<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. 14
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
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 1998, 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
[ ] this post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
E. Title and Amount of Securities Being Registered: Individual Flexible
Premium Variable Life Insurance Policies
F. Approximate date of proposed public offering:
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
<PAGE> 2
CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
1 ............................ The Company, The Variable Life Account
2 ............................ The Company
3 ............................ Not Applicable
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 ............................ Not Applicable
49 ............................ Not Applicable
50 ............................ Not Applicable
51 ............................ The Company, The Policy
52 ............................ Investments of the Variable Life Account
53 ............................ Federal Tax Status
54 ............................ Financial Statements
55 ............................ Not Applicable
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[SENTRY LOGO]
- --------------------------------------------------------------------------------
Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
PROSPECTUS
MAY 1, 1998
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 nine 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, 1998.
<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 below under "Charges and Deductions - Trust and Managers Trust Annual
Expenses" and in the accompanying Trust prospectus.
<PAGE> 6
TABLE OF CONTENTS
PAGE
----
Definitions................................................................ 5
Summary.................................................................... 6
The Company................................................................ 7
The Variable Life Account.................................................. 8
Investments of the Variable Life Account................................... 8
Initial Investment Period............................................... 8
Transfers............................................................... 8
Neuberger & Berman Advisers Management Trust............................ 9
Substitution of Securities..............................................10
The Policy.................................................................10
General.................................................................10
Insurance Underwriting..................................................10
Right to Exchange the Policy............................................10
Illustrations...........................................................10
Premiums...................................................................11
Initial Premium.........................................................11
Net Premiums............................................................11
First Year Minimum Premium..............................................11
Planned Premiums........................................................11
Additional Premiums.....................................................11
Maximum Premium Limitations.............................................11
Death Benefit Guarantee.................................................11
Grace Period............................................................11
Reinstatement...........................................................12
Charges and Deductions.....................................................12
Deductions from Premiums................................................12
Deductions from the Variable Life Account...............................12
Deductions from Cash Value..............................................12
Deductions from Surrendered Values......................................13
Trust and Managers Trust Annual Expenses................................14
Group Arrangements......................................................14
Policy Benefits and Rights.................................................14
Death Benefit...........................................................14
Corridor Percentages....................................................15
Illustrations of Death Benefit Options..................................15
Change of Death Benefit Option..........................................16
Change in the Specified Amount..........................................16
Maturity Benefits.......................................................17
Cash Value..............................................................17
Determination of Accumulation Unit......................................17
Partial Surrender.......................................................18
Full Surrender..........................................................18
Surrender Requirements..................................................18
Policy Loans............................................................18
<PAGE> 7
TABLE OF CONTENTS (CONTINUED)
PAGE
----
Other Policy Provisions....................................................19
Policy Owner............................................................19
Contingent Policy Owner.................................................19
Change of Policy Owner or Contingent Policy Owner.......................19
Assignment..............................................................19
Beneficiary.............................................................19
Change of Beneficiary...................................................19
Incontestability........................................................19
Misstatement of Age or Sex..............................................19
No Dividends............................................................19
Optional Settlement Plans...............................................19
Suspension of Payments.....................................................20
Federal Tax Status.........................................................20
Introduction............................................................20
Diversification.........................................................20
Tax Treatment of the Policy.............................................21
Policy Proceeds.........................................................21
Tax Treatment of Loans and Surrenders...................................21
Multiple Policies.......................................................22
Tax Treatment of Assignments............................................22
Qualified Plans.........................................................22
Variable Life Account Voting Rights........................................22
Disregard of Voting Instructions........................................23
Management of the Company..................................................23
Directors and Officers..................................................23
Distribution of the Policy.................................................23
Other Policies Issued by the Company.......................................24
State Regulation...........................................................24
Reports to Owners..........................................................24
Legal Proceedings..........................................................24
Experts....................................................................24
Legal Opinions.............................................................24
Financial Statements.......................................................24
Appendix A - Illustrations of Benefits.....................................52
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, Martin Luther King
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. E.S.T. on each Valuation
Date and ending at 4:00 p.m. E.S.T. 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 providing 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 Premium sufficient to
cover the Monthly Deduction. If 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 "Federal 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 premium. 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 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. 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
6
<PAGE> 10
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 "Federal Tax
Status - Tax Treatment of Loans and Surrenders."
MULTIPLE CONTRACTS -- The 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 Premium or a loan
repayment sufficient to cover the Monthly Deduction. The Policy will continue to
be In Effect during this grace period. If 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 20 days after the Policy Owner receives the Policy, within 20
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 the Company, the agent who sold the Policy, or any agent of the
Company. 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 in 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 the 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
"Federal 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.
<PAGE> 11
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.
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 Policy 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 (see "Neuberger & Berman Advisers Management Trust"). The assets
of the Variable Life Account are segregated by Portfolio, 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 will 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 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 that may be transferred is $250, or, if smaller, the
remaining Subaccount Cash Value.
(3) Any transfer direction must clearly specify:
(a) the amount to be transferred; and
(b) the Portfolio(s) 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 will 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.
8
<PAGE> 12
Subject to the above-identified restrictions on transfers, a Policy Owner may
elect to effect transfers between Eligible Mutual Fund(s) or Portfolio(s) by
telephone by completing the applicable section of the Application.
The Company will employ reasonable procedures to confirm that telephone transfer
requests are 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
Policy Owner's name, Policy number, social security number and/or date of birth.
The Company may request additional information concerning the account and/or
Policy 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., C.S.T.,
will effect transfers as of that day. Telephone transfer requests received after
3 p.m,, C.S.T., 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 Policy. Each
Portfolio of the Trust invests all of its net investable assets in its
corresponding series (each a "Series") of Advisers Managers Trust ("Managers
Trust"), an open-end management investment company. All Series of Managers Trust
are managed by Neuberger & Berman Management Incorporated ("N&B Management").
Each Series invests in securities in accordance with an investment objective,
policies, and limitations identical to those of its corresponding Portfolio.
This "master/feeder fund" structure is different from that of other investment
companies which directly acquire and manage their own portfolios 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 life
insurance 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 Plans"). Shares of the Trust are
purchased and redeemed at net asset value. The Boards of Trustees of the Trust
and Managers Trust have undertaken to monitor the Trust and Managers Trust,
respectively, for the existence of any material irreconcilable conflict between
the interests of the variable contract owners of the life insurance companies
and to determine what action, if any, should be taken in the event of a
conflict. The life insurance 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 insurance company separate
accounts or Qualified Plans might withdraw their investment in the Trust. This
might force Managers Trust to sell portfolio securities at disadvantageous
prices.
There are nine 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 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.
*NOTE: The Balanced Portfolio is not available in the states of Minnesota, New
Jersey and West Virginia
9
<PAGE> 13
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 that 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. Your registered representative will advise you of any
medical examination requirements.
The Policy will be issued as either standard non-smoker, special 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 returns,
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. The 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.
10
<PAGE> 14
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.
PLANNED PREMIUMS -- While the Policy provides for flexible Premium payments, the
Policy Owner can establish a Planned Premium Payment Plan providing 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 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
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.
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.
11
<PAGE> 15
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.
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.
12
<PAGE> 16
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 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)) described 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 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 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.
COMPLETED POLICY YEARS APPLICABLE PERCENTAGE
---------------------- ---------------------
0-4 100
5 80
6 60
7 40
8 20
9 0
13
<PAGE> 17
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 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 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 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 taken 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.
TRUST AND MANAGERS TRUST ANNUAL EXPENSES
There are deductions from and expenses paid out of the assets of the various
Portfolios, which are summarized below. See the Trust prospectus for a complete
description.
Neuberger & Berman Advisers Management Trust and Advisers Managers Trust Annual
Expenses1 (as a percentage of the average daily net assets of a Portfolio).
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT TOTAL ANNUAL
PORTFOLIO AND ADMINISTRATION FEES OTHER EXPENSES EXPENSES
- --------- ----------------------- -------------- ------------
<S> <C> <C> <C>
Liquid Asset(2) 0.53% 0.47% 1.00%
Balanced 0.85% 0.19% 1.04%
Growth 0.83% 0.07% 0.90%
Limited Maturity Bond 0.65% 0.12% 0.77%
</TABLE>
(1) The Trust is divided into nine Portfolios ("Portfolios"), four of which are
available in connection with the Polices. Each Portfolio invests all of its net
investable assets in a corresponding series ("Series")of Advisers Managers
Trust. The figures reported under "Investment Management and Administration
Fees" include the aggregate of the administration fees paid by the Portfolio and
the management fees paid by its corresponding Series. Similarly, "Other
Expenses" include all other expenses of the Portfolio and its corresponding
Series.
(2) Expenses reflect expense reimbursement. N&B Management has under taken to
reimburse the Liquid Asset Portfolio for certain operating expenses including
the compensation of N&B Management and excluding certain other expenses that
exceed, in the aggregate, 1% of the Portfolio's average daily net asset value.
Absent such reimbursement, the "Total Annual Expenses" for the year ended
December 31, 1997 would have been 1.12% for the Liquid Asset Portfolio. This
expense reimbursement policy is subject to termination upon 60 days written
notice and there can be no assurance that it will be continued thereafter.
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 that results in a savings of
sales or administrative expenses. Entitlement to such a reduction will be
determined by the Company based on the following factors:
(1) The size and type of group to which sales are to be made will be
considered. Generally, 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.
(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 reduction or
elimination of these charges or other Policy provisions be permitted where such
reduction 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.
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<PAGE> 18
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.
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]
15
<PAGE> 19
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]
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.
CHANGE IN THE SPECIFIED AMOUNT -- The Policy Owner may increase or decrease the
Specified Amount. Written requests for a change 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.")
16
<PAGE> 20
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>
The Premium paid in all cases is 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 that 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); and
(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.
17
<PAGE> 21
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.")
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 obtain a loan 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
"Federal 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.
18
<PAGE> 22
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
deceased, 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 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 made under one
of the following plans or any other plan acceptable to the Company.
19
<PAGE> 23
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.
FEDERAL 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.
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.
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.
20
<PAGE> 24
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.
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.)
If the Policy death proceeds are held by the Company at interest, any interest
credited will be includable in the taxable income for the Beneficiary for the
year in which the interest is credited. If the Policy death proceeds are paid
under the Lifetime Payments with a Guarantee plan, the payments will be prorated
between the amount attributable to the death benefit which will be excludable
from the Beneficiary's income and the amount attributable to interest which will
be includable in the Beneficiary's income.
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. However, an exchange under
Section 1035 of the Code of a life insurance policy entered into before June 21,
1988 for the Policy will not cause the Policy to be treated as a modified
endowment contract if no additional premiums are paid.
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.
21
<PAGE> 25
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
591/2; (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, 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 Policy Owner and not as a distribution.
Upon complete surrender or when maturity benefits are paid, if the amount
received plus loan indebtedness exceeds the total premiums paid that are not
treated as previously surrendered by the Policy Owner, the excess generally will
be treated as ordinary income.
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, distributions,surrendering any Policy, exchanging 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 the 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
a 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.
22
<PAGE> 26
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. 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
its shares to Qualified Plans. Nevertheless, the Boards of Trustees of the Trust
and Managers' Trust intend 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 Managers' 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:
NAME PRINCIPAL OCCUPATION
---- --------------------
Dale R. Schuh Chairman of the Board, Director and President of
the Company. Mr. Schuh is Chief Executive
Officer and President of SIAMCO.
Richard A. Huseby Vice President of the Company. Mr. Huseby is
Vice President of Life, Health, Annuity and
Pension Operations of SIAMCO.
Glen E. Scott, Jr. Vice President of the Company. Mr. Scott is Vice
President - Sales of SIAMCO.
William M. O'Reilly Secretary and a Director of the Company. Mr.
O'Reilly is Vice President, General Counsel and
Corporate Secretary of SIAMCO.
William D. Lohr Treasurer and a Director of the Company. Mr. Lohr
is Vice President and Treasurer of SIAMCO.
Steven R. Boehlke A Director of the Company. Mr. Boehlke is Vice
President of SIAMCO.
Janet L. Fagan A Director of the Company. Ms. Fagan is Vice
President and Chief Actuary of SIAMCO.
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. 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.
23
<PAGE> 27
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 confirmation of the following transactions:receipt of
any premiums (except premiums received before the Policy Issue Date and those
received via an automatic premium payment plan); 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. Policy Owners choosing an
automatic premium payment plan will receive an annual statement showing the
dates and amounts of premiums paid. Upon request, Policy Owners will be entitled
to a receipt for any premium payment. Policy Owners will also receive
confirmation of the following transactions within seven days: exercise of the
free-look privilege; an exchange of the Policy; full surrender of the Policy;
and payment of the death benefit under the Policy.
Within 30 days after each Policy Anniversary, an annual statement will be sent
to Policy Owners. 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, 1997 and
1996, and for the years then ended, and the financial statements of the Variable
Life Account as of December 31, 1997, 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 appear herein and have
been included in reliance on their authority as experts in accounting and
auditing.
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.
24
<PAGE> 28
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1997, 1996 AND 1995
25
<PAGE> 29
[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 and liabilities 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,
1997, and the related statements of operations and changes in net assets 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 audits.
We conducted our audits 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, 1997 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 audits provide 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, 1997, and the results of their
operations and the changes in their net assets for each of the three years in
the period then ended in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 11, 1998
26
<PAGE> 30
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1997
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 150,455
shares (cost $150,455) $ 150,455
Growth Portfolio, 136,593
shares (cost $3,381,329) 4,171,506
Limited Maturity Bond Portfolio, 11,618
shares (cost $160,688) 164,081
Balanced Portfolio, 66,995
shares (cost $1,065,247) 1,192,521
----------
Total investments 5,678,563
Dividends receivable 598
----------
Total assets 5,679,161
LIABILITIES:
Accrued expenses 1,715
----------
NET ASSETS $5,677,446
</TABLE> ==========
The accompanying notes are an integral part of these financial statements
27
<PAGE> 31
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS FOR THE YEARS ENDED DECEMBER
31, 1997, 1996 AND 1995
SUB-ACCOUNTS INVESTING IN:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
-------------------------------- -------------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 10,121 $ 9,580 $ 9,124 $ -- $ 997 $ 4,390
Expenses:
Risk charges 2,305 2,288 1,940 37,804 29,155 23,650
-------- -------- -------- ---------- ---------- ----------
Net investment income (loss) 7,816 7,292 7,184 (37,804) (28,158) (19,260)
-------- -------- -------- ---------- ---------- ----------
Realized net investment gain (loss) -- -- -- 143,719 48,754 46,745
Unrealized appreciation
(depreciation), net -- -- -- 478,813 (44,382) 473,452
Capital gain distributions received -- -- -- 264,588 233,304 58,834
-------- -------- -------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 887,120 237,676 579,031
-------- -------- -------- ---------- ---------- ----------
Net increase in net assets
from operations 7,816 7,292 7,184 849,316 209,518 559,771
-------- -------- -------- ---------- ---------- ----------
Purchase payments 447,087 96,463 90,888 698,213 549,845 478,225
Transfers between subaccounts,
net (427,134) (59,472) (54,134) 304,525 56,399 62,754
Withdrawals and surrenders (80,269) (32,192) (1,034) (375,499) (184,653) (116,440)
Monthly deductions (16,117) (13,163) (12,109) (250,870) (217,320) (183,791)
Policy loans (60) (709) (31) (32,746) (10,421) (37,216)
-------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in net
assets derived from
principal transactions (76,493) (9,073) 23,580 343,623 193,850 203,532
-------- -------- -------- ---------- ---------- ----------
Total increase (decrease)
in net assets (68,677) (1,781) 30,764 1,192,939 403,368 763,303
Net assets at beginning of
year 219,666 221,447 190,683 2,978,276 2,574,908 1,811,605
-------- -------- -------- ---------- ---------- ----------
Net assets at end of
year $150,989 $219,666 $221,447 $4,171,215 $2,978,276 $2,574,908
======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
28
<PAGE> 32
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,980 $ 15,386 $ 9,541 $ 16,109 $ 18,652 $ 11,714 $ 35,210 $ 44,615 $ 34,769
1,647 1,797 1,908 10,422 8,680 7,621 52,178 41,920 35,119
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
7,333 13,589 7,633 5,687 9,972 4,093 (16,968) 2,695 (350)
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
(1,219) (2,558) 1,206 15,467 8,235 19,996 157,967 54,431 67,947
2,465 (6,306) 8,032 100,185 (76,957) 114,203 581,463 (127,645) 595,687
-- -- -- 41,345 103,719 3,765 305,933 337,023 62,599
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
1,246 (8,864) 9,238 156,997 34,997 137,964 1,045,363 263,809 726,233
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
8,579 4,725 16,871 162,684 44,969 142,057 1,028,395 266,504 725,883
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
20,154 25,849 27,036 176,611 142,335 161,567 1,342,065 814,492 757,716
793 (9,331) (3,276) 121,816 12,404 (5,344) -- -- --
(7,924) (37,994) (12,119) (19,038) (59,749) (29,762) (482,730) (314,588) (159,355)
(11,054) (12,163) (13,030) (93,257) (83,683) (81,053) (371,298) (326,329) (289,983)
1,987 (306) (3,029) (219) (6,732) (1,715) (31,038) (18,168) (41,991)
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
3,956 (33,945) (4,418) 185,913 4,575 43,693 456,999 155,407 266,387
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
12,535 (29,220) 12,453 348,597 49,544 185,750 1,485,394 421,911 992,270
150,962 180,182 167,729 843,148 793,604 607,854 4,192,052 3,770,141 2,777,871
-------- --------- --------- ---------- --------- --------- ---------- ---------- ----------
$163,497 $ 150,962 $ 180,182 $1,191,745 $ 843,148 $ 793,604 $5,677,446 $4,192,052 $3,770,141
======== ========= ========= ========== ========= ========= ========== ========== ==========
</TABLE>
29
<PAGE> 33
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
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 financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make
certain estimates and assumptions at the date of the financial statements.
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 investment gains and
losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable 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
investment 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 $1,715 at December 31, 1997.
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.
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.
30
<PAGE> 34
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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. NET ASSETS
Net Assets are represented by accumulation units in the related Variable Life
Account.
At December 31, 1997 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 9,691 $ 15.58 $ 150,989
Growth Portfolio 143,731 29.02 4,171,215
Limited Maturity Bond Portfolio 9,339 17.51 163,497
Balanced Portfolio 57,188 20.84 1,191,745
----------
Total contract owners' equity $5,677,446
==========
</TABLE>
At December 31, 1997 significant concentrations of ownership were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 2 34.1
Limited Maturity Bond Portfolio 1 27.2
</TABLE>
At December 31, 1996 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 14,611 $ 15.03 $ 219,666
Growth Portfolio 131,013 22.73 2,978,276
Limited Maturity Bond Portfolio 19,110 16.57 150,962
Balanced Portfolio 47,830 17.63 843,148
----------
Total contract owners' equity $4,192,052
==========
</TABLE>
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>
31
<PAGE> 35
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$2,245,774 and $1,500,435, 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 $501,151 $1,310,732 $ 32,033 $401,858 $2,245,774
Proceeds on sales 570,324 740,521 21,099 168,491 1,500,435
</TABLE>
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$1,368,190 and $872,040, 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 $153,780 $889,149 $ 44,216 $281,045 $1,368,190
Proceeds on sales 155,168 489,998 63,774 163,100 872,040
</TABLE>
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>
<CAPTION>
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>
32
<PAGE> 36
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
33
<PAGE> 37
[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 (the Company) as of December 31, 1997 and 1996, and the
related statutory-basis statements of operations, changes in capital stock and
surplus and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to report
on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the insurance department of the state of Wisconsin, which practices
differ from generally accepted accounting principles (GAAP). We have only been
engaged by the Company to audit the accompanying financial statements on a
statutory basis of accounting. The Company is not required to prepare GAAP
financial statements and does not prepare GAAP financial statements. The effects
on the financial statements of the variances between the statutory basis of
accounting and GAAP, although not reasonably determinable, are presumed to be
material. We are therefore required in the following paragraph to issue an
adverse opinion on GAAP.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Sentry Life Insurance Company as of December 31, 1997 and 1996, or the
results of its operations and its cash flows for the years then ended.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with accounting practices prescribed or permitted
by the insurance department of the state of Wisconsin.
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of assets and liabilities is presented to comply with the
National Association of Insurance Commissioners' annual statement instructions
and is not a required part of the statutory-basis financial statements. Such
information has been subjected to the auditing procedures applied in our audit
of the statutory basis financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the statutory-basis financial
statements taken as a whole.
Coopers & Lybrand L.L.P.
Chicago, Illinois
February 13, 1998
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
--------------------------
<TABLE>
<CAPTION>
ASSETS 1997 1996
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds .................................................................. $1,103,011,418 $ 1,055,154,229
Investments in subsidiaries............................................... 9,817,647 9,600,499
Mortgage loans............................................................ 68,657 150,967
Policy loans.............................................................. 25,020,637 25,389,248
Cash and short-term investments........................................... 20,636,124 28,736,493
-------------- ---------------
Total investments ................................................ 1,158,554,483 1,119,031,436
Accrued investment income.................................................... 18,231,430 17,006,071
Premiums deferred and uncollected............................................ 4,377,983 4,233,837
Due from affiliates.......................................................... 3,008,778 11,382,247
Other assets................................................................. 6,099,831 2,749,335
Assets held in separate accounts............................................. 533,613,785 433,345,943
-------------- ---------------
Total admitted assets............................................. $1,723,886,290 $ 1,587,748,869
============== ===============
LIABILITIES
- -----------
Future policy benefits:
Life...................................................................... $ 250,618,823 $ 249,630,411
Accident and health....................................................... 14,967,065 8,169,020
Annuity .................................................................. 138,902,775 140,074,886
Policy and contract claims................................................... 4,720,182 3,951,309
Premium and other deposit funds.............................................. 604,285,476 596,529,186
Other policyholder funds..................................................... 26,118,724 10,334,943
Accounts payable and other liabilities....................................... 3,477,182 3,061,854
Federal income taxes accrued................................................. 11,555,703 10,908,272
Asset valuation reserve...................................................... 5,264,578 11,457,217
Interest maintenance reserve................................................. 6,175,922 6,722,122
Liabilities related to separate accounts..................................... 528,643,523 433,660,043
-------------- ---------------
Total liabilities................................................. $1,594,729,953 $ 1,473,499,263
============== ===============
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1997 and 1996........................... 3,161,780 3,161,780
Paid-in surplus.............................................................. 43,719,081 43,719,081
Earned surplus, unappropriated............................................... 82,275,476 67,368,745
-------------- ---------------
Total capital stock and surplus................................... 129,156,337 114,249,606
-------------- ---------------
Total liabilities, capital stock and surplus...................... $1,723,886,290 $ 1,587,748,869
============== ===============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
35
<PAGE> 39
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
----------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations ...................................... $ 74,408,562 $ 70,779,015
Other fund deposits ...................................................... 52,574,356 53,285,412
Commissions and expense allowances on
reinsurance ceded ..................................................... 18,912,935 28,309,773
Net investment income .................................................... 91,589,939 90,382,873
Other income ............................................................. 8,512,462 7,721,815
------------- ------------
Total premiums and other income .................................. 245,998,254 250,478,888
------------- ------------
Benefits and expenses:
Policyholder benefits and fund withdrawals ............................... 188,108,969 153,162,041
Increase in future life policy benefits
and other reserves .................................................... 7,695,811 648,550
Commissions .............................................................. 10,638,144 16,144,524
Other expenses ........................................................... 30,477,161 34,145,149
Transfers to (from) separate accounts, net ............................... (16,336,976) 16,984,014
------------- ------------
Total benefits and expenses ...................................... 220,553,109 221,084,278
------------- ------------
Income before federal income tax expense
and net realized losses on investments ................................... 25,445,145 29,394,610
Federal income tax expense, less tax on net realized
losses and transfers to the IMR ................................ 9,177,337 9,381,864
------------- ------------
Income before net realized losses on investments ............................ 16,267,808 20,012,746
Net realized losses on investments ............................... 272,063 151,872
------------- ------------
Net income .................................................................. $ 15,995,745 $ 19,860,874
============= ============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
36
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
-------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<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 ................ 67,368,745 55,982,007
Net income .................................. 15,995,745 19,860,874
Change in non-admitted assets ............... 1,850 9,224
Change in liability for reinsurance ......... (650) -
Change in asset valuation reserve ........... 6,192,639 (109,926)
Dividend to stockholder ..................... (7,500,000) (8,000,000)
Change in net unrealized gains on investments 217,147 (373,434)
------------- -------------
Balance at end of year ...................... 82,275,476 67,368,745
------------- -------------
Total capital stock and surplus ..... $ 129,156,337 $ 114,249,606
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
37
<PAGE> 41
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
--------------------------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Premiums and annuity considerations ................................................... $ 74,046,843 $ 70,913,344
Other fund deposits ................................................................... 52,574,356 53,285,412
Other premiums, considerations and deposits ........................................... 170,518 260,805
Allowances and reserve adjustments received on
reinsurance ceded .................................................................. 25,981,339 30,458,213
Investment income received (excluding realized gains
and losses and net of investment expenses) ......................................... 88,152,129 87,375,424
Other income received ................................................................. 8,341,944 7,443,291
Life and accident and health claims paid .............................................. (24,600,136) (21,418,597)
Surrender benefits .................................................................... (99,192,578) (85,880,726)
Other benefits to policyholders paid .................................................. (46,821,006) (45,644,421)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) ................................................... (41,375,759) (50,351,320)
Net transfers from (to) separate accounts ............................................. 16,364,694 (16,899,050)
Cash in receivable status from separate accounts ...................................... (4,318,844) -
Changes in asset charges receivable ................................................... 6,765 -
Dividends to policyholders paid ....................................................... (316,156) (322,084)
Federal income taxes paid ............................................................. (9,002,003) (8,474,783)
Net decrease in policy loans .......................................................... 368,610 643,281
------------- -------------
Net cash from operations ........................................................... 40,380,717 21,388,789
------------- -------------
Proceeds from investments sold, matured, or repaid:
Bonds .............................................................................. 101,049,805 122,548,892
Mortgage loans ..................................................................... 82,308 115,725
Tax on net capital gains ........................................................... (105,566) 52,062
------------- -------------
Total investment proceeds .................................................. 101,026,547 122,716,679
------------- -------------
Other cash provided.................................................................... 10,746,586 1,288,793
------------- -------------
Total cash provided ........................................................ 152,153,851 145,394,261
------------- -------------
Cost of investments acquired:
Bonds .............................................................................. 146,935,141 124,810,078
Total investments acquired ................................................. 146,935,141 124,810,078
------------- -------------
Other cash applied:
Dividend to stockholder ............................................................ 7,500,000 8,000,000
Other applications, net ............................................................ 5,819,079 8,359,537
------------- -------------
Total cash applied ......................................................... 160,254,220 141,169,615
------------- -------------
Net change in cash and short-term investments............................... (8,100,369) 4,224,646
Cash and short-term investments:
Beginning of year .................................................................. 28,736,493 24,511,847
------------- -------------
End of year ........................................................................ $ 20,636,124 $ 28,736,493
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
38
<PAGE> 42
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS
------------------
(1) BASIS OF PRESENTATION AND SIGNIFICANT STATUTORY-BASIS ACCOUNTING POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company (the Company) is a wholly-owned subsidiary
of Sentry Insurance a Mutual Company (SIAMCO). The Company writes
insurance products in all states except New York primarily through direct
writers who market the Company's individual life insurance, annuities and
group health and pension products. The Company also uses direct mail and
third party administrators for the marketing of its group life and health
products.
The accompanying statutory-basis financial statements of the Company have
been prepared in conformity with the accounting practices prescribed or
permitted by the insurance department of the State of Wisconsin.
Prescribed statutory accounting principles include a variety of
publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all accounting
practices not so prescribed. The Company does not employ any material
permitted practices in the preparation of its statutory-basis financial
statements.
The accompanying statutory-basis financial statements have been prepared
in accordance with statutory accounting principles which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the
NAIC. Bonds which qualify for amortization are stated at amortized
cost; bonds not qualifying are carried at the lesser of amortized
cost or NAIC market values. Under GAAP, bonds would be classified as
either trading, available for sale, or held-to-maturity. Bonds
classified as trading or as available for sale would be carried at
market with unrealized gains and losses, net of applicable taxes,
recognized as net income (trading securities) or as a direct surplus
adjustment (available for sale). Common stock of the Company's
unconsolidated subsidiary is carried at its underlying statutory
capital and surplus. The change in the subsidiary's underlying equity
between years is reflected as a change in unrealized gains (losses).
Under GAAP, this entity's balance sheet and results of operations
would be consolidated with the Company. Mortgage loans on real estate
are carried at their aggregate unpaid principal balances. Policy
loans are carried at the aggregate of unpaid principal balances, plus
accrued interest and are not in excess of cash surrender values of
the related policies. Short-term investments are carried at amortized
cost, which approximates market value. Investment income is recorded
when earned. Market value adjustments, on investments carried at
market, are reflected in earned surplus as unrealized gains (losses)
on investments. Realized gains and losses are determined on the
specific identification method and are recorded directly in the
statements of operations, net of federal income taxes and after
transfers to the Interest Maintenance Reserve, as prescribed by the
NAIC.
Income on mortgage-backed securities is recognized using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated
future payments. The net investment in the securities is adjusted to
the amount that would have existed had the new effective yield been
applied since the acquisition of the securities. This adjustment is
reflected in net investment income.
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER DEPOSIT
FUNDS
The Company issues group annuity contracts both to affiliated
companies and others. The deposits received in connection with these
contracts are placed in deposit administration funds and in separate
accounts. The Company also issues variable annuity contracts and
variable universal life contracts. Deposits for those contracts are
also placed in separate accounts. A separate account is an accounting
entity segregated as a discrete operation within an insurance
company. The stockholder of the Company and its policyholders have no
claim to assets held in the separate accounts. The contract holders
are the only persons having rights to any assets in the separate
accounts or to income arising from these assets. All separate and
variable accounts held by the Company are non-guaranteed and
represent funds where the benefit is determined by the performance of
the investments held in the separate account. Assets are carried at
market value and reserves are calculated using the cash value of the
contract. All reserves fall into the category allowing discretionary
withdrawals at market value. For the variable annuity contract, if it
has been in effect at least six years, there is no surrender charge.
For the variable universal life contract, there is a surrender charge
through the ninth year. The admitted asset value of separate accounts
consists primarily of common stock.
39
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
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 $322 and $2,172 at December 31, 1997 and
1996, respectively.
D. POLICY BENEFITS
Liabilities for traditional life and limited-payment life contracts
are computed using methods, mortality and morbidity tables and
interest rates which conform to the valuation laws of the State of
Wisconsin. The liabilities are primarily calculated on a modified
reserve basis. The effect of using a modified reserve basis partially
offsets the effect of immediately expensing acquisition costs by
providing a policy benefit reserve increase in the first policy year
which is less than the reserve increase in renewal years.
Future policy benefits for life policies and contracts were primarily
determined using the Commissioner's reserve valuation method with
interest rates ranging from 2.5% to 6%.
Future policy benefits for annuity contracts, primarily for
individual and group deferred annuities, were primarily determined
using the Commissioner's annuity reserve valuation method with
interest rates ranging from 3% to 11%. Group Health reserves consist
predominantly of long-term disability reserves representing present
value of amounts not yet due calculated using standard disability
tables, and various interest rates.
Reserves for universal life-type and investment contracts are based
on the contract account balance, if future benefit payments in excess
of the account balance are not guaranteed, or on the present value of
future benefit payments when such payments are guaranteed.
GAAP reserves are computed using mortality, withdrawal and interest
rate assumptions that are based on Company experience.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized investment gains and losses on bonds attributable to
interest rate changes are deferred in the IMR account. The IMR is
recorded as a liability and amortized into investment income over the
approximate remaining maturities of the bonds sold. This policy for
recognition of such realized gains and losses is prescribed by the
NAIC in order to smooth the impact of such activity on the Company's
earned surplus. For GAAP purposes, there is no such reserve.
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets
including bonds and mortgage loans. 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 the decline is 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 charged to policyholders.
As the Company has no direct employees and does not own equipment, it
utilizes services provided by employees and equipment of SIAMCO and
occupies space in SIAMCO's office building. Accordingly, the Company
participates in an expense allocation system with certain affiliated
companies. Expenses of the Company consist of direct charges incurred
and an allocation of expenses (principally salaries, salary-related
items, rent, and data processing services) between certain affiliated
companies. The Company recognized expenses of $31,900,482 and
$34,859,721 for 1997 and 1996, respectively, under this allocation
agreement.
40
<PAGE> 44
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
H. ACQUISITION COSTS
Costs directly related to the acquisition of insurance premiums, such
as commissions and premium taxes, are charged to operations as
incurred. Under GAAP, such acquisition costs would be capitalized and
amortized over the policy periods.
I. FEDERAL INCOME TAX
The Company is included in the consolidated federal income tax return
of SIAMCO. Income taxes payable or recoverable are determined on a
separate return basis by the Company in accordance with a written tax
allocation agreement. Deferred federal income taxes are not provided
for temporary differences between tax and financial reporting as they
would be under GAAP. Additionally, federal income taxes are not
provided for unrealized gains (losses) on investments.
J. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers
substantially all of their employees. Generally, the companies'
funding and accounting policies are to make the maximum contribution
required under applicable regulations and to charge such
contributions to expense in the year they are deductible for tax
purposes. GAAP periodic net pension expense is based on the cost of
incremental benefits for employee service during the period, interest
on the projected benefit obligation, actual return on plan assets and
amortization of actuarial gains and losses.
In addition to providing the pension benefits, the Company, with
SIAMCO and its affiliated subsidiaries, provides certain health care,
dental and life insurance benefits to retired employees and their
dependents. Substantially all of the employees may become eligible
for those benefits if they reach normal retirement age while working
for the Companies. The expected costs of providing those benefits to
employees and the employees' beneficiaries and covered dependents are
accounted for on an accrual basis during the years that employees
render service in accordance with NAICpolicy. SIAMCO is amortizing
its transition obligation, created upon the initial valuation of
postretirement benefits, over a period of twenty years and a portion
of the annual expense is allocated to the Company.
K. RECLASSIFICATION
Certain items in prior years' financial statements have been
reclassified to conform with the 1997 presentation.
(2) INVESTMENT
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1997 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 51,872,626 $ 3,446,572 $ (609) $ 55,318,589
Obligations of states and
political subdivisions 439,817 99,564 0 539,381
Corporate securities 757,760,027 60,329,883 (1,178,355) 816,911,555
Mortgage-backed securities 292,938,948 22,571,116 (553,953) 314,956,111
-------------- ----------- ----------- --------------
Total $1,103,011,418 $86,447,135 $(1,732,917) $1,187,725,636
============== =========== =========== ==============
</TABLE>
41
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1996 VALUE GAINS LOSSES VALUE
----- ---------- ---------- ---------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 53,916,579 $ 2,167,247 $ (369,858) $ 55,713,967
Obligations of states and
political subdivisions 437,987 55,839 0 493,826
Corporate securities 691,186,142 30,898,142 (7,126,855) 714,957,429
Mortgage-backed securities 309,613,521 14,702,270 (1,366,354) 322,949,437
-------------- ----------- ----------- --------------
Total $1,055,154,229 $47,823,497 $(8,863,067) $1,094,114,659
============== =========== =========== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1997, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain issuers have the right to call or prepay
obligations with or without call or prepayment penalties. Because most
mortgage-backed securities provide for periodic payments throughout their lives,
they are listed below in a separate category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- ---------
<S> <C> <C>
Due in one year or less $ 7,172,153 $ 7,281,006
Due after one year through five years 55,963,265 59,146,784
Due after five years through ten years 153,794,879 162,160,043
Due after ten years 593,142,173 644,181,692
-------------- --------------
Subtotal 810,072,470 872,769,525
Mortgage-backed securities 292,938,948 314,956,111
-------------- --------------
Total $1,103,011,418 $1,187,725,636
============== ==============
</TABLE>
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1997 is summarized as follows:
Aaa 32%
Aa 6%
A 38%
Baa 22%
Ba & below and not rated 2%
---
100%
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1997 and 1996, including maturities and
calls, were $101,049,805 and $122,548,892, respectively. In 1997 and 1996,
respectively, gross gains of $1,525,602 and $1,339,605, and gross losses of
$652,460 and $2,589,270 were realized on these sales before transfer to the IMR
liability.
42
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
At December 31, 1997 and 1996, investments carried at $4,384,747 and
$4,470,358, 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 1997 and 1996. Condensed financial information regarding SLONY is
shown as follows:
<TABLE>
<CAPTION>
SLONY
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Investments $35,406,623 $35,216,814
Total assets 38,955,256 38,474,106
Policy reserves and benefits 19,699,749 20,136,829
Total liabilities 29,137,609 28,873,607
Statutory capital and surplus 9,817,647 9,600,499
Premium income 8,331,937 10,696,198
Net investment income 2,783,625 2,917,728
Benefits and expenses 9,917,561 12,945,335
Net income 764,439 716,983
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Dividends received from affiliates $ 750,000 $ 800,000
Interest:
Bonds 87,232,271 86,148,877
Short-term investments 1,124,220 908,456
Other investments 1,763,787 1,782,534
Amortization of IMR 1,113,741 1,220,848
----------- -----------
Gross investment income 91,984,019 90,860,715
Investment expense 394,081 477,842
----------- -----------
Net investment income $91,589,939 $90,382,873
=========== ===========
</TABLE>
The components of net realized gains (losses) and changes in net
unrealized gains (losses) on investments which are reflected in the
accompanying statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
----------------------- ------------------------
1997 1996 1997 1996
--------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Bonds $ 873,142 $(1,249,665) - -
Stocks - 178,648 - (171,136)
Less deferred realized (gains)
losses (873,142) 1,249,665 - -
Common stock of
consolidated subsidiaries 217,147 (202,067)
Less related federal income tax (272,063) (330,520)
--------- ----------- --------- ------------
$(272,063) $ (151,872) $ 217,147 $ (373,434)
========= =========== ========= ============
</TABLE>
43
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
(5) INCOME TAXES
Federal income tax expense in the statutory-basis statements of operations
differs from that computed based on the federal statutory corporate income
tax rate of 35%. The reasons for these differences are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 8,905,800 $ 10,288,113
Changes in liability for dividends $ - $ 864,932
Accrual of bond discount $ (633,561) $ (891,625)
Adjustment for deferred acquisition costs $ 12,178 $ (14,741)
Dividends received from subsidiaries $ (262,500) $ (280,000)
Different basis used to compute future policy
benefits $ 1,720,817 $ 35,071
Amortization of interest maintenance reserve $ (389,809) $ (427,296)
Other, net $ (175,587) $ (192,590)
----------- ------------
Total $ 9,177,337 $ 9,381,864
=========== ============
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of a life
insurance company's "gain from operations" was not subject to current
income taxation but was accumulated, for tax purposes, in a memorandum
account designated as the "policyholders' surplus account." The amounts
included in this account are includable in taxable income of later years
at rates then in effect if the life insurance company elects to distribute
tax basis policyholders' surplus to stockholders as dividends or takes
certain other actions. Any distributions are first made from another tax
memorandum account known as the "stockholders' surplus account." The
accumulation in the tax policyholders' surplus and stockholders' surplus
accounts of the Company were $5,605,476 and $77,917,211, respectively, at
December 31, 1997.
Federal income tax returns of SIAMCO have been examined through 1993 and
the Company and the Internal Revenue Service reached agreement on all
issues relating to 1993 and prior years. In the opinion of management,
the Company has adequately provided for the possible effect of future
assessments related to prior years.
(6) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Values of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether
or not recognized in the balance sheets, for which it is practicable to
estimate those values. SFAS 107 defines fair value of a financial
instrument as the amount at which that instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidated sale.
The fair values presented on the next page represent management's best
estimates and may not be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement
of the instruments. Certain financial instruments and all nonfinancial
instruments are exempt from the disclosure requirements of SFAS 107.
Financial instruments which are exempt include life policy benefits with
mortality or morbidity risk. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
For cash and short-term investments and accrued investment income, the
carrying amount approximates fair value.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
BONDS
Estimated fair value is generally based on quotes provided by independent
pricing services. If a quoted market price is not available, fair value is
estimated by management based on the quoted market price of comparable
instruments.
POLICY LOANS
Policy loans have no stated maturity dates; therefore, no reasonable
estimate of fair value can be made. Interest rates range from 5 to 8
percent.
SEPARATE ACCOUNTS
The fair value of the assets held in separate accounts and offsetting
liabilities are estimated based on the fair value of the underlying
assets.
AGGREGATE RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of investment-type insurance contracts is estimated by
reducing the policyholder liability for applicable surrender charges.
44
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
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, 1997 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,103,011,148 $1,187,725,636
Assets held in separate accounts 533,613,785 533,613,785
Liabilities:
Aggregate reserves for
investment-type contracts 80,815,675 80,386,603
Structured settlements 52,717,040 59,537,099
Liability for premium and
other deposit funds 604,285,476 603,300,638
Liabilities related to
separate accounts 528,643,523 528,643,523
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1996 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,055,154,229 $1,094,114,659
Assets held in separate accounts 433,345,943 433,345,943
Liabilities:
Aggregate reserves for
investment-type contracts 86,160,277 85,534,609
Structured settlements 48,033,522 55,410,157
Liability for premium and
other deposit funds 596,529,186 591,498,214
Liabilities related to
separate accounts 432,660,043 432,660,043
</TABLE>
(7) PENSION AND 401K PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially all
of their employees. The benefits are based on years of service, the
average of the three highest of the last fifteen years of an employee's
compensation and primary social security benefits, as defined in the plan.
The Company is not a separately assignable entity for purposes of
allocation of accumulated plan benefits or assets. The Company was
allocated pension expense by SIAMCO of approximately $283,000 and $722,000
in 1997 and 1996, 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
$260,000 and $355,000 by SIAMCO for 401k Plan benefits in 1997 and 1996,
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 $445,000 for 1997 and $625,000 for 1996.
45
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
------------------
(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 30% and 30%
of total in-force (before ceded reinsurance) at December 31, 1997 and
1996, respectively.
The Company has entered into reinsurance ceded contracts to limit the net
loss potential arising from large risks. Generally, life benefits in
excess of $250,000 and all group health liabilities, except for
liabilities relating to SIAMCO's employee benefit plans, are ceded to
reinsurers. The group health liabilities are ceded to SIAMCO.
The Company cedes insurance to other insurers under various contracts
which cover individual risks or entire classes of business. Although the
ceding of insurance does not discharge the Company from its primary
liability to policyholders in the event any reinsurer might be unable to
meet the obligations assumed under the reinsurance agreements, it is the
practice of insurers to reduce their balances for amounts ceded. The
amounts included in the accompanying statutory-basis financial statements
for reinsurance were as follows:
<TABLE>
<CAPTION>
1997
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- -------- ------- ------
<S> <C> <C> <C> <C>
Premiums $ 306 $ 55,101 $6,628 $7,891
Benefits 8 59,973 6,602 4,437
Commissions 5 17,718 (2) 1,195
Future Policy Benefits:
Life & Annuities 34 - 19 1,347
Accident & Health - 232,386 291 159
Intercompany Receivable - 8,650 - -
<CAPTION>
1996
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- -------- ------- ------
<S> <C> <C> <C> <C>
Premiums $ 346 $112,914 $7,117 $4,377
Benefits 49 108,034 7,157 2,215
Commissions 6 27,693 (1) 617
Future Policy Benefits:
Life & Annuities 37 - 28 1,282
Accident & Health - 232,583 343 77
Intercompany Receivable - 9,188 - -
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various legal actions and
proceedings pending against the Company. In the opinion of management and
legal counsel, the ultimate resolution of these matters will not have a
material adverse impact on the Company's statutory-basis financial
statements.
State guaranty funds can assess the Company for losses of insolvent or
rehabilitated companies. Mandatory assessments may be partially recovered
through a reduction in future premium taxes in some states. The Company
believes that its ultimate cost for these assessments is not expected to
have a material adverse effect on the financial statements.
(10) OTHER RELATED PARTY TRANSACTIONS
The Company is the direct writer of certain employee benefit plans for
SIAMCO. Premiums included in the accompanying statutory-basis statements
of operations (net of ceded premiums) are approximately $20,360,000 and
$20,364,000 in 1997 and 1996, respectively.
46
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATURORY-BASIS FINANCIAL STATEMENTS (continued)
------------------
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, 1997 and 1996 included
$52,717,040 and $48,033,522, respectively, relating to these contracts.
Also, see Notes 7 and 8 for other related party transactions.
(11) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposits of approximately $1,202.0 million and
$1,104.2 million in 1997 and 1996, respectively, are subject to withdrawal
at the discretion of the annuity contract holders. Approximately 95% and
94%, respectively, carry surrender charges.
47
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1997
49
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1997
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<S> <C>
Investment Income Earned:
Government Bonds .................................................. $ 329,823
Other bonds (unaffiliated) ........................................ 86,902,288
Common stocks of affiliates ....................................... 750,000
Mortgage loans .................................................... 10,835
Premium notes, policy loans and liens ............................. 1,698,910
Short-term investments ............................................ 1,124,220
Aggregate write-ins for investment income ......................... 54,042
--------------
Gross investment income ........................................... $ 90,870,278
==============
Mortgage Loans - Book Value:
Residential mortgages ............................................. $ 68,657
==============
Mortgage Loans By Standing - Book Value:
Good standing ..................................................... $ 68,657
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks ..................................................... $ 9,817,647
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ..................................... $ 21,897,445
Over 1 year through 5 years ..................................... 147,537,985
Over 5 years through 10 years ................................... 272,735,640
Over 10 years through 20 years .................................. 322,055,038
Over 20 years ................................................... 338,785,310
--------------
Total by Maturity ............................................... $1,103,011,418
==============
Bonds by Class - Statement Value
Class 1 ......................................................... $ 813,962,093
Class 2 ......................................................... 275,602,903
Class 3 ......................................................... 13,446,422
Class 4 ......................................................... 0
Class 5 ......................................................... 0
Class 6 ......................................................... 0
--------------
Total by Class .................................................. $1,103,011,418
==============
Total Bonds Publicly Traded ..................................... $1,103,011,418
==============
Total Bonds Privately Placed .................................... $ 0
==============
</TABLE>
50
<PAGE> 53
<TABLE>
<CAPTION>
<S> <C>
Short-Term Investments - Book Value ........................ $ 20,636,124
==============
Cash on Deposit ............................................ $ 0
==============
Life Insurance In Force (000's omitted):
Ordinary ................................................ $ 4,824,017
==============
Group Life .............................................. $ 3,115,044
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ................................... $ 124,140
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary ................................................ 22,172
==============
Group Life .............................................. 130
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ..................................... $ 259,892
==============
Income Payable ........................................ $ 359,396
==============
Ordinary - Involving Life Contingencies
Income Payable ........................................ $ 104,956
==============
Annuities:
Ordinary
Immediate - Amount of Income Payable .................. $ 1,587,647
==============
Deferred - Fully paid account balance ................. $ 21,397,657
==============
Deferred - Not fully paid account balance ............. $ 84,633,981
==============
Group
Amount of income payable .............................. $ 5,184,535
==============
Fully paid account balance ............................ $ 13,415,179
==============
Not fully paid account balance ........................ $1,100,339,568
==============
Accident and Health Insurance - Premiums In Force:
Ordinary ................................................ $ 190,657
==============
Group ................................................... $ 32,862,349
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ................ $ 334,643
==============
Claim Payments 1997:
Group Accident and Health Year - Ended December 31, 199X
1997 ................................................. $ 4,854,724
==============
1996 ................................................. $ 162,408
==============
1995 & prior .......................................... $ 53,908
==============
Other Accident & Health
1997 ................................................. $ 12,690
==============
1996 ................................................. $ 27,508
==============
1995 & prior .......................................... $ 85,572
==============
</TABLE>
51
<PAGE> 54
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 0.72%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 .21% of the average daily net
assets of the Trust. These assumptions are based on the fee schedule in effect
as of May 1, 1998. 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
(1.98%), 4.02%, and 10.02%.
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.
52
<PAGE> 55
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 3137 2495 100000
39 4 4672 5286 4379 3737 100000
40 5 5840 6777 5735 5221 100000
41 6 7008 8342 7214 6829 100000
42 7 8176 9985 8828 8571 100000
43 8 9344 11711 10592 10463 100000
44 9 10512 13523 12519 12519 100000
45 10 11680 15426 14626 14626 100000
55 20 23360 40552 50457 50457 100000
65 30 35040 81481 142244 142244 173537
75 40 46720 148149 370011 370011 395911
95 60 70080 433635 2279165 2279165 2301956
</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 4117 3475 100000
40 5 5840 6777 5373 4860 100000
41 6 7008 8342 6735 6350 100000
42 7 8176 9985 8211 7955 100000
43 8 9344 11711 9814 9686 100000
44 9 10512 13523 11554 11554 100000
45 10 11680 15426 13445 13445 100000
55 20 23360 40552 45001 45001 100000
65 30 35040 81481 126330 126330 154123
75 40 46720 148149 328023 328023 350985
95 60 70080 433635 1993357 1993357 2013290
</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.
53
<PAGE> 56
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 3758 3116 100000
40 5 5840 6777 4768 4254 100000
41 6 7008 8342 5805 5420 100000
42 7 8176 9985 6871 6614 100000
43 8 9344 11711 7965 7837 100000
44 9 10512 13523 9089 9089 100000
45 10 11680 15426 10242 10242 100000
55 20 23360 40552 23193 23193 100000
65 30 35040 81481 36995 36995 100000
75 40 46720 148149 44693 44693 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 1 1168 1226 850 208 100000
37 2 2336 2514 1721 1079 100000
38 3 3504 3866 2612 1970 100000
39 4 4672 5286 3523 2881 100000
40 5 5840 6777 4452 3938 100000
41 6 7008 8342 5396 5011 100000
42 7 8176 9985 6356 6100 100000
43 8 9344 11711 7331 7203 100000
44 9 10512 13523 8319 8319 100000
45 10 11680 15426 9319 9319 100000
55 20 23360 40552 19625 19625 100000
65 30 35040 81481 26985 26985 100000
75 40 46720 148149 15815 15815 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.
54
<PAGE> 57
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 1 1168 1226 840 198 100000
37 2 2336 2514 1655 1013 100000
38 3 3504 3866 2445 1803 100000
39 4 4672 5286 3209 2567 100000
40 5 5840 6777 3946 3433 100000
41 6 7008 8342 4656 4271 100000
42 7 8176 9985 5338 5081 100000
43 8 9344 11711 5991 5863 100000
44 9 10512 13523 6616 6616 100000
45 10 11680 15426 7212 7212 100000
55 20 23360 40552 11139 11139 100000
65 30 35040 81481 8663 8663 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 2999 2357 100000
40 5 5840 6777 3670 3157 100000
41 6 7008 8342 4307 3922 100000
42 7 8176 9985 4908 4651 100000
43 8 9344 11711 5472 5343 100000
44 9 10512 13523 5997 5997 100000
45 10 11680 15426 6482 6482 100000
55 20 23360 40552 8683 8683 100000
65 30 35040 81481 1987 1987 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.
55
<PAGE> 58
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 4385 3739 104385
38 3 6843 7550 6895 6249 106896
39 4 9124 10323 9646 9000 109646
40 5 11405 13234 12657 12140 112657
41 6 13686 16291 15954 15567 115954
42 7 15967 19501 19565 19307 119565
43 8 18248 22871 23520 23391 123520
44 9 20529 26409 27852 27852 127852
45 10 22810 30125 32597 32597 132597
55 20 45620 79195 113494 113494 213494
65 30 68430 159124 313193 313193 413193
75 40 91240 289321 804588 804588 904588
95 60 136860 846851 4940809 4940809 5040809
</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 4275 3629 104275
38 3 6843 7550 6713 6067 106713
39 4 9124 10323 9375 8729 109375
40 5 11405 13234 12281 11764 112281
41 6 13686 16291 15452 15064 115452
42 7 15967 19501 18912 18654 118912
43 8 18248 22871 22689 22560 122689
44 9 20529 26409 26811 26811 126811
45 10 22810 30125 31310 31310 131310
55 20 45620 79195 106640 106640 206640
65 30 68430 159124 287355 287355 387355
75 40 91240 289321 719544 719544 819544
95 60 136860 846851 4199652 4199652 4199653
</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.
56
<PAGE> 59
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 4015 3369 104015
38 3 6843 7550 6128 5482 106128
39 4 9124 10323 8315 7669 108315
40 5 11405 13234 10575 10059 110575
41 6 13686 16291 12912 12524 112912
42 7 15967 19501 15325 15067 115325
43 8 18248 22871 17819 17689 117819
44 9 20529 26409 20393 20393 120393
45 10 22810 30125 23052 23052 123052
55 20 45620 79195 54324 54324 154324
65 30 68430 159124 92622 92622 192622
75 40 91240 289321 127970 127970 227910
95 60 136860 846851 1303 1303 101303
</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 1925 1279 101925
37 2 4562 4910 3911 3265 103911
38 3 6843 7550 5960 5314 105960
39 4 9124 10323 8073 7427 108073
40 5 11405 13234 10248 9731 110248
41 6 13686 16291 12484 12097 112484
42 7 15967 19501 14784 14525 114784
43 8 18248 22871 17146 17017 117146
44 9 20529 26409 19571 19571 119571
45 10 22810 30125 22059 22059 122059
55 20 45620 79195 50184 50184 150184
65 30 68430 159124 80362 80362 108362
75 40 91240 289321 95916 95916 195916
95 60 136860 846851 3025 3025 103025
</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.
57
<PAGE> 60
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 5420 4774 105420
39 4 9124 10323 7134 6488 107134
40 5 11405 13234 8801 8284 108801
41 6 13686 16291 10420 10033 110420
42 7 15967 19501 11991 11733 111991
43 8 18248 22871 13514 13385 113514
44 9 20529 26409 14989 14989 114989
45 10 22810 30125 16415 16415 116415
55 20 45620 79195 27595 27595 127595
65 30 68430 159124 30484 30484 130484
75 40 91240 289321 16187 16187 116187
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 5266 4620 105266
39 4 9124 10323 6918 6272 106918
40 5 11405 13234 8516 7999 108516
41 6 13686 16291 10057 9669 110057
42 7 15967 19501 11541 11283 111541
43 8 18248 22871 12967 12838 112967
44 9 20529 26409 14334 14334 114334
45 10 22810 30125 15640 15640 115640
55 20 45620 79195 24909 24909 124090
65 30 68430 159124 23583 23583 123583
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.
58
<PAGE> 61
PART II
UNDERTAKING TO FILE REPORTS
a. 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.
b. Pursuant to Investment Company Act Rule 26(e), Sentry Life Insurance
Company ("Company") hereby represents that the fees and charges
deducted under the Policy described in the Prospectus, in the
aggregate, are reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed by the Company.
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> 62
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 concluded 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> 63
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 58 pages.
The undertaking to file reports.
The signatures.
Written consents of the following persons:
Dean A. Klingenberg, FSA, MAAA
Coopers & Lybrand L.L.P., Independent Accountants
Blazzard, Grodd & Hasenauer, P.C.
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. None
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. Not Applicable
B. Opinion and Consent of Counsel
C. Consent of Independent Accountants
D. Consent of Actuary
* Incorporated herein by reference to Registrant's Post Effective
Amendment No. 13 filed electronically on or about April 30, 1997.
** Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 12 filed electronically on or about April 30, 1996.
<PAGE> 64
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 21st day
of April, 1997. 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, Chairman of the Board,
President and Director
Sentry Life Insurance Company, Depositor
BY: s/Dale R. Schuh
------------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
<PAGE> 65
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
s/Dale R. Schuh April 20, 1998
- --------------------------------------------
Dale R. Schuh, Chairman of the
Board, President and Director
s/Richard A. Huseby April 20, 1998
- --------------------------------------------
Richard A. Huseby, Vice President
s/Glen E. Scott, Jr. April 20, 1998
- --------------------------------------------
Glen E. Scott, Jr., Vice President
s/William M. O'Reilly April 20, 1998
- --------------------------------------------
William M. O'Reilly, Secretary and
Director
s/William J. Lohr April 20, 1998
- --------------------------------------------
William J. Lohr, Treasurer and
Director
s/Steven R. Boehlke April 20, 1998
- --------------------------------------------
Steven R. Boehlke, Director
s/Janet L. Fagan April 20, 1998
- --------------------------------------------
Janet L. Fagan, Director
<PAGE> 66
WRITTEN CONSENTS
POST-EFFECTIVE AMENDMENT NO. 14
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
1) Written consent of Actuary
Dean A. Klingenberg, FSA, MAAA
2) Written consent of Independent Accountants Coopers &
Lybrand, L.L.P.
3) Written consent of Counsel Blazzard, Grodd &
Hasenauer, P.C.
<PAGE> 67
April 20, 1998
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/Dean A. Klingenberg
---------------------------------------
Dean A. Klingenberg, FSA, MAAA
Actuary-Life & Health Product Pricing
<PAGE> 68
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 14 to the
Registration Statement of Sentry Variable Life Account I (the "Account") on Form
S-6 (File No. 2-98441)of:
(1) Our report dated February 11, 1998 on our audits of the financial statements
of the Account; and
(2) Our report dated February 13, 1998, on our audits of the statutory-basis
financial statements of Sentry Life Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountants."
s/ Coopers & Lybrand L.L.P.
Chicago, IL
April 27, 1998
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE> 69
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
April 8, 1998
Board of Directors
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
RE: Opinion of Counsel - Sentry Variable Life Account I
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form S-6 for Individual Flexible Premium Variable Life
Insurance Policies (the "Policies") to be issued by Sentry Life Insurance
Company and its separate account, Sentry Variable Life Account I.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Sentry Variable Life Account I is a Unit Investment Trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"), and
is currently registered with the Securities and Exchange Commission, pursuant to
Section 8(a) of the Act.
2. Upon the acceptance of premium payments made by a Policy Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such a Policy Owner will have
a legally-issued, fully paid, non-assessable contractual interest under such
Policy.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
<PAGE> 70
BLAZZARD, GRODD & HASENAUER, P.C.
Board of Directors
Sentry Life Insurance Company
April 8, 1998
Page 2
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Prospectus which forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/Raymond A. O'Hara III
-----------------------------------
Raymond A. O'Hara III
<PAGE> 71
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 14
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
<PAGE> 72
INDEX TO EXHIBITS
Exhibit B Opinion and Consent of Counsel
Exhibit C Consent of Independent Accountants
Exhibit D Consent of Actuary
<PAGE> 73
EXHIBIT B
Opinion and Consent of Counsel
<PAGE> 74
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
April 8, 1998
Board of Directors
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
RE: Opinion of Counsel - Sentry Variable Life Account I
Gentlemen:
You have requested our Opinion of Counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on Form S-6 for Individual Flexible Premium Variable Life
Insurance Policies (the "Policies") to be issued by Sentry Life Insurance
Company and its separate account, Sentry Variable Life Account I.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Sentry Variable Life Account I is a Unit Investment Trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"), and
is currently registered with the Securities and Exchange Commission, pursuant to
Section 8(a) of the Act.
2. Upon the acceptance of premium payments made by a Policy Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such a Policy Owner will have
a legally-issued, fully paid, non-assessable contractual interest under such
Policy.
You may use this opinion letter, or a copy thereof, as an exhibit to the
Registration Statement.
<PAGE> 75
BLAZZARD, GRODD & HASENAUER, P.C.
Board of Directors
Sentry Life Insurance Company
April 8, 1998
Page 2
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Prospectus which forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/Raymond A. O'Hara III
--------------------------------
Raymond A. O'Hara III
<PAGE> 76
EXHIBIT C
Consent of Independent Accountants
<PAGE> 77
[COOPERS & LYBRAND LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post Effective Amendment No. 14 to the
Registration Statement of Sentry Variable Life Account I (the "Account") on Form
S-6 (File No. 2-98441)of:
(1) Our report dated February 11, 1998 on our audits of the financial statements
of the Account; and
(2) Our report dated February 13, 1998, on our audits of the statutory-basis
financial statements of Sentry Life Insurance Company.
We also consent to the reference to our Firm under the caption "Independent
Accountants."
s/ Coopers & Lybrand L.L.P.
Chicago, IL
April 27, 1998
Coopers & Lybrand L.L.P. is a member of Coopers & Lybrand International, a
limited liability association incorporated in Switzerland.
<PAGE> 78
EXHIBIT D
Consent of Actuary
<PAGE> 79
April 20, 1998
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/Dean A. Klingenberg
-----------------------------------------
Dean A. Klingenberg, FSA, MAAA
Actuary-Life & Health Product Pricing
