a modified reserve basis. The
effect of using a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy benefit
reserve increase in the first policy year which is less than the reserve
increase in renewal years.
Future policy benefits for life policies and contracts were primarily
determined using the Commissioner's reserve valuation method with
interest rates ranging from 3% to 6%.
Future policy benefits for annuity contracts, primarily for individual
and group deferred annuities, were primarily determined using the
Commissioner's annuity reserve valuation method with interest rates
ranging from 3% to 11%. Future policy benefits for accident and health
policies consist primarily of a rate credit reserve.
Reserves for universal life-type and investment contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future
benefit payments when such payments are guaranteed.
GAAP reserves are based on mortality, lapse, withdrawal and interest rate
assumptions that are based on Company experience.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized capital gains and losses on fixed income investments
attributable to interest rate changes are deferred in the IMR account.
The IMR is recorded as a liability and amortized into investment income
over the approximate remaining maturities of the bonds sold. This policy
for recognition of such realized gains and losses is prescribed
by the NAIC in order to alter the impact of such activity on the
Company's surplus. For GAAP purposes, there is no such reserve.
46
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets including
bonds, mortgage loans, real estate, and other invested assets. The AVR is
recorded as a liability and changes are charged or credited directly to
earned surplus. For GAAP purposes, a valuation allowance is established
on an individual asset basis for those securities whose cost exceeds
market value and is considered a decline other than temporary.
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and limited-payment
contracts are taken into income over the premium paying periods of the
policies. For investment contracts without mortality risk (such as
deferred annuities and immediate annuities with benefits paid for a
period certain) and contracts that permit the insured to make changes in
the contract terms (such as universal life products), deposits are
recorded as revenue when received. Under GAAP, deposits are recorded as
increases to liabilities and revenue is recognized as mortality and other
assessments are made to policyholders.
As the Company has no direct employees and does not own equipment, it
utilizes services provided by employees and equipment of SIAMCO and
occupies space in SIAMCO's office building. Accordingly, the Company
participates in an expense allocation system with certain affiliated
companies. Expenses of the Company consist of direct charges incurred and
an allocation of expenses (principally salaries, salary-related items,
rent, and data processing services) between certain affiliated companies.
The Company recognized expenses of $34,643,002 and $34,007,634 for 1995
and 1994, respectively, under this allocation agreement.
H. ACQUISITION COSTS
Costs directly related to the acquisition of insurance premiums, such as
commissions and premium taxes, are charged to operations as incurred.
Under GAAP, acquisition costs would be capitalized and amortized over the
policy periods.
I. FEDERAL INCOME TAX
The Company is included in the consolidated federal income tax return of
SIAMCO. Income taxes payable or recoverable are determined on a separate
return basis by the Company in accordance with a written tax allocation
agreement. Deferred federal income taxes are not provided for temporary
differences between tax and financial reporting as they would be under
GAAP. Additionally, federal income taxes are not provided for unrealized
appreciation or depreciation on investments.
J. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially
all of their employees. Generally, the companies' funding and accounting
policies are to make the maximum contribution required under applicable
regulation and to charge such contributions to expense in the year they
are deductible for tax purposes. GAAP periodic net pension expense is
based on the cost of incremental benefits for employee service during the
period, interest on the projected benefit obligation, actual return on
plan assets and amortization of actuarial gains and losses.
In addition to providing the pension benefits, the Company, with SIAMCO
and its affiliated subsidiaries, provides certain health care, dental and
life insurance benefits to retired employees and their dependents.
Substantially all of the employees may become eligible for those benefits
if they reach normal retirement age while working for the Companies. The
expected costs of providing those benefits to employees and the
employees' beneficiaries and covered dependents are accounted for on an
accrual basis during the years that employees render service in
accordance with NAIC policy. SIAMCO is amortizing its transition
obligation, created upon the inital valuation of post retirement
benefits, over a period of twenty years and a portion of the annual
expense is allocated to the Company.
47
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1995 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 47,003,017 $ 4,227,481 $ (369) $ 51,230,129
Obligations of states and
political subdivisions 436,311 102,552 - 538,863
Corporate securities 681,937,726 64,330,054 (2,076,597) 744,191,183
Mortgage-backed securities 322,903,431 28,207,436 (68,731) 351,042,136
-------------- -------------- ----------- --------------
Total $1,052,280,485 $ 96,867,523 $(2,145,697) $1,147,002,311
============== ============== =========== ==============
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1994 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $287,561,584 $ 1,975,746 $(16,396,669) $273,140,661
Obligations of state and political
subdivisions 434,704 100,296 - 535,000
Bonds issued by foreign
governments 28,000 - (6,662) 21,338
Corporate securities 648,947,035 6,334,786 (43,310,172) 611,971,649
Mortgage-backed securities 57,865,100 3,239,787 (391,643) 60,713,244
-------------- -------------- ----------- --------------
Total $994,836,423 $ 11,650,615 $(60,105,146) $946,381,892
============== ============== =========== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1995, by
contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain issuers have the right to
call or prepay obligations with or without call or prepayment
penalties. Because most mortgage-backed securities provide for periodic
payments throughout their lives, they are listed below in a separate
category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- -----------
<S> <C> <C>
Due in one year or less $ 3,143,843 $ 3,168,990
Due after one year through five years 56,295,732 60,229,804
Due after five years through ten years 143,409,451 152,722,275
Due after ten years 526,528,028 579,839,106
-------------- --------------
Subtotal 729,377,054 795,960,175
Mortgage-backed securities 322,903,431 351,042,136
-------------- --------------
Total $1,052,280,485 $1,147,002,311
============== ==============
</TABLE>
48
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1995 is summarized as follows:
<TABLE>
<S> <C>
Aaa 36%
Aa 4%
A 36%
Baa 22%
Ba & below and not rated 2%
----
100%
</TABLE>
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1995 and 1994, including maturities and
calls, were $95,892,606 and $153,338,441, respectively. In 1995 and 1994,
respectively, gross gains of $1,063,112 and $5,384,867, and gross losses of
$1,915,551 and $3,413,602 were realized on these sales before transfer to
the IMR liability.
At December 31, 1995 and 1994, investments carried at $4,512,880 and
$4,004,601, respectively, were on deposit with various governmental agencies
as required by law.
(3) UNCONSOLIDATED SUBSIDIARIES
The Company wholly owed Sentry Life Insurance Company of New York
(SLONY) during 1995 and 1994. Sentry Investors Life Insurance
Company (SILIC), which was wholly owned during 1994, was sold
November 1, 1994 (Note 12). Condensed financial information
regarding SLONY and SILIC is shown as follows:
<TABLE>
<CAPTION>
SLONY SILIC
------------------------ ---------
1995 1994 1994
----------- ----------- ---------
<S> <C> <C> <C>
Investments $37,758,583 $40,421,036
Total assets 41,821,067 43,976,947
Policy reserves and benefits 19,714,180 19,607,826
Total liabilities 32,018,501 31,496,812
Statutory capital and surplus 9,802,566 12,480,135
Premium income 9,462,202 8,118,040 193,156
Net investment income 3,341,559 3,224,214 991,307
Benefits and expenses 11,066,418 8,980,353 4,475,788
Net income 1,283,176 1,677,305 637,589
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Dividends received from affiliates $4,000,000 $1,837,588
Interest:
Bonds 87,815,295 78,371,213
Short-term investments 1,190,421 912,312
Other investments 1,743,892 1,706,969
Amortization of IMR 1,218,220 1,342,494
----------- -----------
Total investment income 95,967,828 84,170,576
Investment expense 461,742 451,541
----------- -----------
Net investment income $95,506,086 $83,719,032
=========== ===========
</TABLE>
49
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The components of net realized gains (losses) and changes in net
unrealized gains (losses) on investments which are reflected in the accompanying
statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
-------------------------- ---------------------------
1995 1994 1995 1994
----------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Bonds $ (852,439) $ 1,971,264 $ 44,139 $ (7,588)
Stocks (8,971)
Less deferred realized gains 845,995 (1,971,264)
Common stock of
unconsolidated subsidiaries 7,328,807 (2,677,569) (4,902,841)
Real estate (15,795)
Less related federal income tax (244,036) (882,168) -- --
----------- ------------ ------------ ------------
$ (259,451) $ 6,430,844 $(2,633,430) $(4,910,429)
=========== ============ ============ ============
</TABLE>
(5) Income Taxes
Federal income tax expense in the statutory-basis statements of operations
differs from that computed based on the federal statutory corporate income tax
rate of 35%. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Federal income tax calculated at statutory rate
before net realized gains (losses) on investments $11,284,674 $ 7,627,632
Changes in liability for dividends (296,979) (150,118)
Accrual of bond discount (398,747) (272,882)
Adjustment for tax deferred acquisition costs $86,902 243,359
Dividends received from subsidiaries (1,400,000) (643,156)
Other, net (266,788) (315,950)
------------ -------------
$ 9,009,062 $ 6,488,885
============ =============
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of a life
insurance company's "gain from operations" was not subject to current income
taxation but was accumulated, for tax purposes, in a memorandum account
designated as the "policyholders' surplus account." The amounts included in
this account are includable in taxable income of later years at rates then
in effect if the life insurance company elects to distribute tax basis
policyholders' surplus to stockholders as dividends or takes certain other
actions. Any distributions are first made from another tax memorandum
account known as the "stockholders' surplus account." The accumulation in
the tax policyholders' surplus and stockholders' surplus accounts of the
Company were $5,605,000 and $58,005,000, respectively, at December 31, 1995.
Federal income tax returns of SIAMCO have been examined through 1988. During
1995, the Company and the Internal Revenue Service reached agreement on all
issues relating to 1988 and prior years. Additionally, agreement was reached
on certain issues relating to 1989 and 1990. The Company and the Internal
Revenue Service are currently attempting to resolve all other remaining
issues. In the opinion of management, the Company has adequately provided
for the possible effect of future assessments related to prior years.
(6) Disclosures About Fair Values of Financial Instruments
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Values of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheets, for which it is practicable to
estimate those values. SFAS 107 defines fair value of a financial instrument
as the amount at which that instrument could be exchanged in a current
transaction between willing parties, other than in a forced or liquidated
sale.
The fair values presented on the next page represent management's best
estimates and may not be substantiated by comparisons to independent markets
and, in many cases, could not be realized in immediate settlement of the
instruments. Certain financial instruments and all nonfinancial instruments
are exempt from the disclosure requirements of SFAS 107. Financial
instruments which are exempt include life policy benefits with mortality or
morbidity risk. Therefore, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
50
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
For cash and short-term investments and accrued investment income, the
carrying amount approximates fair value.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Bonds
Estimated fair value is generally based on quotes provided by
independent pricing services. If a quoted market price is not available, fair
value is estimated by management based on the quoted market price of
comparable instruments.
Policy Loans
Policy loans have no stated maturity dates; therefore, no reasonable
estimate of fair value can be made. Interest rates range from 5 to 8 percent.
Separate Accounts
The fair value of the assets held in separate accounts and offsetting
liabilities are estimated based on the fair value of the underlying assets.
Aggregate Reserves for Investment-Type Contracts
The fair value of investment-type insurance contracts is estimated by
reducing the policyholder liability for applicable surrender charges.
Structured Settlements
The fair value of the liability for structured settlements is estimated
by discounting future cash flows using the current rates being offered for
similar settlements.
Liability for Premium and Other Deposit Funds
The fair value for contracts with stated maturities is estimated by
discounting future cash flows using current rates being offered for similar
contracts. For those contracts with no stated maturity, the fair value is
estimated by calculating the surrender value.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1995 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,052,280,485 $1,147,002,311
Assets held in separate accounts 353,150,081 353,150,081
Liabilities:
Aggregate reserves for
investment-type contracts 91,340,270 90,337,319
Structured settlements 46,564,331 51,072,172
Liability for premium and
other deposit funds 592,383,093 591,225,611
Liabilities related to
separate accounts 353,150,081 353,150,081
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1994 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $994,836,423 $946,381,892
Assets held in separate accounts 297,679,331 297,679,331
Liabilities:
Aggregate reserves for
investment-type contracts 94,223,013 92,985,237
Structured settlements 44,521,474 53,183,174
Liability for premium and
other deposit funds 525,216,191 512,422,720
Liabilities related to separate accounts 297,679,331 297,679,331
</TABLE>
51
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(7) PENSION AND 401K PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated companies
in a defined benefit pension plan which covers substantially all of their
employees. The benefits are based on years of service, the average of the
three highest of the last fifteen years of an employee's compensation and
primary social security benefits, as defined in the plan. The Company is
not a separately assignable entity for purposes of allocation of
accumulated plan benefits or assets. The Company was allocated pension
expense by SIAMCO of approximately $1,256,000 and $637,000 in 1995 and
1994, respectively.
The Company participates with SIAMCO and its affiliated subsidiaries in a
qualified 401k Plan. Employees who meet certain eligibility requirements
may elect to participate in the Plan. Participants must contribute at least
one percent but no more than 16 percent of base compensation. Highly
compensated employees may contribute a maximum of 10 percent on a pre-tax
basis. For non-highly compensated employees, the entire 16% may be
deposited on a pre-tax basis. The Company matches up to 25% of employee
contributions up to the first 6 percent of base salary deposited by an
employee. The Company may make additional annual contributions to the Plan
based on operating profit. The Company was allocated approximately $474,000
and $461,000 by SIAMCO for 401k Plan benefits in 1995 and 1994,
respectively.
In addition to the above-mentioned benefits, the Company, with SIAMCO and
its affiliated subsidiaries, provides certain health care, dental and life
insurance benefits to retired employees and their covered dependents. The
retiree health care benefits allocated to the Company by SIAMCO were
approximately $588,000 for 1995 and $776,000 for 1994.
(8) REINSURANCE
The Company had entered into reinsurance contracts for participation in
reinsurance pools and surplus protection for its wholly-owned subsidiaries.
Assumed life in-force amounted to approximately 29% and 32% of total
in-force (before ceded reinsurance) at December 31, 1995 and 1994,
respectively. The Company has entered into reinsurance ceded contracts to
limit the net loss potential arising from large risks. Generally, life
benefits in excess of $250,000 and all group health liabilities, except for
certain rate credit reserves, are ceded to reinsurers. The group health
liabilities are ceded to SIAMCO. The Company cedes insurance to other
insurers under various contracts which cover individual risks or entire
classes of business. Although the ceding of insurance does not discharge
the Company from its primary liability to policyholders in the event any
reinsurer might be unable to meet the obligations assumed under the
reinsurance agreements, it is the practice of insurers to reduce their
balances for amounts ceded. The amounts included in the accompanying
statutory-basis financial statements for reinsurance, exclusive of the
assumptive reinsurance, were as follows:
1995
(000'S OMITTED)
---------------
<TABLE>
<CAPTION>
AFFILIATED UNAFFILIATED
---------- -------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $ 289 $101,267 $7,289 $3,819
Benefits 585 89,339 7,236 2,058
Commissions 5 27,213 (6) 604
Future Policy Benefits:
Life & Annuities 37 - 29 1,130
Accident & Health - 226,669 386 79
</TABLE>
52
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $280 $90,058 $7,506 $3,628
Benefits 561 69,714 7,440 2,656
Commissions 10 23,906 1 428
Future Policy Benefits:
Life & Annuities 40 - 30 1,099
Accident & Health - 219,713 241 81
</TABLE>
(9) Commitments and Contingencies
In the normal course of business, there are various legal actions and
proceedings pending against the Company. In the opinion of management and
counsel, the ultimate resolution of these matters will not have a material
adverse impact on the Company's statutory-basis financial statements.
State guaranty funds can assess the Company for losses of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company
believes that its accrual for these assessments is adequate.
(10) Other Related Party Transactions
The Company is the direct writer of certain employee benefit plans for
SIAMCO. Premiums included in the accompanying statutory-basis statements of
operations (net of ceded premiums) are approximately $23,892,000 and
$18,872,000 in 1995 and 1994, respectively. Because of the existence of
experience return agreements, the effect of these plans on the Company's
net income is not significant.
The Company has provided coverage in the form of annuity contracts as
structured settlements for SIAMCO workers' compensation claims. Reserves
for future policy benefits at December 31, 1995 and 1994 included
$46,564,331 and $44,521,474, respectively, relating to these contracts.
Also, see Notes 5, 7, 8, and 12 for other related party transactions.
(11) Withdrawal Characteristics of Annuity Reserves and Deposit Liabilities
Annuity reserves and deposits of approximately $1,022.2 million and $906.2
million in 1995 and 1994, respectively, are subject to withdrawal at the
discretion of the annuity contract holders. Approximately 93% and 92%,
respectively, carry surrender charges.
(12) Sale of SILIC
SILIC was sold November 1, 1994. In conjunction with the sale, the Company
entered into an assumption reinsurance agreement effective October 31, 1994
to assume liability for all of SILIC's policies. Reserves of $4.9 million
were transferred to the Company as well as deferred and uncollected and
policy loan assets, and all other insurance related balances. Cash and
investments equal to the net liabilities assumed were transferred,
therefore, the assumption reinsurance agreement had no impact on the
Company's earned surplus.
Immediately following this transfer, a distribution was made to the Company
for excess assets not included in the purchase agreement. The distribution
totaled $6,240,716, and was recorded as an income dividend of $637,588 and
a return of capital of $5,603,128.
53
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1995
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and
utilized by actuaries in the determination of reserves.
<TABLE>
<S> <C>
Investment Income Earned:
Government Bonds ................................................... $ 898,477
Other bonds (unaffiliated) ......................................... 86,916,818
Common stocks of affiliates ........................................ 4,000,000
Mortgage loans ..................................................... 34,857
Premium notes, policy loans and liens .............................. 1,708,708
Short-term investments ............................................. 1,190,421
Aggregate write-ins for investment income .......................... 327
--------------
Gross investment income ............................................ $ 94,749,608
==============
Mortgage Loans - Book Value:
Residential mortgages .............................................. $ 266,690
==============
Mortgage Loans By Standing - Book Value:
Good standing ...................................................... $ 266,690
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks ...................................................... $ 9,802,567
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ....................................... $ 16,114,158
Over 1 year through 5 years ....................................... 123,082,938
Over 5 years through 10 years ..................................... 230,415,126
Over 10 years through 20 years .................................... 310,935,495
Over 20 years ..................................................... 371,732,768
--------------
Total by Maturity ................................................. $1,052,280,485
==============
</TABLE>
54
<PAGE> 57
<TABLE>
<S> <C>
Bonds by Class - Statement Value
Class 1 .................................................. $ 776,648,620
Class 2 .................................................. 261,013,319
Class 3 .................................................. 11,121,211
Class 4 .................................................. 1,998,964
Class 5 .................................................. 1,498,371
Class 6 .................................................. 0
--------------
Total by Class ........................................... $1,052,280,485
==============
Total Bonds Publicly Traded .............................. $ 927,542,629
==============
Total Bonds Privately Placed ............................. $ 124,737,856
==============
Short-Term Investments - Book Value ........................ $ 24,302,551
==============
Cash on Deposit ............................................ $ 209,296
==============
Life Insurance In Force (000's omitted):
Ordinary .................................................. $ 4,882,673
==============
Group Life ................................................ $ 3,422,254
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ................................... $ 127,211
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary .................................................. $ 23,788
==============
Group Life ................................................ $ 164
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ........................................ $ 253,411
==============
Income Payable ........................................... $ 524,977
==============
Ordinary - Involving Life Contingencies
Income Payable ........................................... $ 105,651
==============
</TABLE>
55
<PAGE> 58
<TABLE>
<S> <C>
Annuities:
Ordinary
Immediate - Amount of Income Payable ................... $ 1,435,140
============
Deferred - Fully paid account balance .................. $ 26,272,599
============
Deferred - Not fully paid account balance .............. $ 82,150,542
============
Group
Amount of income payable ............................... $ 5,562,356
============
Fully paid account balance ............................. $ 13,366,184
============
Not fully paid account balance ......................... $902,829,917
============
Accident and Health Insurance - Premiums In Force:
Ordinary ................................................ $ 300,067
============
Group ................................................... $102,084,084
============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ................ $ 325,204
============
Claim Payments 1995:
Group Accident and Health Year - Ended December 31, 199X
1995 ................................................... $ -
============
1994 ................................................... $ -
============
1993 ................................................... $ -
============
Other Accident & Health
1995 ................................................... $ 35,217
============
1994 ................................................... $ 23,499
============
1993 ................................................... $ 83,983
============
</TABLE>
56
<PAGE> 59
APPENDIX A
ILLUSTRATIONS OF BENEFITS
Customized computer generated proposal illustrations tailored to the
unique insurance needs of an individual will play a major role in the sales
process. The tables in Appendix A illustrate the way in which a Policy
operates. They show how the death benefit, Cash Value, and Cash Surrender Value
for an Insured of a given age and annual Premium may vary over an extended
period of time. The tables are based on a standard male age 35 with a Specified
Amount of $100,000. The annual Premium illustrated is the minimum first year
Premium for the death benefit option indicated. The tables illustrate values
that would result assuming the Premiums are paid as indicated, no loans,
partial surrenders, or transfers are made, and the Owner has not requested any
changes in Specified Amount, or illustration of future Policy values. Under
these assumptions the Premium illustrated will meet the Premium requirement
under the death benefit guarantee provision for the Policy illustrated.
The tables illustrate Policy values assuming current mortality charges are
deducted. These tables also illustrate Policy values assuming guaranteed
maximum mortality charges are deducted. Guaranteed maximum mortality charges
are based on the 1980 CSO-ALB mortality tables.
Gross investment returns of 0%, 6%, and 12% are assumed to be level for
all years shown. The values would be different if rates of return averaged 0%,
6%, and 12% over the period of years but fluctuated above and below those
averages during individual years.
The Cash Values, Cash Surrender Values and death benefits in the tables
take into account all charges and deductions against the Policy (see "Charges
and Deductions.")
The amounts shown for the death benefits and Cash Surrender Values reflect
the fact that the net investment return of the Subaccounts is lower than the
gross investment return on the assets held in the Portfolios because of the
charges levied against the Subaccounts. The daily investment management and
administration fee is assumed to be equivalent to an annual rate of 0.66% of the
average daily net assets of Neuberger & Berman Advisers Management Trust. The
values also assume that Neuberger & Berman Advisers Management Trust will incur
other expenses annually which are assumed to be .28% of the average daily net
assets of the Trust. These assumptions are based on the fee schedule in effect
as of May 1, 1996. The Variable Life Account will be assessed for mortality and
expense risks at an annual rate of .90% of the net asset value of the Account.
The Variable Life Account will also be assessed for the death benefit guarantee
risk at an annual rate of .15% of the net asset value of the Account. After
taking these expenses and charges into consideration, the illustrated gross
annual investment rates of 0%, 6%, and 12% are equivalent to net rates of
(1.99%), 4.01%, and 10.01%.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes against the Variable Life Account, since the Company is
not currently making such charges. However, such charges may be made in the
future and, in that event, the gross annual investment rate of return would
have to exceed 0%, 6%, or 12% by an amount sufficient to cover the tax charges
in order to produce the values illustrated.
57
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY Table 1
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
===============================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 955 313 100000
37 2 2336 2514 1998 1356 100000
38 3 3504 3866 3136 2494 100000
39 4 4672 5286 4378 3736 100000
40 5 5840 6777 5733 5219 100000
41 6 7008 8342 7211 6826 100000
42 7 8176 9985 8825 8568 100000
43 8 9344 11711 10587 10458 100000
44 9 10512 13523 12512 12512 100000
45 10 11680 15426 14617 14617 100000
55 20 23360 40552 50391 50391 100000
65 30 35040 81481 141947 141947 173175
75 40 46720 148149 368949 368949 394775
95 60 70080 433635 2268572 2268572 2291258
</TABLE>
===============================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on guaranteed mortality costs
===============================================================================
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 906 264 100000
37 2 2336 2514 1890 1248 100000
38 3 3504 3866 2958 2316 100000
39 4 4672 5286 4116 3474 100000
40 5 5840 6777 5372 4858 100000
41 6 7008 8342 6732 6347 100000
42 7 8176 9985 8208 7951 100000
43 8 9344 11711 9809 9681 100000
44 9 10512 13523 11548 11548 100000
45 10 11680 15426 13437 13437 100000
55 20 23360 40552 44939 44939 100000
65 30 35040 81481 126053 126053 153784
75 40 46720 148149 327053 327053 349946
95 60 70080 433635 1984096 1984096 2003937
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
58
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY Table 2
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
===============================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 897 255 100000
37 2 2336 2514 1823 1181 100000
38 3 3504 3866 2776 2134 100000
39 4 4672 5286 3757 3115 100000
40 5 5840 6777 4766 4253 100000
41 6 7008 8342 5803 5418 100000
42 7 8176 9985 6868 6611 100000
43 8 9344 11711 7961 7833 100000
44 9 10512 13523 9084 9084 100000
45 10 11680 15426 10236 10236 100000
55 20 23360 40552 23164 23164 100000
65 30 35040 81481 36909 36909 100000
75 40 46720 148149 44474 44474 100000
95 60 70080 433635 0 0 100000
</TABLE>
===============================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on guaranteed mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 01 1168 1226 850 208 100000
37 02 2336 2514 1721 1079 100000
38 03 3504 3866 2612 1970 100000
39 04 4672 5286 3522 2880 100000
40 05 5840 6777 4450 3937 100000
41 06 7008 8342 5395 5009 100000
42 07 8176 9985 6354 6097 100000
43 08 9344 11711 7328 7199 100000
44 09 10512 13523 8314 8314 100000
45 10 11680 15426 9313 9313 100000
55 20 23360 40552 19598 19598 100000
65 30 35040 81481 26907 26907 100000
75 40 46720 148149 15600 15600 100000
95 60 70080 433635 0 0 100000
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
59
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY Table 3
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
===============================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 01 1168 1226 840 198 100000
37 02 2336 2514 1655 1013 100000
38 03 3504 3866 2444 1802 100000
39 04 4672 5286 3208 2566 100000
40 05 5840 6777 3945 3432 100000
41 06 7008 8342 4654 4269 100000
42 07 8176 9985 5336 5079 100000
43 08 9344 11711 5989 5860 100000
44 09 10512 13523 6613 6613 100000
45 10 11680 15426 7208 7208 100000
55 20 23360 40552 11126 11126 100000
65 30 35040 81481 8640 8640 100000
75 40 46720 148149 0 0 100000
95 60 70080 433635 0 0 100000
</TABLE>
===============================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on guaranteed mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 794 152 100000
37 2 2336 2514 1559 917 100000
38 3 3504 3866 2294 1652 100000
39 4 4672 5286 2998 2356 100000
40 5 5840 6777 3669 3156 100000
41 6 7008 8342 4305 3920 100000
42 7 8176 9985 4906 4649 100000
43 8 9344 11711 5469 5341 100000
44 9 10512 13523 5994 5994 100000
45 10 11680 15426 6479 6479 100000
55 20 23360 40552 8671 8671 100000
65 30 35040 81481 1969 1969 100000
75 40 46720 148149 0 0 100000
95 60 70080 433635 0 0 100000
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
60
<PAGE> 63
SENTRY LIFE INSURANCE COMPANY Table 4
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
===============================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 2092 1446 102092
37 2 4562 4910 4384 3738 104384
38 3 6843 7550 6894 6248 106894
39 4 9124 10323 9643 8997 109643
40 5 11405 13234 12653 12137 112653
41 6 13686 16291 15949 15561 115949
42 7 15967 19501 19557 19299 119557
43 8 18248 22871 23509 23380 123509
44 9 20529 26409 27837 27837 127837
45 10 22810 30125 32578 32578 132578
55 20 45620 79195 113352 113352 213352
65 30 68430 159124 312542 312542 412542
75 40 91240 289321 802159 802159 902159
95 60 136860 846851 4916108 4916108 5016108
</TABLE>
===============================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on guaranteed mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 2043 1397 102043
37 2 4562 4910 4274 3628 104274
38 3 6843 7550 6712 6066 106712
39 4 9124 10323 9373 8727 109373
40 5 11405 13234 12277 11761 112277
41 6 13686 16291 15447 15059 115447
42 7 15967 19501 18905 18646 118905
43 8 18248 22871 22679 22550 122679
44 9 20529 26409 26797 26797 126797
45 10 22810 30125 31292 31292 131292
55 20 45620 79195 106505 106505 206505
65 30 68430 159124 286744 286744 386744
75 40 91240 289321 717289 717289 817289
95 60 136860 846851 4177540 4177540 4277540
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
61
<PAGE> 64
SENTRY LIFE INSURANCE COMPANY Table 5
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
===============================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1972 1326 101972
37 2 4562 4910 4014 3368 104014
38 3 6843 7550 6127 5481 106127
39 4 9124 10323 8313 7667 108313
40 5 11405 13234 10572 10055 110572
41 6 13686 16291 12907 12519 112907
42 7 15967 19501 15319 15061 115319
43 8 18248 22871 17810 17681 117810
44 9 20529 26409 20383 20383 120383
45 10 22810 30125 23039 23039 123039
55 20 45620 79195 54260 54260 154260
65 30 68430 159124 92442 92442 192442
75 40 91240 289321 127573 127573 227573
95 60 136860 846851 107 107 100107
</TABLE>
===============================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on guaranteed mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1924 1278 101924
37 2 4562 4910 3911 3265 103911
38 3 6843 7550 5959 5313 105959
39 4 9124 10323 8071 7425 108071
40 5 11405 13234 10244 9728 110244
41 6 13686 16291 12480 12092 112480
42 7 15967 19501 14778 14519 114778
43 8 18248 22871 17138 17009 117138
44 9 20529 26409 19561 19561 119561
45 10 22810 30125 22046 22046 122046
55 20 45620 79195 50123 50123 150123
65 30 68430 159124 80195 80195 180195
75 40 91240 289321 95564 95564 195564
95 60 136860 846851 0 0 100000
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
62
<PAGE> 65
SENTRY LIFE INSURANCE COMPANY Table 6
SELF-DIRECTED LIFE A Flexible Premium Variable Life Insurance Policy
Designed for: MARK SENTRY Prepared By: JOE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
===============================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on current mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1853 1207 101853
37 2 4562 4910 3659 3013 103659
38 3 6843 7550 5419 4773 105419
39 4 9124 10323 7132 6486 107132
40 5 11405 13234 8798 8282 108798
41 6 13686 16291 10416 10029 110416
42 7 15967 19501 11986 11728 111986
43 8 18248 22871 13508 13379 113508
44 9 20529 26409 14981 14981 114981
45 10 22810 30125 16406 16406 116406
55 20 45620 79195 27565 27565 127565
65 30 68430 159124 30432 30432 130432
75 40 91240 289321 16121 16121 116121
95 60 136860 846851 0 0 100000
</TABLE>
===============================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on guaranteed mortality costs
<TABLE>
<CAPTION>
Premiums
Sum of Accum.
Age Year Premiums Paid @ 5% Cash Value Surrender Value Death Benefit
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1806 1160 101806
37 2 4562 4910 3562 2916 103562
38 3 6843 7550 5265 4619 105265
39 4 9124 10323 6919 6270 106919
40 5 11405 13234 8513 7996 108513
41 6 13686 16291 10053 9666 110053
42 7 15967 19501 11536 11278 111536
43 8 18248 22871 12961 12832 112961
44 9 20529 26409 14327 14327 114327
45 10 22810 30125 15631 15631 115631
55 20 45620 79195 24882 24882 124882
65 30 68430 159124 23537 23537 123537
75 40 91240 289321 0 0 100000
95 60 136860 846851 0 0 100000
</TABLE>
===============================================================================
The hypothetical investment rates of return shown above are illustrative only
and should not be deemed a representation of past or future investment rates of
return. Actual investment returns may be more or less than those shown.
63
<PAGE> 66
REPRESENTATIONS
1. Registrant represents that Section (b) (13) (iii) (F) of Rule 6e-3(T)
is being relied on.
2. Registrant represents that the level of the risk charge is reasonable
in relation to the risks assumed by the life insurer under the
Policies.
3. Registrant represents that it has analyzed the risk charge taking into
consideration such facts as current charge levels, potential adverse
mortality, the manner in which charges are imposed, the markets in
which the Policy will be offered, anticipated sales and lapse rates.
4. Registrant represents that the Company has concludeds that there is a
reasonable likelihood that the distribution financing arrangement of
the Variable Life Account will benefit the Variable Life Account
and policyholders and will keep and make available to the Commission,
on request, a memorandum setting forth the basis for this
representation.
5. Registrant represents that the Variable Life Account will invest only
in management investment companies undertaking to have a Board, a
majority of whom are not interested persons of the Company, which
formulates and approves any plan under Rule 12b-1 to finance
distribution expenses.
<PAGE> 67
PART II
UNDERTAKINGS TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission theretofore or hereafter duly adopted pursuant to authority
conferred in that section.
INDEMNIFICATION
The Bylaws of the Company and resolutions adopted by SIAMCO provide that any
person who at any time serves as a director or officer of the Company or any
majority-owned ultimate subsidiary of SIAMCO shall be indemnified or reimbursed
against and for any and all claims for which they become subject by reason of
such service.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted directors and officers or controlling persons of the
Company pursuant to the foregoing, or otherwise, the Company 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,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company 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 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> 68
Part II
Other Information
Page 2
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 63 pages.
Representations.
The signatures.
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions
for exhibits in Form N-8B-2.
1. Resolutions of the Board of Directors of Sentry Life
Insurance Company*
2. Custodian Agreement**
3a. Principal Underwriter's Agreement***
3b. Registered Representatives Agreement***
3c. General Agent Agreement***
4. Not Applicable
5. Flexible Premium Variable Life Insurance Policy***
Amendatory Riders for Various States
6a. Articles of Incorporation of the Company*
6b. Bylaws of the Company*
7. Not Applicable
8. Not Applicable
9a. Sales Agreement (Fund Participation Agreement)*****
9b. Assignment and Modification Agreement
10. Application Form******
11. Memorandum of Exchange Right***
27. Financial Data Schedule
B. Opinion and Consent of Counsel****
C. Consent of Independent Accountants attached hereto as Exhibit C
D. Consent of Actuary attached hereto as Exhibit D
* Incorporated by reference to Registrant's Form N-8B-2
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form S-6
**** Incorporated by reference to Registrant's Post-Effective Amendment No. 2
to Form S-6
***** Incorporated by reference to Registrant's Post-Effective Amendment No. 7
to Form S-6 filed on or about May 1, 1991.
****** Incorporated by reference to Registrant's Post-Effective Amendment No.
10 to Form S-6 filed on or about April 28, 1994.
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
SENTRY VARIABLE LIFE ACCOUNT I and SENTRY LIFE INSURANCE COMPANY have duly
caused this Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Stevens Point, State of Wisconsin, on the 22 day
of April, 1996. The Registrant certifies that it meets the requirements of
the Securities Act Rule 485(b) for effectiveness of this Registration Statement.
Sentry Variable Life Account I
---------------------------------
Registrant
BY: Sentry Life Insurance Company
BY: s/Dale R. Schuh
-----------------------------
Dale R. Schuh, President, Chief
Operating Officer and Director
Sentry Life Insurance Company
-----------------------------------
Depositor
BY: s/Dale R. Schuh
------------------------------
Dale R. Schuh, President, Chief
Operating Officer and Director
<PAGE> 70
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
s/Larry C. Ballard Chairman of the Board and April 22, 1996.
- ------------------------ Chief Executive Officer
Larry C. Ballard
s/Dale R. Schuh President, Chief Operating April 22, 1996.
- ------------------------ Officer and Director
Dale R. Schuh
s/Steven R. Boehlke Director April 22, 1996.
- ------------------------
Steven R. Boehlke
s/William M. O'Reilly Secretary, General Counsel April 22, 1996.
- ------------------------ and Director
William M. O'Reilly
s/Wayne R. Ashenberg Treasurer and Director April 22, 1996.
- -------------------------
Wayne R. Ashenberg
s/Richard A. Huseby Vice President April 22, 1996.
- -------------------------
Richard A. Huseby
<PAGE> 71
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 12
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
<PAGE> 72
INDEX TO EXHIBITS
Exhibit A(1) Resolutions of Board of Directors of the Company
Authorizing the Variable Life Account*
Exhibit A(2) Custodian Agreement**
Exhibit A(3)(a) Principal Underwriter's Agreement***
A(3)(b) Registered Representatives Agreement***
A(3)(c) General Agent Agreement***
Exhibit A(5) Flexible Premium Variable Life Insurance Policy***
Exhibit A(6)(a) Articles of Incorporation of Company*
A(6)(b) Bylaws of the Company*
Exhibit A(9a) Sales Agreement (Fund Participation Agreement)*****
A(9b) Assignment and Modification Agreement
Exhibit A(10)(i) Application Form******
A(10)(ii) Customer Account Information Form*****
Exhibit A(11) Memorandum of Exchange Right***
Exhibit A(27) Financial Data Schedule
Exhibit B Opinion and Consent of Counsel****
Exhibit C Consent of Independent Accountants
Exhibit D Consent of Actuary
* Incorporated by reference to Registrant's Form N-8B-2
** Incorporated by reference to Registrant's Pre-Effective Amendment No. 1
to Form S-6
*** Incorporated by reference to Registrant's Pre-Effective Amendment No. 2
to Form S-6
**** Incorporated by reference to Registrant's Post-Effective Amendment No. 2
to Form S-6
***** Incorporated by reference to Registrant's Post-Effective Amendment No.
7 to Form S-6 filed on or about May 1, 1991.
****** Incorporated by reference to Registrant's Post-Effective Amendment No.
10 to Form S-6 filed on or about April 28, 1994.
<PAGE> 73
EXHIBIT C
CONSENT OF INDEPENDENT ACCOUNTANTS
<PAGE> 74
EXHIBIT C
CONSENT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Sentry Life Insurance Company
We consent to the inclusion in Post-Effective Amendment No. 12 to the
Registration Statement on Form S-6 of Sentry Variable Life Account I (File No.
2-98441) of our report dated February 9, 1996 on our audit of the financial
statements of Sentry Variable Life Account I and our report dated February 16,
1996, on our audits of the statutory financial statements of Sentry Life
Insurance Company. We also consent to the reference to our Firm under the
caption "Experts".
s/Coopers & Lybrand L.L.P.
Chicago, Illinois
April 29, 1996
<PAGE> 75
EXHIBIT D
CONSENT OF ACTUARY
<PAGE> 76
April 8, 1996
To the Board of Directors of
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
CONSENT OF ACTUARY
I hereby consent to the inclusion of the Illustration of Policy Values
contained in Appendix A in a registration statement, Form S-6, for the Variable
Life Insurance Policies. The Illustrations have been prepared in accordance
with standard actuarial principles and reflect the operation of the Policy by
taking into account all charges under the Policy and in the underlying fund.
s/David A. Derksen
---------------------------
David A. Derksen, FSA, MAAA
Associate Actuary
<PAGE> 1
EXHIBIT A(9)(b)
ASSIGNMENT AND MODIFICATION AGREEMENT
<PAGE> 2
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger &
Berman Advisers Management Trust ("Successor Trust"), a Delaware business
trust, Advisers Managers Trust ("Managers Trust") and Sentry Life Insurance
Company ("Life Company"), a life insurance company organized under the laws of
the State of Wisconsin.
WHEREAS, the Life Company has previously entered into a Sales Agreement
dated September 28, 1990 (the "Sales Agreement") with the Trust regarding the
purchase of shares of the Trust by Life Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the
Successor Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust will
transfer all of its assets to the corresponding Portfolio of the Successor
Trust ("Successor Portfolio") and each Successor Portfolio will invest all of
its net investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of
the Investment Company Act of 1940 ("'40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
"Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Sales Agreement; and
WHEREAS, the parties hereto desire to assign the Sales Agreement from
the Trust to the Successor Trust, to modify the Sales Agreement to include the
Conditions and to rename the Sales Agreement; and
WHEREAS, N&B Management and Managers Trust will become parties to the
Sales Agreement as modified hereby, due to and for purposes of their obligations
under the Conditions.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management, Successor Trust, Managers Trust and Life Company agree as follows:
1
<PAGE> 3
1. The Sales Agreement is hereby assigned by the Trust to the Successor
Trust.
2. Pursuant to such assignment, the Successor Trust hereby accepts all
rights and benefits of the Trust under the Sales Agreement and agrees to
perform all duties and obligations of the Trust under the Sales Agreement.
Upon the effectiveness of this Assignment and Modification Agreement, the Trust
will be released from all obligations and duties under the Sales Agreement.
3. The Sales Agreement is hereby modified to include the Conditions as
follows:
Sections 8 and 9 of the Sales Agreement are replaced by the following:
8. a) The Board of Trustees of each of the Successor Trust and
Managers Trust (the "Boards") will monitor the Successor Trust and Managers
Trust, respectively, (collectively the "Funds") for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all insurance company separate accounts investing in the Funds. A material
irreconcilable conflict may arise for a variety of reasons, including: (a) state
insurance regulatory authority action; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of the Funds are
being managed; (e) a difference in voting instructions given by variable
annuity and variable life insurance contract owners or by contract owners of
different participating insurance companies; or (f) a decision by a
participating insurance company to disregard voting instructions of contract
owners.
b) Life Company, will report any potential or existing conflicts
to the Boards. Life Company will be responsible for assisting the appropriate
Board in carrying out its responsibilities under the Conditions set forth in the
notice issued by the SEC for the Funds on April 12, 1995 (the "Notice") by
providing the Board with all information reasonably necessary for it to
consider any issues raised. This responsibility includes, but is not limited
to, an obligation by Life Company to inform the Board whenever variable
contract owner voting instructions are disregarded by Life Company. These
responsibilities will be carried out with a view only to the interests of the
contract owners.
c) If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material irreconcilable
conflict exists, affecting the Life Company, Life Company, at its expense and
to the extent reasonably practicable (as determined by a majority of
disinterested trustees or directors), will take any steps necessary to remedy
or eliminate the irreconcilable material conflict, including: (a) withdrawing
the assets allocable to some or all of the separate accounts from the Funds or
any series thereof and reinvesting those assets in a different investment
medium, which
2
<PAGE> 4
may include another series of the Successor Trust or Managers Trust, or another
investment company or submitting the question as to whether such segregation
should be implemented to a vote of all affected variable contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e., variable
annuity or variable life contract owners of one or more Participants) that
votes in favor of such segregation, or offering to the affected variable
contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of Life Company's decision to
disregard contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the Life Company may be
required, at the election of the relevant Fund, to withdraw its separate
account's investment in such Fund, and no charge or penalty will be imposed as
a result of such withdrawal. The responsibility to take such remedial action
shall be carried out with a view only to the interests of the contract owners.
For the purposes of this Section 8, a majority of the disinterested
members of the applicable Board shall determine whether or not any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the relevant Fund or N&B Management (or any other investment adviser
of the Funds) be required to establish a new funding medium for any variable
contract. Further, Life Company shall not be required by this Section 8(c)
to establish a new funding medium for any variable contract if any offer to
do so has been declined by a vote of a majority of contract owners materially
affected by the irreconcilable material conflict.
d) Any Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to the Life Company.
9. a) Life Company will provide pass-through voting privileges to all
contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for variable contract owners. This
condition will apply to UIT-separate accounts investing in the Successor Trust
and to managed separate accounts investing in Managers Trust to the extent a
vote is required with respect to matters relating to Managers Trust.
Accordingly, the Life Company, where applicable, will vote shares of a Fund
held in their separate accounts in a manner consistent with voting instructions
timely received from variable contract owners. Life Company will be
responsible for assuring that each of their separate accounts that participates
in the Funds calculates voting privileges in a manner consistent with other
Participants as defined in the Conditions set forth in this Notice. The
obligation to calculate voting privileges in a manner consistent with all other
separate accounts investing in the Funds will be a contractual obligation of
all Participants under the agreements governing participation in the Funds.
Each Participant will vote shares for which it has not received timely voting
instructions, as well as shares it owns,
3
<PAGE> 5
in the same proportion as its votes those shares for which it has received
voting instructions.
b) If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the order
requested, then the Successor Trust, Managers Trust and/or the Participants, as
appropriate, shall take such steps as may be necessary to comply with Rule 6e-2
and Rule 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
Rules are applicable.
c) No less than annually, the Life Company shall submit to the Boards
such reports, materials or data as such Boards may reasonably request so that
the Boards may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data shall be submitted more
frequently if deemed appropriate by the applicable Boards.
4. The Sales Agreement shall be renamed Fund Participation Agreement.
5. This Assignment and Modification Agreement shall be effective on May 1,
1995, the closing date of the conversion. In the event of a conflict between
the terms of this Assignment and Modification Agreement and the terms of the
Sales Agreement, the terms of this Assignment and Modification Agreement shall
control.
6. All other terms and conditions of the Sales Agreement remain in full
force and effect.
Executed this 1st day of May, 1995.
Neuberger & Berman Advisers
Management Trust
(a Massachusetts business trust)
Attest: Claudia A. Brandon By: Stanley Egener
----------------------- ----------------------
Stanley Egener, Chairman
4
<PAGE> 6
Neuberger & Berman Advisers
Management Trust
(a Delaware business trust)
Attest: Claudia A. Brandon By: Stanley Egener
------------------------ -------------------------------
Stanley Egener, Chairman
Advisers Managers Trust
Attest: Claudia A. Brandon By: Stanley Egener
------------------------ -------------------------------
Neuberger & Berman Management
Incorporated
Attest: Ellen Metzger By: ?
------------------------ -------------------------------
Sentry Life Insurance Company
Attest: Susan Brock By: W. O'Reilly
------------------------ -------------------------------
William M. O'Reilly
Secretary
5
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> YEAR
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<PERIOD-END> DEC-31-1995
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</TABLE>
