<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. 16
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, Steven 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, 1999, 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.
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CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
<S> <C>
1 .................................................................... The Company, The Variable Life Account
2 .................................................................... The Company
3 .................................................................... 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(a) .................................................................... Distribution of the Policy
41(a) .................................................................... Distribution of the Policy
42 .................................................................... Not Applicable
43 .................................................................... Distribution of the Policy
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
</TABLE>
<PAGE> 3
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
ISSUED BY
SENTRY VARIABLE LIFE ACCOUNT I
AND
SENTRY LIFE INSURANCE COMPANY
The life insurance policy described in this Prospectus is a flexible premium
variable life insurance policy (the "Policy") offered by Sentry Life Insurance
company designed for individuals. The Policy provides life insurance protection
until the Policy Anniversary Date on or after your 95th birthday.
You can allocate the Cash Value of the Policy to the Sentry Variable Life
Account I (the "Variable Life Account"), which is a segregated investment
account of Sentry Life Insurance Company. The Variable Life Account invests in
shares of Neuberger Berman Advisers Management Trust, an open-end diversified
management investment company. Through the Variable Life Account, you may invest
in the following Portfolios of Neuberger Berman Advisers Management Trust:
- Growth Portfolio
- Liquid Asset Portfolio
- Limited Maturity Bond Portfolio
- Balanced Portfolio
As the owner of the Policy, you may choose one or more Portfolios in which to
invest; however, you will bear the complete investment risk for the amount you
allocate to the Variable Life Account. The Cash Value of your Policy, and under
certain circumstances, the death benefit, may increase or decrease depending on
the investment experience of the Variable Life Account.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Neuberger Berman Advisers Management Trust Prospectus accompanies this
Prospectus.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
SENTRY LIFE INSURANCE COMPANY
1800 North Point Drive
Stevens Point, WI 54481
Telephone (800)533-7827
The date of this Prospectus is May 1, 1999
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Definitions ................................... 4
Summary ....................................... 5
The Company ................................... 7
The Variable Life Account ..................... 8
Investments of the Variable Life Account ...... 8
Initial Investment Selection ................ 8
Transfers ................................... 8
Telephone Transfers ......................... 9
Neuberger Berman Advisers Management Trust... 9
Substitution of Securities .................. 10
The Policy .................................... 10
General ..................................... 10
How to Purchase a Policy .................... 10
Free Look ................................... 10
Medical Examination ......................... 11
Right to Exchange the Policy ................ 11
Illustrations ............................... 11
Premiums ...................................... 12
Maximum Premium Limitation .................. 12
Death Benefit Guarantee ..................... 13
Grace Period ................................ 13
Reinstatement ............................... 13
Charges and Deductions ........................ 13
Deductions from Premiums .................... 13
Deductions from the Variable Life Account ... 14
Deductions from Cash Value .................. 14
Deductions from Surrendered Values .......... 15
Trust and Managers Trust Annual Expenses .... 16
Group Arrangements .......................... 17
Policy Benefits and Rights .................... 17
Death Benefit ............................... 17
Death Benefit Options ....................... 17
Corridor Percentages ........................ 18
Changing Death Benefit Options .............. 18
Changing the Specified Amount ............... 19
Effects of Changing the Specified Amount .... 19
Policy Maturity ............................. 20
Cash Value .................................. 20
Determination of Accumulation Unit .......... 20
Policy Surrender .............................. 21
Partial Surrender ........................... 21
Full Surrender .............................. 21
Policy Loans .................................. 21
Allocation of Loans ......................... 22
Interest Charged ............................ 22
Interest Credited ........................... 22
Lapse Due to Loan ........................... 22
Loan Repayment .............................. 22
</TABLE>
2
<PAGE> 5
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Other Policy Provisions ................................. 23
Policy Owner .......................................... 23
Contingent Policy Owner ............................... 23
Changing the Policy Owner or Contingent Policy Owner... 23
Beneficiary ........................................... 23
Changing the Beneficiary .............................. 23
Assignment ............................................ 23
Incontestability ...................................... 23
Misstatement of Age or Sex ............................ 23
No Dividends .......................................... 23
Optional Settlement Plans ............................. 24
Suspension of Payments .................................. 24
Federal Tax Status ...................................... 24
Introduction .......................................... 24
Modified Endowment Contract ........................... 25
Diversification ....................................... 26
Tax Treatment of the Policy ........................... 26
Policy Proceeds ....................................... 27
Multiple Policies ..................................... 27
Tax Treatment of Assignments .......................... 27
Qualified Plans ....................................... 27
Income Tax Withholding ................................ 27
Variable Life Account Voting Rights ..................... 27
Voting Instructions Disregarded ....................... 28
Management of the Company ............................... 28
Directors and Officers ................................ 28
Distribution of the Policy .............................. 28
State Regulation ........................................ 29
Reports to Policy Owners ................................ 29
Legal Proceedings ....................................... 30
Experts ................................................. 30
Legal Opinions .......................................... 30
Financial Statements .................................... 30
Appendix A - Illustration of Benefits ................... 59
</TABLE>
3
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DEFINITIONS
Following are definitions of certain terms used in this Prospectus.
<TABLE>
<S> <C>
Anniversary Date or The same day and month each year calculated from the
Policy Anniversary Date date the Policy was first issued (Policy Date).
Beneficiary The person named in the application, unless changed,
entitled to receive the death benefit when it becomes
payable.
Cash Surrender Value The amount available in cash, after deducting any
outstanding policy loans and the full surrender
charge, if you voluntarily terminate the Policy before
it matures or before the death benefit is paid.
Cash Value The amount available in cash, without deducting any
outstanding policy loans or surrender charges, if you
voluntarily terminate the Policy before it matures or
before the death benefit is paid. It is equal to the sum
of all Subaccount Cash Value and any Cash Value held in
the General Account to secure a policy loan.
Company Sentry Life Insurance Company at its home office located at 1800 North
Point Drive, Stevens Point, WI 54481, telephone (800)533-7827.
Mutual Fund(s) The Mutual Funds designated in the Policy as investment options of the
Variable Life Account.
General Account The General Account of the Company. The Variable Life Account is separate
from the General Account.
Initial Investment Period The 25-day period immediately following the date the Policy is issued.
Insured The person whose life is covered under the Policy. It is assumed the
Insured and the Policy Owner are the same person and both are referred
to as "you" in this Prospectus.
Maturity Date The date on which you will be paid the Cash Value of the Policy, less
any outstanding Policy indebtedness, PROVIDED the Policy is in effect on
that date. The Maturity Date is the anniversary date of the Policy on or
after your 95th birthday.
Monthly Processing Day The day each month when charges under the Policy are deducted from the
Variable Life Account.
Net Premiums Gross premiums less any amounts deducted for front-end sales charges and
premium taxes.
Policy Date The day, month and year that the Policy becomes effective and from which
the Policy Anniversary Date is determined.
Policy Issue Date The day, month and year that underwriting is completed and the Company
issues the Policy.
Policy Month The period of time starting on one Monthly Processing Day and ending the
day before the next Monthly Processing Day.
Policy Owner The person named as the owner of the Policy on the application, unless
subsequently changed. It is assumed the Insured and the Policy Owner are
the same person and both are referred to as "you" in this Prospectus.
Policy Year The period of time from one Policy Anniversary Date to the day before the
next Policy Anniversary Date.
Portfolio An investment option that is a segment of a Mutual Fund constituting a
separate and distinct class of shares.
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
Specified Amount The amount of the initial death benefit payable under the Policy, plus
or minus any subsequent changes to that amount.
Subaccount A segment of the Variable Life Account that invests in a Mutual Fund
or Portfolio.
Target Surrender Premium The premium, which is shown on the specification page of your Policy,
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 The date on which the Cash Value of the Policy is determined. The Valuation
Date is each day that the New York Stock Exchange is open for trading.
Valuation Period The period from 4:00 p.m. E.S.T. on each Valuation Date to 4:00 p.m. E.S.T.
on the next succeeding Valuation Date.
</TABLE>
SUMMARY
The Policy described in this Prospectus is a flexible premium individual
variable life insurance policy. You can allocate premium payments, less
applicable charges, to the Variable Life Account for investment. The Variable
Life Account is a separate account established by Sentry Life Insurance Company
(the "Company"). Through the Variable Life Account, you can invest in the
following Portfolios of Neuberger Berman Advisers Management Trust:
- Growth Portfolio
- Liquid Asset Portfolio
- Limited Maturity Bond Portfolio
- Balanced Portfolio
POLICY FEATURES
The Policy offers the following features:
FLEXIBLE PREMIUM PAYMENTS - The frequency and amount of premium payments can
vary, subject to certain minimum requirements. Premium payment plans are
available.
CASH VALUE - The Policy's Cash Value can be used to obtain a Policy loan, and,
if the Policy is surrendered, determines the surrender value. Depending on the
investment experience of the Variable Life Account, the Cash Value of your
Policy may increase or decrease. The Cash Value will vary with the amount of
monthly charges deducted. There is no minimum guaranteed Cash Value.
POLICY LOANS - The Policy may be used to secure a loan from the Company. The
maximum loan amount is 90% of (a) MINUS (b), where:
(a) is the Policy's Cash Value, and
(b) is the full surrender charge.
SURRENDER - The Policy can be partially surrendered or completely surrendered
for the full Cash Surrender Value. The Company will deduct any applicable
surrender charges.
DEATH BENEFIT - There are two death benefit options available under the Policy.
The amount of the death benefit will depend on three factors:
- the death benefit option selected;
- the Specified Amount of death benefit; and
- the Cash Value of the policy.
Under certain circumstances, the death benefit may increase or decrease
depending on the investment experience of the Variable Life Account.
5
<PAGE> 8
GUARANTEED DEATH BENEFIT - Provided you have met certain minimum premium payment
requirements and certain other requirements, the Policy will not lapse and the
Company guarantees a death benefit.
POLICY MATURITY - If the Policy is in effect on the Policy Anniversary Date on
or after your 95th birthday, the Company will pay you the Cash Value of the
Policy, less any amounts owed for policy loans.
EXCHANGE RIGHT - Within 24 months after the Policy is issued, you may exchange
it for a life insurance policy on the life of the Insured offered by the Company
that has a fixed premium and a fixed death benefit. Any outstanding Policy loans
must be repaid before an exchange will be made.
INVESTMENT OPTIONS - You may select from among the four available Portfolios
listed above in which to invest the assets underlying the Policy. Subject to
certain conditions and charges, you may make transfers among the Portfolios.
FREE-LOOK PROVISION - Subject to varying state law and certain time
restrictions, the Policy may be returned to the Company if you change your mind
about purchasing it. The Policy will be canceled as if it were never issued and
the Company will refund any premiums you paid.
GRACE PERIOD - Provided certain conditions are met, there is a 61-day grace
period in which the Policy will remain in effect even if a premium payment or
loan repayment is not made.
CHARGES AND DEDUCTIONS
Below is a summary of the charges and deductions that are applied to the Policy
described in this Prospectus. For a more complete explanation of these charges
and deductions, see the sections titled "Charges and Deductions" and "Appendix
A-Illustrations of Benefits."
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%.)
Premium Taxes - Premium taxes are assessed by the state in which you
reside and currently vary by state from 0% to 3.5%.
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 .15%
of the daily net asset value of the Variable Life Account.
Taxes - The Company is not currently making a deduction for income
taxes resulting from the investment operation of any Subaccount;
however, it reserves the right to do so at any time.
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 SURRENDER 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.
6
<PAGE> 9
Full Surrender Charge - If there is no increase in the Specified
Amount, it remains the same for the first 5 Policy Years and declines
in policy years 6 through 9 until it is zero. It 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 the first $100,000 of Specified
Amount. The maximum contingent deferred administrative expense
charge is $750;
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
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
There are annual operating expenses (including investment management and
administrative fees) paid out of the assets of the Portfolios.
RISK FACTORS
Following is a summary of the risks associated with the Policy:
INVESTMENT RISK - You will bear the complete investment risk for all Net
Premiums you allocate to the Variable Life Account. If the invested assets of
the Variable Life Account experience poor investment performance, the Cash Value
and, under certain circumstances, the death benefit of the Policy may decrease.
The Policy is not intended to be, nor is it suitable as, a short-term savings
vehicle.
POLICY LAPSE - Certain charges are deducted monthly from the Cash Value of the
Policy. If the guaranteed death benefit is not in effect and if the Cash Value
is insufficient to cover the monthly charges, and sufficient premiums are not
made during the 61-day grace period, the Policy will lapse and all coverage will
terminate without value.
LIMITATIONS ON CASH VALUE - The Cash Value of the Policy will vary and is not
guaranteed. The investment performance of the Variable Life Account and the
amount of monthly charges deducted affect the Cash Value.
ADVERSE TAX CONSEQUENCES - Your Policy has been designed to comply with the
definition of life insurance in the Internal Revenue Code. As a result, the
death benefit paid under the Policy should be excludable from the gross income
of your Beneficiary. Any earnings in your Policy are not taxed until you take
them out. The tax treatment of the loan proceeds and surrender proceeds will
depend on whether the Policy is considered a Modified Endowment Contract (MEC).
Proceeds taken out of a MEC are considered to come from earnings first and are
includible in taxable income. If you are younger than 59 1/2 when you take money
out of a MEC, you may also be subject to a 10% federal tax penalty on the
earnings withdrawn. Neither the Company nor the Company's registered sales
representatives can provide tax advice. You should consult your own tax adviser
before purchasing or making any changes to the Policy, or before exchanging,
surrendering or taking loans from the Policy.
THE COMPANY
Sentry Life Insurance Company (the "Company") is a life insurance company formed
on October 23, 1958 under the laws of the state of Wisconsin. Its home office is
located at 1800 North Point Drive, Stevens Point, Wisconsin. The Company is
authorized to write life insurance and annuity contracts in the District of
Columbia and in all states except New York. The Company is owned by Sentry
Insurance a Mutual Company ("SIAMCO"). SIAMCO is also a Wisconsin insurance
company and shares its home office with the Company at 1800 North Point Drive,
Stevens Point, Wisconsin. SIAMCO writes property and casualty insurance
nationwide. In addition to the Company, SIAMCO owns and controls, either
directly or indirectly, a group of insurance and related companies, including
Sentry Life Insurance Company of New York and Sentry Equity Services, Inc., a
securities broker-dealer.
7
<PAGE> 10
THE VARIABLE LIFE ACCOUNT
Sentry Variable Life Account I (the "Variable Life Account") was established by
the Company's Board of Directors on February 12, 1985, under the insurance laws
of Wisconsin. The Variable Life Account is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. However, this does not mean that the Securities and
Exchange Commission supervises the management of the Variable Life Account or
the Company.
The Variable Life Account is a "segregated asset account." This means:
- The assets of the Variable Life Account are segregated from the
assets of the Company's General Account, but remain the property of
the Company.
- Other than liabilities connected with the Variable Life Account
business, the assets of Variable Life Account cannot be charged with
liabilities incurred by the Company in connection with its other
business.
- The Company does not guarantee the investment performance of the
Variable Life Account.
- The income, gains, and losses, whether realized or unrealized,
associated with the investments made with the Variable Life Account's
assets are credited to or charged against the Variable Life Account
without regard to the Company's other income, gains or losses.
- Company obligations in connection with the Policy are general
corporate obligations of the Company.
INVESTMENTS OF THE VARIABLE LIFE ACCOUNT
Currently, you can allocate Net Premiums (premiums paid, less applicable
deductions) to the Variable Life Account which invests in one or more investment
Portfolios of Neuberger Berman Advisers Management Trust at net asset value. The
assets of the Variable Life Account are divided by investment portfolio. This
creates a series of Subaccounts within the Variable Life Account. The Company
may, from time to time, add new investment options.
As the Policy Owner, you may direct the investment of your Net Premiums into one
or more of the available investment options, subject to certain conditions, when
you complete the Policy application. You may change your selection prospectively
without cost by notifying the Company in writing. The change becomes effective
for Net Premiums received after the Company receives your written notice.
INITIAL INVESTMENT SELECTION
Prior to and during the Initial Investment Period (a 25-day period starting on
the date the Company issues the Policy, which corresponds to the 20-day free
look period, plus mailing time), your Net Premiums are invested in the Liquid
Asset Portfolio even if you selected one or more different investment portfolios
on the application. At the end of the 25-day Initial Investment Period, your
Cash Value in the Liquid Asset Portfolio will be transferred to the investment
selection or selections you chose. The Company will automatically make this
transfer without cost to you.
After the Initial Investment Period has expired, the Company will allocate your
Net Premiums to the Variable Life Account in accordance with your selections.
TRANSFERS
Your Net Premiums will continue to be allocated to the Variable Life Account
Subaccounts according to the investment selection you made on the application
unless you request a transfer. You may transfer of all or part of the Subaccount
Cash Values between Portfolio(s) subject to the following conditions:
1. You must request a transfer in writing and you must clearly specify
three things:
- the amount to be transferred
- the Portfolio the transfer is being made from, and
- the Portfolio the transfer is being made to.
2. The minimum amount that can be transferred is $250, or if the Cash
Value in the Subaccount is less than $250, the entire Cash Value will
be transferred.
3. You can only make four transfers in any Policy Year. The Company must
approve additional transfer requests. A request for a transfer from one
Portfolio to two Portfolios, or from two Portfolios to one Portfolio,
will count as one transfer.
8
<PAGE> 11
4. Transfers will become effective during the next Valuation Period
following receipt of the written request, provided the written request
contains all the necessary information.
5. A fee of $25 per transfer may be deducted from the amount transferred.
Currently, the Company does not deduct the transfer fee, but reserves
the right to do so in the future.
The Company reserves the right to terminate, suspend or modify the transfer
privilege at any time and without notice.
The Company may add new investment options from time to time, and you may have
the opportunity to select the added investments subject to limitations imposed
by the Company.
TELEPHONE TRANSFERS
Transfers by telephone are permitted if you follow these steps:
(1) Check the "Yes" box in the telephone transfer section of the Policy
application form.
(2) Telephone the Company at (800)533-7827. Be prepared to give the
customer service representative specific information about the Policy,
including the Policy number, and your social security number and/or
birth date. You may be required to provide additional information
concerning the Policy in order to verify that the request is genuine.
(3) Specific detail must be given to the customer service representative as
to the amount to be transferred, the Portfolio the transfer is being
made from, and the Portfolio the transfer is being made to.
Transfers requested before 3 p.m., C.S.T., will take effect that day. Transfers
requests received after 3 p.m. C.S.T. will take effect on the next business day
after the request is received.
To prevent losses due to unauthorized or fraudulent transfer instructions, the
Company will use reasonable procedures to ensure that a telephone transfer
request is genuine. The Company will not be liable for losses incurred in
complying with a telephone transfer request it believes is genuine if reasonable
procedures were followed to confirm the legitimacy of the request.
The Company has the right to reject any telephone transfer request.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust (the "Trust") is the investment
vehicle for the Variable Life Account. Each Trust investment Portfolio 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 (commonly known as a mutual fund). All Series of Managers Trust are
managed by Neuberger Berman Management, Inc. ("NB Management"). Each Series
invests in securities according to an investment objective, policies, and
limitations identical to those of its corresponding Portfolio. This
"master/feeder fund" structure is different from that of 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 offered in connection with certain variable annuity
contracts and variable life insurance policies of various insurance companies
which may or may not be affiliated with the Company. Shares of the Balanced
Portfolio are also sold directly to qualified plans. The Trust and Managers
Trust believe that offering their shares in this manner will not be
disadvantageous to you.
The Trust currently offers eight Portfolios, four of which are available through
the Variable Life Account(*) and are briefly described below. Because the
investment objective of each Portfolio matches the investment objective of its
corresponding Series, the following investment objective information is
presented in terms of the applicable Managers Trust Series. You should read the
Trust Prospectus carefully before investing.
AMT Liquid Asset Investments. The investment objective of this
Portfolio 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.
9
<PAGE> 12
AMT Growth Investments. This Portfolio seeks capital appreciation
without regard to income by investing in securities believed to have
the maximum potential for long-term capital appreciation. It does not
seek to invest in securities that pay dividends or interest, and any
such income is incidental. The Series expects to be almost fully
invested in common stocks, often of companies that may be temporarily
out of favor in the market.
AMT Limited Maturity Bond Investments. The investment objective of this
Portfolio is to provide the highest current income consistent with low
risk to principal and liquidity, and secondarily, total return. The
Series invests in a diversified Portfolio of fixed and variable rate
debt securities and seeks to increase income and preserve or enhance
total return by actively managing average Portfolio maturity in light
of market conditions and trends. These are short-to-intermediate term
debt securities. The Series' dollar-weighted average Portfolio maturity
may range up to five years.
AMT Balanced Investments. The investment objective of this Portfolio 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 Minnesota, New
Jersey and West Virginia.
SUBSTITUTION OF SECURITIES
If a Subaccount is no longer available for investment by the Variable Life
Account, or if the Company's Board of Directors determines that further
investment in a Subaccount becomes inappropriate in view of the Variable Life
Account's purposes, the Company may substitute another Subaccount already
available or that will become available for investment by the Variable Life
Account. No substitution of securities in any Subaccount may take place without
the prior approval of and subject to the requirements of the Securities and
Exchange Commission.
THE POLICY
GENERAL
The Policy described in this Prospectus is an individual flexible premium
variable life insurance policy. The Policy is designed to provide you with
insurance protection and flexibility in determining your premium payments and
death benefit. As long as there is sufficient Cash Surrender Value to pay the
monthly charges, or as long as the guaranteed death benefit is in effect, the
Policy will not lapse.
HOW TO PURCHASE A POLICY
Complete an application form and give it to your sales representative or send it
to:
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
The first premium payment is due on or before the date the Policy is issued. You
should send your first premium payment with the application.
Restrictions:
- The Company will not accept your application for the Policy if you
are older than age 75.
- All applications are subject to the Company's underwriting standards,
and the Company may, in its sole discretion, reject any application
for any reason.
- The initial Specified Amount of the death benefit is subject to the
Company's administrative rules. Currently, the initial Specified
Amount must be at least $50,000.
FREE LOOK
If you change your mind about purchasing the Policy, you can return it to the
Company at the address given on page 1, or to your sales representative. You
must return the Policy within 20 days (or longer in states where required) from
10
<PAGE> 13
the date you receive it. When the Company receives the returned Policy, it will
be canceled as if it had never been issued and any premiums you paid will be
refunded. During the underwriting process and during the free look period your
initial premium payment is allocated to the Liquid Asset Portfolio. See "Initial
Investment Selection" on page 8.
MEDICAL EXAMINATION
Insurance underwriting is designed to group applicants of the same age and sex
into categories that can be expected to produce mortality experience consistent
with that class. Based on the Company's underwriting practices, you may be
required to obtain a medical examination. Your sales representative will advise
you if it is necessary. The cost of insurance, which is deducted monthly from
Cash Value, is determined in part on your age, sex, and risk class. There are
four risk classes:
- standard non-smoker
- special smoker
- substandard smoker
- medically substandard
RIGHT TO EXCHANGE POLICY
Within 24 months after the Policy Issue Date, you may exchange it for a
permanent fixed premium, fixed benefit life insurance policy issued by the
Company, subject to the following conditions:
(1) The person Insured cannot be changed.
(2) Any outstanding Policy loans must be repaid and any other charges or
fees due must be paid.
(3) The new policy will have the same Policy Issue Date, issue age, and
risk classification as the original Policy.
(4) The Policy Owner and the Beneficiary of the new policy will be the same
as the Policy Owner and Beneficiary of the original Policy
(5) You may select the amount of the death benefit under the new policy,
but it must be equal to either:
a) the initial Specified Amount of the original Policy, OR
b) the net amount at risk under the original Policy on the date of
exchange.
"Net amount at risk" means the difference between the death benefit
and the Cash Value of the Policy.
In order to exchange the Policy, you must take the following action:
- send a written request for exchange to the Company,
- return the original Policy to the Company, and
- pay any outstanding loan amounts or other charges due under the
original Policy.
If the Policy's Specified Amount is increased from the initial Specified Amount,
and the increase is not due to a change in the death benefit option, the amount
of the increase can be exchanged for a permanent fixed premium, fixed benefit
life insurance policy issued by the Company. The death benefit payable under the
new policy will equal the Specified Amount increase. You may be able to transfer
the Cash Value attributable to the Specified Amount increase under the original
Policy to the new policy. The Cash Value attributable to the increase is the
amount by which total premiums paid exceed the maximum premium limitation (see
"Maximum Premium Limitation" on this page) for the original Policy calculated as
if the increase had not occurred. However, the Cash Value of the Specified
Amount increase will not be transferred if it would cause the Cash Surrender
Value of the original Policy to become negative.
ILLUSTRATIONS
This Prospectus (Appendix A) contains illustrations of both projected Cash
Values and death benefits based on assumed returns of the Variable Life Account.
The illustrations may be helpful in understanding how the Policy works. For
illustrations not shown, contact your sales representative.
You may also request a projection of illustrative future death benefits and
policy values at any time. You must request illustrations in writing and send it
to the Company. You may be charged a maximum fee of $25 for the projection. The
illustration will be based on assumptions as to the Specified Amount of the
death benefit, anticipated earnings and future premium payments, along with
other assumptions that may be appropriate or agreed to by you and the Company.
11
<PAGE> 14
PREMIUMS
<TABLE>
<S> <C>
Initial Premium The initial premium is due on or before the Policy
Date and must be paid to the Company at its home office.
Coverage will not take effect until the initial premium has
been paid and the Policy has been issued during your
lifetime.
First Year The initial premium, together with the first-year planned premiums,
Minimum Premium must be sufficient to meet the minimum premium requirement under
the death benefit guarantee provision for the first year.
Planned Premiums Although you have the option of making flexible premium payments,
you can establish a planned premium payment plan. This will allow
you to make premium payments annually, semi-annually, quarterly,
or monthly by automatic withdrawal from your checking account.
Planned premiums must be in the following minimum amounts, unless
the Company specifies a lower amount:
</TABLE>
<TABLE>
<CAPTION>
Planned Premium
Frequency of Payment Minimum Amount
-------------------- --------------
<S> <C>
Annual $200
Semi-Annual $125
Quarterly $ 75
Monthly $ 15
(Automatic Bank Withdrawal Only)
</TABLE>
<TABLE>
<S> <C>
You may change the frequency and amount of planned premiums by
notifying the Company in writing. The Company has the right to
limit the amount of any increase in planned premiums. If the
Company receives any premium payment that exceeds the planned
premium specified, it will be considered an additional
premium, subject to the "Additional Premiums" provision of the
Policy, which is discussed below.
Payment of planned premiums will not guarantee that the Policy
will not lapse. This is because even if you make a premium
payment, if the Cash Surrender Value is insufficient to pay
the monthly charges, and the grace period expires without
payment of a sufficient premium payment or loan repayment, the
Policy will lapse. However, the death benefit guarantee may be
in effect, which will guarantee payment of a death benefit
even if the Cash Surrender Value is insufficient, provided
certain conditions are met. These conditions are discussed
below.
Additional You may make additional premium payments of at least $50 at
Premiums any time prior to the Maturity Date of the Policy. The Company
reserves the right to limit the amount of additional premium
payments in order to meet the requirements and restrictions of
federal tax law and related regulations. Premium limitations
are set out on the specifications page of the Policy.
</TABLE>
Unless you instruct otherwise, all payments the Company receives will be
considered premium payments, even if there is a loan outstanding. If you are
making a loan repayment, you must state that the payment is to be applied to the
outstanding Policy loan.
MAXIMUM PREMIUM LIMITATION
In order to comply with federal tax law, the Company will limit the total amount
of premiums, both planned and additional, that may be paid during each Policy
Year. This is the "maximum premium limitation." Because the maximum premium
limitation is dependent in part on the Policy's Specified Amount, changes in the
Specified Amount may affect this limitation. In the event you pay a premium
which causes the maximum premium limitation to be exceeded, the Company will
accept only that portion of the premium up to the maximum limitation and return
the excess to you. Thereafter, no premiums will be accepted until they do not
exceed the maximum premium limitation.
12
<PAGE> 15
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
deductions when due.
The minimum premium requirement is met when the sum of all premiums paid is not
less than:
(1) the sum of all monthly death benefit guarantee premiums as shown on the
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 to the Policy.
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
specifications page of your Policy. This premium will change if you increase or
decrease the Specified Amount or if you change the death benefit option. At the
time of the change, the Company will recalculate the monthly death benefit
guarantee premium based on your age, the death benefit option you have chosen,
and the new Specified Amount. Any change in the amount of the death benefit
guarantee premium will be shown on a Policy amendment which the Company will
send to you.
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 you to make a premium payment or a loan repayment which
is sufficient to cover the monthly deduction. The grace period begins on the
Monthly Processing Day during which there is insufficient Cash Surrender Value.
The Company will mail a notice to your last known address that the grace period
is in effect.
The Policy will not lapse during the 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 outstanding Policy loans and unpaid charges.
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.
REINSTATEMENT
After a lapse, you may request that the Policy be reinstated. Policy
reinstatement is subject to the following conditions:
- You must request reinstatement in writing and it must be received by
the Company's home office within three years from the date of lapse;
AND
- The Company must receive proof that you, or if you were not the
Insured, the person whose life was insured under the Policy, is
still insurable; AND
- You must make a premium payment that is sufficient to cover the
monthly deductions for the first two Policy Months following
reinstatement.
The Policy will be reinstated on the next Valuation Date following the date that
all of the above conditions have been met. If you surrender the Policy for its
full Cash Surrender Value, the Company will not reinstate the Policy.
CHARGES AND DEDUCTIONS
The following section describes the fees and expenses that you will pay when
purchasing, owning, and surrendering the Policy.
DEDUCTIONS FROM PREMIUMS
<TABLE>
<S> <C>
Sales Charge The Company deducts a front-end sales expense charge,
or sales load, of 5% from each premium payment you make. The
amount of the sales load deducted in any one Policy Year may
not be specifically related to the actual sales expenses
incurred in that year. To the extent that the amount deducted
does not cover the Company's actual sales expenses, these
expenses may be recovered from the charges for mortality and
expense risks, the deferred sales charge and from mortality
gains.
</TABLE>
13
<PAGE> 16
<TABLE>
<S> <C>
Premium Tax The Company deducts the amount of any premium tax owed to
any state or other governmental entity. Premium taxes
currently vary from state to state and range from 0% to 3.5%.
</TABLE>
DEDUCTIONS FROM THE VARIABLE LIFE ACCOUNT
<TABLE>
<S> <C>
Mortality and The Company deducts a mortality and expense risk premium
Expense Risk equal, on an annual basis, to 0.90% of the daily net asset
Premium value of the Variable Life Account. This premium compensates the
Company for the mortality and expense risks it assumes under the Policy.
Mortality risk is the possibility that all Insured persons, as a group, may
not live as long as expected. Expense risk is the possibility
that the Company's actual expenses may be greater than
anticipated.
Death Benefit The Company deducts a death benefit guarantee risk charge
Guarantee Risk which is equal, on an annual basis, to 0.15% of the daily net
Charge asset value of the Variable Life Account. This charge compensates the
Company for assuming risks associated with the death benefit guarantee.
Taxes The Company reserves the right to deduct any amount due for
income taxes resulting from the investment operation of any
Subaccount. The Company does not currently make a deduction
for income taxes.
</TABLE>
DEDUCTIONS FROM CASH VALUE
<TABLE>
<S> <C>
Monthly The Company makes a monthly deduction from the Cash Value of the
Deduction Policy at the beginning of each Policy Month totaling the sum of:
(1) the cost of insurance for the Policy and any additional
benefits provided by rider to the Policy; PLUS
(2) a $5 monthly administrative fee to reimburse the Company
for administering the Policy and the Variable Life
Account. This includes issuing policies, underwriting,
maintaining policy records, policy service, billing and
collecting premium, preparing reports to Policy Owners,
accounting, calculating reserves, meeting regulatory
reporting requirements, and auditing the Variable Life
Account.
</TABLE>
HOW CHARGE IS DEDUCTED: The Company deducts the monthly deduction by
canceling accumulation units from each applicable Subaccount in the ratio
that the Cash Value of the Subaccount bears to the total of Subaccount Cash
Values.
The cost of insurance for the Policy is determined on a Policy Month basis.
The amount will vary from month-to-month and depends on the death benefit
option in effect, the Cash Value, your age, sex and risk classification. The
cost of insurance is calculated by multiplying the difference between the
death benefit in effect divided by 1.0040741 and the Cash Value by the
monthly mortality charge. Because the investment performance of the Variable
Life Account or the level of premium payments will affect the death benefit
or the Cash Value, they will also affect the cost of insurance. The Company
calculates the cost of insurance for any rider separately.
The mortality charge is based on the Company's current mortality rates,
which in turn are based on the Insured person'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 that requires
evidence of insurability. The Company determines the current mortality rates
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 included in the Policy. Any change the Company makes in mortality
rates will apply to all Insured persons of the same sex, age and risk class.
The guaranteed rates for standard risks are based on the 1980 Commissioner's
Standard Ordinary Mortality Table, Age Last Birthday. The guaranteed rates
for Insured persons classified as smokers or medically substandard are based
on a multiple of the 1980 CSO Table. A multiple could be as high as five
times the 1980 CSO Table.
<TABLE>
<S> <C>
Transfer Fee At its option, the Company may deduct a fee, not to exceed $25,
for each transfer. The deduction will be made from the amounts transferred.
</TABLE>
14
<PAGE> 17
DEDUCTIONS FROM SURRENDERED VALUES
<TABLE>
<S> <C>
Full Surrender If you totally surrender the Policy prior to the Maturity Date, the Company may impose a full
Charge surrender charge. If you fully surrender the Policy during the first nine Policy Years after it
is issued, or if you increase the Specified Amount, the Company will impose the full surrender
charge. The amount of the full surrender charge will be the total of the four charges outlined
below, or a percentage of the total of the four charges, depending on the number of years the
Policy, or the increase in Specified Amount, has been in effect. The full surrender charge will
remain constant from the date of issue or increase through the 4th Policy Year, and then it is
reduced each year until it reaches zero in the 10th year. The amount of the full surrender charge
is determined by multiplying the total of the four charges by the applicable percentage. The
applicable percentages are shown below where the year is the number of full Policy Years from the
date the Policy was issued, or from the Policy Anniversary Date on or preceding the date of each
increase in the Specified Amount, to the date of surrender.
</TABLE>
<TABLE>
<CAPTION>
Completed Policy Years Applicable Percentages
---------------------- ----------------------
<S> <C>
0-4 100
5 80
6 60
7 40
8 20
9+ 0
</TABLE>
The four charges used to calculate the full surrender charge
are:
(1) Contingent Deferred Administrative Expense Charge.
This charge is calculated as $3.50 per $1,000 of the
first $100,000 of the Specified Amount, plus $1.50
per $1,000 of the excess above $100,000. The maximum
contingent deferred administrative charge is $750.
This charge covers the administrative expenses in
connection with issuing the Policy.
(2) Deferred Sales Charge. This charge is calculated as
25% of the Target Surrender Premium, or 25% of the
actual premiums you paid in the first Policy Year, if
less. The amount of the Target Surrender Premium is
shown on the specifications page of your Policy and
is calculated to be less than or equal to the
guideline annual premium as defined in the applicable
rules and regulations under 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 charge is
calculated as $3.50 per $1,000 of the first $100,000
of the Specified Amount increase, plus $1.50 per
$1,000 above $100,000. The maximum 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 and
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.
Explanations:
The Target Surrender Premium is based on your age and sex on
the date an increase in the Specified Amount is effective. The
Company reserves the right to require a minimum premium
payment during the first 12 months following the effective
date of an increase in the Specified Amount.
15
<PAGE> 18
The full surrender charge as calculated above will be reduced
by the total of all partial surrender charges previously
deducted. In no event will the full surrender charge be less
than zero. There are five factors that contribute to the
maximum surrender charge you could pay. These factors are your
age, your sex, your risk category, the Specified Amount, and
the premium paid during the first Policy Year or in the year
following an increase in Specified Amount.
<TABLE>
<S> <C> <C>
Examples: Age 35, male, non-smoker, $6.46 per $1,000 of Specified Amount
death benefit option 1
Age 55, male, smoker, $14.22 per $1,000 of Specified Amount
death benefit option 2
Age 75, male, smoker, $40.38 per $1,000 of Specified Amount
death benefit option 2
</TABLE>
A decrease in the Specified Amount will not change any
existing surrender charges.
Partial Surrender The Company may impose this charge when the Policy is
Charge partially surrendered; that is, when you withdraw a portion
of the Cash Value. The partial surrender charge is a
percentage of the full surrender charge equal to the
percentage of Cash Surrender Value being withdrawn. For
example, if the partial withdrawal is 20% of the Policy's Cash
Surrender Value, then 20% of the full surrender charge will be
imposed.
Partial Surrender The Company imposes this charge to compensate it for
Administrative processing the partial surrender. It is the lesser of 2% of
Charge the amount surrendered or $25.
Explanation: The partial surrender charge and the partial
surrender administrative charge are in addition to the amount
surrendered. The charges will be deducted proportionately from
all the Subaccounts in which the Policy is invested unless you
designate a specific Subaccount; however, the deduction for
these charges is not subject to the surrender charge.
TRUST AND MANAGERS TRUST ANNUAL EXPENSES
There are deductions from and expenses paid out of the assets of the available
Portfolios, which are summarized below. See the Trust Prospectus for a complete
description.
Neuberger Berman Advisers Management Trust and
Advisers Managers Trust Annual Expenses(1)
(as a percentage of the average daily net assets of the Portfolio)
<TABLE>
<CAPTION>
Investment Management Total Annual
Portfolio and Administration Fees Other Expenses Expenses
- --------- ----------------------- -------------- --------
<S> <C> <C> <C>
Liquid Asset(2) .65% .35% 1.00%
Balanced .85% .18% 1.03%
Growth .83% .09% .92%
Limited Maturity Bond .65% .11% .76%
</TABLE>
(1) The Trust is divided into eight Portfolios, four of which are available
with the Policy. Each Portfolio invests all of its net investable assets in a
corresponding 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. NB Management has under taken
to reimburse the Liquid Asset Portfolio for certain operating expenses,
including the compensation of NB Management and excluding certain other expenses
that exceed, in the aggregate, 1% of the Portfolio's average daily net asset
value. Absent such reimbursement, the "Total Annual Expenses" for the year ended
December 31, 1998 would have been 1.14% for the Liquid Asset Portfolio. This
expense reimbursement policy is subject to termination upon 60 days written
notice and there can be no assurance that it will be continued thereafter.
16
<PAGE> 19
GROUP ARRANGEMENTS
The following charges and minimum amounts may be reduced or eliminated when the
Policy is issued to individuals or a group of individuals resulting in sales or
administrative expense savings:
- front-end sales charge
- monthly administrative charge
- deferred sales charge
- deferred administrative expense charge
- minimum premium
- minimum amount of insurance
The Company will determine if a group is entitled to have the charges and
minimum amounts reduced or eliminated based on these four factors:
(1) The size and type of group. Generally, sales expenses for
larger groups are less than for small groups because more
policies can be issued to a large group with fewer sales
contacts.
(2) The total amount of premium that will be received. Per-policy
sales expenses are likely to be less on larger premiums
payments than on smaller ones.
(3) Any prior or existing relationship with the Company.
Per-policy sales and administrative expenses are likely to be
less when an established relationship exists.
(4) Other group factors may come to light that warrant a reduction
or elimination of the charges and minimum amounts.
From time to time, the Company may modify both the amounts of reductions and the
criteria for qualification, but in no event will reduction or elimination of
these charges or of any other provision of the Policy be permitted if it will be
unfairly discriminatory to any person.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
A death benefit will be payable as long as the Policy is in effect. The death
benefit will be reduced by any outstanding Policy loans and any unpaid charges
applicable to the Policy. If you are the Insured, when you die, the death
benefit will be paid to the named Beneficiary. All or part of the death benefit
may be paid in cash or applied under one or more the optional settlement plans.
DEATH BENEFIT OPTIONS
There are two death benefit options available, and the amount of the death
benefit will depend on the death benefit option in effect at the time of your
death. You may elect one of two options to determine the amount of the death
benefit.
Option 1 The death benefit equals the greater of the Specified Amount
or the Cash Value multiplied by the applicable corridor
percentage.
Option 2 The death benefit is the greater of
(a) the Specified Amount PLUS the Cash Value; or
(b) the Cash Value multiplied by a corridor percentage.
17
<PAGE> 20
The Specified Amount and the Cash Value used to determine the death benefit will
be calculated at the end of the Valuation Period next following the date of your
death.
<TABLE>
<CAPTION>
CORRIDOR PERCENTAGES
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>
Under both Option 1 and Option 2, premium payments and favorable investment
results will increase the Cash Value. However, increased Cash Value has a
different effect on each option.
Effect of Increased Cash Value on Death Benefit Options
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Option 1 Option 2
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Decreases amount of the monthly deductions and the Increases the Policy's death benefit
amount of premium necessary to keep the Policy
in effect.
- ------------------------------------------------------------------------------------------------------------------
Increases the amounts available for Policy loans and Increases the amounts available for Policy loans and
surrenders. surrenders.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Your insurance goals should determine the death benefit option you choose.
Choose Option 1
if you are satisfied with the amount of your life insurance coverage
and prefer to have premium payments and favorable investment results
reflect an increase in Cash Value.
Choose Option 2
if you prefer to have favorable investment results partly reflect an
increase in the death benefit.
CHANGING DEATH BENEFIT OPTIONS
You may change the death benefit option you have selected by sending a written
request to the Company. When the Company approves the request, the change will
take effect on the Monthly Processing Day next following the date the Company
receives the request. A change may result in a new Specified Amount and you may
be asked to provide 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 next following the effective date of
the change. When Option 2 is changed 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 next following the effective date of
the change.
18
<PAGE> 21
Changing the death benefit option will also change the cost-of-insurance charge
for the duration of the Policy. The mortality charge is the same under both
options, but the difference between the death benefit and the Cash Value varies
directly with the Cash Value under Option 1, but is constant under Option 2,
unless the death benefit is determined by applying a corridor percentage.
CHANGING THE SPECIFIED AMOUNT
You may increase or decrease the Specified Amount of the death benefit by
sending a written request to the Company. Any change is subject to the following
conditions:
- The Specified Amount cannot be changed during the first Policy Year.
- The Specified Amount can only be changed once during any subsequent
Policy Year.
- The Specified Amount cannot be less than the minimum Specified
Amount, which is currently $50,000, unless the Company's current
rules allow a lower amount.
A decrease will become effective on the Monthly Processing Day following the
date the Company receives a request and will be effected on a last-in-first-out
basis. That is, for purposes of determining the cost of insurance charge, a
decrease will apply to the Specified Amount provided by the most recent
increase; then the next most recent increase successively; then the initial
Specified Amount. The Company will not permit a decrease in the Specified Amount
if the decrease causes the Policy to violate the maximum premium limitation (see
"Maximum Premium Limitation" on page 12). The Company will impose a deferred
sales charge when the Specified Amount is decreased.
You must submit a supplemental application to request an increase in the
Specified Amount. You will be required to provide satisfactory evidence of
insurability. Any increase approved by the Company will become effective on the
Monthly Processing Day next 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
the Specified Amount is increased, you have the right to the free-look and
Policy exchange privileges.
EFFECTS OF CHANGING THE SPECIFIED AMOUNT
Changing the Specified Amount will result in a change in the cost of insurance
charge because the amount of the cost of insurance charge depends on the
difference between the death benefit option in effect and the Cash Value.
In addition, changing the Specified Amount may affect the premium requirement
for the minimum death benefit guarantee.
Whenever the Specified Amount is increased, a separate full surrender charge
will be calculated based on the amount of the increase, unless the increase is
due to a change from death benefit Option 2 to death benefit Option 1. No
increase will be allowed if the Policy does not have sufficient Cash Surrender
Value to support the additional deferred charges. As a condition following an
increase, the Company may require payment of additional premium equal to the
first year minimum premium that 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. Because the cost of insurance varies directly with the difference
between the death benefit and the Cash Value, an increase in the Specified
Amount will generally require higher premium payments to support the Policy.
Example: Assume a 40-year-old non-smoker buys a $100,000 policy and
chooses death benefit 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% (7.98% gross investment return).
The following table shows the effect on Cash Values and Cash Surrender
Values under three alternatives:
(1) the Specified Amount is not changed
(2) the Specified Amount is increased to $250,000
(3) the Specified Amount is decreased to $50,000
The changes occur five years after the policy is issued.
19
<PAGE> 22
<TABLE>
<CAPTION>
No change in Increase in Specified Decrease in Specified
Specified Amount Amount to $250,000 Amount to $50,000
---------------------------------- ----------------------------------- ----------------------------------
Sum of Cash Sum of Cash Sum of Cash
End of Premiums Cash Surrender Premiums Cash Surrender Premium Cash Surrender
Policy Yr. Paid Value Value Paid Value Value Paid Value Value
- ---------- -------- ------- --------- -------- ------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 $ 7,563 $ 6,582 $ 6,000 $ 7,563 $ 6,582 $ 6,000 $ 7,563 $ 6,582 $ 6,000
6 9,076 8,097 7,660 11,931 10,522 8,947 8,121 7,296 6,859
7 10,589 9,683 9,391 16,299 14,652 13,223 8,679 8,042 7,751
10 15,127 14,894 14,894 29,403 28,289 27,379 10,353 10,490 10,490
20 30,253 38,036 38,036 73,084 90,226 90,226 15,934 21,350 21,350
Age 65 57,817 53,891 53,891 94,924 134,196 134,196 18,724 28,929 28,929
</TABLE>
Explanation: The premium paid in all cases is assumed to be equal to the
minimum death benefit guarantee premium, which would be $1,513 at issue,
increases to $4,368 when the Specified Amount is increased to $250,000,
and decreases to $558 when the Specified Amount is decreased to $50,000.
POLICY MATURITY
If the Policy is in effect on the Policy Anniversary Date on or after your 95th
birthday, the Policy will mature and the Cash Value, less any amounts owed for
Policy loans calculated at the end of the Valuation Period following the
Maturity Date, will be paid to you. You may take the Cash Value in a lump sum or
payment can be made under a settlement option acceptable to the Company.
CASH VALUE
The Policy's Cash Value is the sum of the Subaccount Cash Values and any Cash
Value held in the Company's General Account to secure a Policy loan. Cash values
will be determined at the end of every Valuation Period and may change on each
Valuation Date. The Cash Value will vary with the investment performance of the
underlying Portfolios and in relation to the charges deducted and the premiums
paid. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
DETERMINATION OF ACCUMULATION UNIT
An accumulation unit is an accounting unit of measure used to calculate Policy
values. The value of an accumulation unit may vary from Valuation Period to
Valuation Period. Net premiums allocated to a Subaccount are credited in
accumulation units. Charges deducted from a Subaccount, including monthly
deductions, result in cancellation of accumulation units. The number of
accumulation units credited to or canceled from a Subaccount is determined by
dividing the dollar value of the credit or cancellation by the value of one
accumulation unit.
Example: Dollar value of credit (net premium payment) = $100
Value of one Subaccount accumulation unit = $ 10
$100/$10 = 10 accumulation units credited to Subaccount
The Subaccount Cash Value is determined by multiplying the number of
accumulation units attributable to the Subaccount by the value of one
accumulation unit for the Subaccount.
Example: Number of Policy Owner accumulation units
in Subaccount = 250
Value of one Subaccount accumulation unit = $ 10
250 x $10 = $2,500 Cash Value
Initially, the value of one accumulation unit was set at $10. For each
subsequent Valuation Period, the Company determines the accumulation unit value.
It does this by
(1) determining the total amount of money invested in the
particular Subaccount;
(2) subtracting from that amount the mortality and expense risk
premium, the death benefit guarantee risk charge and any other
charges, such as taxes, the Company has deducted; and
(3) dividing this amount by the number of outstanding accumulation
units.
20
<PAGE> 23
POLICY SURRENDER
While the Policy is in effect, you may request a partial or full surrender of
the Policy. Your request for a surrender must meet the following requirements:
- it must be in writing
- it must made while the Policy is in effect
- it must be made during your lifetime
- it must be made prior to the Maturity Date
PARTIAL SURRENDER
A partial surrender is treated as a withdrawal of part of the Policy's Cash
Value. The amount of the surrender will be taken from the Cash Value of the
Subaccount or Subaccounts you designate and will result in cancellation of
Subaccount accumulation units. Unless you specify otherwise, accumulation units
will be canceled from each applicable Subaccount in the ratio that the Cash
Value of each Subaccount bears to the total of all Subaccount Cash Values.
The Company will deduct a partial surrender administrative charge equal to 2% of
the amount surrendered or $25, whichever is less. The Company may also deduct a
partial surrender charge.
The Policy's Cash Value and death benefit will be reduced by the sum of
(1) the amount of the partial surrender, PLUS
(2) the partial surrender administrative charge, PLUS
(3) the partial surrender charge.
If you have selected death benefit Option 1, a partial surrender will cause the
Specified Amount to decrease by the sum of
(1) the amount of the partial surrender, PLUS
(2) the partial surrender administrative charge, PLUS
(3) the partial surrender charge.
While there currently is no limit to the number of partial surrenders that you
can make during a Policy Year, the Company reserves the right to impose a limit.
You should consult your tax adviser as to the possible tax consequences if the
amount of the partial surrender exceeds premiums paid. It may be more
advantageous for you to take out a Policy loan if the need for cash is
temporary.
FULL SURRENDER
Under a full surrender, the Company will pay you the entire Cash Surrender Value
of the Policy and the Policy will terminate. The full Cash Surrender Value is
equal to the Cash Value calculated at the end of the Valuation Period next
following the date on which the Company receives the request for full surrender,
less any outstanding Policy loans and less the full surrender charge. The full
surrender charge is calculated as of the end of the Valuation Period next
following the date on which the Company receives the request for a full
surrender.
POLICY LOANS
As long as the Policy is in effect, you may obtain a loan from the Company using
the Policy as the only security, subject to the following restrictions:
- You cannot make a request before the first Anniversary Date of the
Policy.
- You must make the request in writing.
- The maximum loan amount is 90% of (a) MINUS (b), where:
(a) is the Policy's Cash Value, and
(b) is the full surrender charge at the end of the Valuation Period
during which the loan request is received.
- The maximum amount you can borrow at any one time is the maximum loan
amount, less any outstanding Policy indebtedness, including any other
outstanding Policy loans.
21
<PAGE> 24
- If the loan is approved, the Company will send a check within seven
days after it receives the loan request.
- Payment of any loan proceeds may be suspended under certain
circumstances as detailed in the section entitled "Suspension of
Payments."
- Loan proceeds may be taxable if the Policy is a modified endowment
contract. See "Federal Tax Status."
ALLOCATION OF LOANS
At the end of the Valuation Period during which the loan is made, a portion of
the Cash Value equal to the loan amount will be transferred from the Subaccounts
of the Variable Life Account into the General Account of the Company. The amount
transferred to the General Account does not participate in the investment
experience of the Variable Life Account. The amount of any interest due on the
loan that remains unpaid is also transferred to the General Account. These
transfers result in the cancellation of accumulation units within the
Subaccounts of the Variable Life Account. Unless you specify otherwise,
accumulation units will be canceled from each applicable Subaccount in the ratio
that the Cash Value of each Subaccount bears to the total of all Subaccount Cash
Values.
INTEREST CHARGED
The Company will charge an annual effective interest rate of 8% on Policy loans.
Interest is due at the end of each Policy Year. Unpaid interest will be added to
the existing Policy loan and charged interest at 8%.
INTEREST CREDITED
Interest will accrue daily on the Cash Value held in the General Account at an
annual rate of 6% and will be credited at the end of each Policy Year. Credited
interest will be transferred to the Variable Life Account and allocated to the
Subaccounts in the same manner that premium payments are allocated to the
Subaccounts.
LAPSE DUE TO LOAN
Policy indebtedness is the sum of all outstanding Policy loans and accrued
interest. If Policy indebtedness causes the Cash Surrender Value of the Policy
to equal zero or become negative, and the death benefit guarantee is not in
effect, the Company will notify you, along with any collateral assignee of
record, that the Policy will lapse and terminate without value.
In order to prevent the Policy from lapsing and terminating without value, you
must make a payment to the Company within 61 days from the date the notice is
sent. The payment must at least equal the amount by which the Policy
indebtedness exceeds the Cash Value less any remaining surrender charges. Policy
indebtedness will affect the applicability of the death benefit guarantee.
LOAN REPAYMENT
You may repay Policy loans in full or in part at any time while the Policy is in
effect. Outstanding Policy loans and accrued interest are subtracted from final
payments made under the Policy. These are:
- the death benefit paid on your death
- the Cash Value when there is a full surrender of the Policy
- the Cash Value payable at the Maturity Date
When you make a Policy loan payment, an amount equal to the payment is
transferred from the Cash Value in the General Account securing the loan to the
Variable Life Account and is allocated to the Subaccounts in the same manner
that premium payments are allocated to the Subaccounts. If you send a loan
payment to the Company, you must indicate that it is a loan repayment.
Otherwise, the payment will be treated as a premium payment.
22
<PAGE> 25
OTHER POLICY PROVISIONS
POLICY OWNER
It is assumed that the Policy Owner is the Insured, unless otherwise specified
in the Policy application. The Policy Owner may exercise all rights and
privileges granted under the Policy without the consent of any revocable
Beneficiary.
CONTINGENT POLICY OWNER
If you are the Policy Owner, but not the Insured, you may name a Contingent
Policy Owner. In that situation, if you die before the Insured, the Contingent
Policy Owner you have named in the application becomes the Policy Owner and
possesses all rights of the Policy Owner. At your death, if the Contingent
Policy Owner is deceased, or if you have not named a Contingent Policy Owner,
ownership of the Policy passes to your estate.
CHANGING THE POLICY OWNER OR CONTINGENT POLICY OWNER
By providing the Company with a dated and signed written notice, you may change
the Policy Owner or the Contingent Policy Owner if you are not also the Insured.
After the Company records the change, it becomes effective as of the date of the
written notice. The Insured does not have to be living when the Company records
a change in Policy Owner in order for the change to be effective. You do not
have to be living when the Company records a change of Contingent Policy Owner
in order for it to be effective. The Company will not be responsible for any
payment made or any other action taken before it records a change.
BENEFICIARY
The Beneficiary is named in the application. If, for whatever reason, there is
no Beneficiary when the Insured dies, the Company will pay the death benefit to
you as the Policy Owner, or to your estate if you are deceased when the Insured
dies. If the 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.
CHANGING THE BENEFICIARY
By providing the Company with a dated and signed written notice, you may change
the Beneficiary. After the Company records the change, it becomes effective as
of the date of the written notice. The Insured does not have to be living when
the Company records a change in Beneficiary in order for it to be effective. The
Company will not be responsible for any payment made or any other action taken
before it records the change.
ASSIGNMENT
As the Policy Owner, you 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 it receives written notice of the assignment and it records the
assignment.
INCONTESTABILITY
Except if you fail 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 date the Policy was issued. This will not apply to any riders to
the Policy. Any increase in the Specified Amount after the date the Policy is
issued will be incontestable only after the increase has been in effect during
the Insured's lifetime for two years after the effective date of the increase.
MISSTATEMENT OF AGE OR SEX
If your age or sex has been misstated in the application, the death benefit will
be adjusted by the difference between the monthly charges actually deducted and
the monthly charges that 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 non-participating, which means you will not receive dividends or
share in the Company's profits or surplus.
23
<PAGE> 26
OPTIONAL SETTLEMENT PLANS
The Company will pay benefits under the Policy in one lump sum unless you choose
an optional settlement plan. The following provisions apply:
- - You may choose a settlement plan while the Policy is in effect and
while the Insured is living.
- - If you have not chosen a settlement plan, your Beneficiary may choose
one after your death.
- - In order to choose a settlement plan, you must send a dated and signed
written notice to the Company.
- - If approved by the Company, the plan you choose will be effective from
the date the notice was signed.
- - The Company will not be responsible for any payment made or other
action taken before the selection has been recorded by the Company.
You can choose from the following settlement plans:
<TABLE>
<S> <C>
Plan 1 The Company will hold the Policy proceeds in the General
Proceeds Held Account and make payments at the times and in the amounts
at Interest that you and the Company agree on, as long as the Policy
remains in effect. Payments can be made monthly, quarterly,
annually, or in a lump sum, or any other mode that you and the
Company may agree on. The Company will credit the Policy
proceeds held with an effective annual 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 The Company will make monthly payments in a fixed amount as long
Lifetime Payments as the payee lives. A guaranteed number of payments maybe chosen.
with a Guarantee 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.
</TABLE>
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 and it is not reasonably practicable to
dispose of the securities held in the Variable Life Account,
or it is not reasonably practicable to determine the net asset
value of the Variable Life Account; or
(4) during any other period when the Securities and Exchange
Commission permits suspension of payments.
The applicable rules and regulations of the Securities and Exchange Commission
will control as to whether conditions (2) or (3) exist.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL TAX LAWS APPLICABLE TO LIFE INSURANCE IN GENERAL. THE COMPANY
CANNOT PREDICT IF THESE LAWS WILL CHANGE. SECTION 7702 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "CODE"), DEFINES THE TERM "LIFE INSURANCE
CONTRACT" FOR PURPOSES OF APPLYING THE TAX LAWS TO LIFE INSURANCE POLICIES. 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. YOU BEAR COMPLETE RISK THAT THE POLICY MAY NOT BE DEEMED A LIFE
INSURANCE CONTRACT BY THE INTERNAL REVENUE SERVICE ("IRS"). THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND YOU SHOULD UNDERSTAND THAT THERE MAY BE SPECIAL
FEDERAL TAX RULES NOT DISCUSSED IN THIS PROSPECTUS THAT ARE APPLICABLE IN
CERTAIN SITUATIONS. YOU ARE CAUTIONED TO CONSULT YOUR OWN TAX ADVISER REGARDING
HOW FEDERAL TAX LAWS MAY APPLY TO THE POLICY.
INTRODUCTION
This discussion of federal tax status is general in nature and is not intended
to provide you with tax advice. You should discuss the applicability of federal
tax laws on the Policy with your tax adviser. No attempt has been made to
consider any state tax laws or any other tax laws. The Company is not making any
representations or guarantees that current federal tax laws will not be changed
or that current interpretations of the federal tax laws will not be changed.
24
<PAGE> 27
The Company is taxed as a life insurance company under federal tax laws. 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.
MODIFIED ENDOWMENT CONTRACTS
Federal tax laws alter the treatment accorded to loans and certain distributions
from life insurance policies that are considered to be modified endowment
contracts. Generally, the variable life insurance policy described in this
Prospectus will not be considered 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 a contract at
any time during the first 7 years of the contract exceeds the sum of the net
level premiums that would have been paid on or before such time if the contract
provided for paid-up future benefits after the payment of 7 level annual
premiums. A material change includes any increase in the future benefits or
addition of qualified additional benefits provided under a contract unless the
increase is due to
- the payment of premiums necessary to fund the lowest death
benefit and qualified additional benefits payable in the first
7 years of the contract; or
- the crediting of interest or other earnings (including
dividends) with respect to such premiums.
Additionally, any policy issued 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 feature of a variable life insurance policy, the circumstances of each
policy will be considered individually in determining whether it will be treated
as a modified endowment contract.
If a policy is determined to be 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 that the taxable income is distributed first. Loan proceeds and/or
surrender payments, including those resulting from the lapse of the Policy, may
also be subject to an additional 10% federal income tax penalty applied to the
income portion of loans or surrenders. The penalty will not apply to any
distribution:
- made to a taxpayer who is at least age 59 1/2 on the date of
the distribution;
- made to a taxpayer who is disabled as defined in Section
72(m)(7) of the Code; or
- made as 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 the 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 lapse of the Policy) 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.
Interest paid on a policy loan 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.
YOU SHOULD CONSULT YOUR OWN TAX ADVISER REGARDING THE TREATMENT OF YOUR POLICY
AND THE POSSIBLE TAX CONSEQUENCES OF TAKING LOANS OR SURRENDERS FROM YOUR
POLICY.
25
<PAGE> 28
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 adequately
diversified in accordance with regulations prescribed by the U.S. Treasury
Department. If it is determined that your variable life insurance policy does
not qualify as a life insurance contract, you will be liable for federal income
taxes on the earnings portion of the Policy prior to receiving any pay-outs from
the policy. The Code has a safe harbor provision which provides that life
insurance policies, such as your variable life Policy, meet the diversification
requirements if, as of the close of each calendar 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.
In 1989, the Treasury Department issued regulations which amplify the
diversification requirements for variable contracts and provide an alternative
to the safe harbor provision described above. Under the regulations, an
investment portfolio will be deemed adequately diversified if
- no more than 55% of the value of the total assets of the
portfolio is represented by any one investment;
- no more than 70% of the value of the total assets of the
portfolio is represented by any two investments;
- no more than 80% of the total assets of the portfolio is
represented by any three investments;
- no more than 90% of the total assets of the portfolio is
represented by any four investments.
For purposes of the regulations, all securities of the same issuer are treated
as a single investment and each U.S. government agency or instrumentality is
treated as a separate issuer.
The Company intends that all underlying assets of the Variable Life Account will
be managed in order to comply with these diversification requirements.
Currently, there is no official guidance as to whether, or under what
circumstances, control of the investments of the Variable Life Account by the
owners of variable life policies will cause the owners to be treated as owners
of the assets of the Variable Life Account, thereby causing the variable life
policy to lose its favorable tax treatment.
The amount of Policy Owner control which may be exercised under the Policy is
different in some respect from the situations addressed in published rulings
issued by the IRS 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 sets forth a new position, the
guidance or ruling will generally be applied only prospectively. However, if the
ruling or guidance does not 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 a life insurance
contract 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 IRS 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. You should consult a tax adviser
regarding the tax consequences of purchasing the Policy.
26
<PAGE> 29
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. Otherwise, the Policy should receive the same federal income
tax treatment as any other type of life insurance. As such, the death benefit is
excluded from the gross income of the Beneficiary under Section 101(a) of the
Code. Also, you, as the Policy Owner are not deemed to be in constructive
receipt of the Cash Value or Cash Surrender Value, including increments thereon,
under the Policy until there is a distribution of such amounts.
If death benefit proceeds are held by the Company at interest, any interest
credited is included in the Beneficiary's taxable income 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 is excluded from the
Beneficiary's income, and the amount attributable to interest, which is included
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.
MULTIPLE POLICIES
Federal tax laws provide that multiple modified endowment contracts which 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 the combination of contracts. You should
consult a tax adviser prior to purchasing more than one modified endowment
contract in any calendar year period.
TAX TREATMENT OF ASSIGNMENTS
Assigning or pledging the Policy may be a taxable event. You should consult a
tax adviser before assigning or pledging the Policy.
QUALIFIED PLANS
The Policy may be used in conjunction with certain qualified retirement plans.
Because the rules governing such use are complex, you should consult with a
pension consultant before purchasing the Policy.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in gross income of
the Policy Owner are subject to federal income tax withholding. However, in most
cases, you may elect not to have taxes withheld. You may be required to pay
penalties under the estimated tax rules, if withholding and estimated tax
payments are insufficient.
VARIABLE LIFE ACCOUNT VOTING RIGHTS
The Company is the legal owner (shareholder) of the Trust shares. However, the
Company believes that when a Portfolio solicits proxies in connection with a
vote of shareholders, it is required to obtain from you, and other affected
Policy Owners, instructions as to how to vote those shares.
For purposes of voting the Mutual Fund shares held in the Variable Life Account
at a shareholder meeting of the Mutual Fund, your voting interest will be
determined as follows: you may cast one vote for each $100 of Cash Value of your
Policy allocated to the Subaccount on the record date for the shareholder
meeting of the Mutual Fund. If, however, you have a Policy loan outstanding, any
amount transferred from the Variable Life Account to the General Account in
connection with the loan will not be considered in determining your voting
interest.
If a Mutual Fund holds a shareholder meeting at which you are entitled to vote,
you will receive periodic reports, proxy material, and a form on which you can
give voting instructions.
The Company will determine the number of shares that you will have a right to
vote as of a date chosen by it, which will not be more than 60 days prior to the
shareholder meeting. The Company will send you proxy material and a form for
giving voting instructions at least 14 days prior to the shareholder meeting.
27
<PAGE> 30
In accordance with its view of present law, the Company will vote the shares of
the applicable Mutual Fund held in the Variable Life Account in accordance with
instructions received from all persons having a voting interest in that
particular Mutual Fund. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. The Company will vote its own shares in the same
proportion as it votes shares for which it has received instructions.
If the applicable law with respect to voting rights is amended or if the
interpretation of the law changes, and it is determined that the Company has
authority to vote the shares of the mutual fund in its own right, it may elect
to do so.
VOTING INSTRUCTIONS DISREGARDED
The Company may, when required to do so by state insurance authorities, vote
shares of the applicable Mutual Fund without regard to instructions from persons
having a voting interest if the voting instructions would cause the Mutual Fund
to make (or refrain from making) investments that would result in changes in the
sub-classifications or investment objectives of the Mutual Fund. The Company may
also disapprove changes in the investment policy initiated by the persons having
a voting interest or by the directors or trustees of the Mutual Fund if the
Company's disapproval is reasonable and based on a good faith determination that
the change would violate state law or the change would not be consistent with
the investment objective of the Mutual Fund, or varies from the general quality
and nature of investments and investment techniques used by other 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, it will provide a
summary of its reasons for doing so in the next semi-annual report to Policy
Owners.
MANAGEMENT OF THE COMPANY
The following table lists the officers and directors of the Company, along with
their principal occupations.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
NAME POSITION WITH COMPANY PRINCIPAL OCCUPATION
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dale R. Schuh Chairman of the Board, Chairman of the Board, Chief Executive Officer and
President, and Director President of Sentry Insurance a Mutual Company
--------------------------------------------------------------------------------------------------------
William M. O'Reilly Secretary and Director Vice President, General Counsel and Corporate
Secretary of Sentry Insurance a Mutual Company
--------------------------------------------------------------------------------------------------------
William J. Lohr Treasurer and Director Vice President and Treasurer of Sentry Insurance
a Mutual Company
--------------------------------------------------------------------------------------------------------
Janet L. Fagan Director Vice President and Chief Actuary of Sentry
Insurance a Mutual Company
--------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF THE POLICY
Sentry Equity Services, Inc. ("SESI"), a wholly owned subsidiary of Sentry
Insurance a Mutual Company, serves as principal underwriter of the Policy. The
Policy is sold by sales representatives who, in addition to being licensed as
life insurance agents for the Company, are also NASD registered representatives
for SESI. SESI may also enter into written sales agreements with other
broker-dealers.
The following persons are the officers and directors of SESI. The business
address for each person is 1800 North Point Drive, Stevens Point, WI 54481.
<TABLE>
<CAPTION>
Name Positions and Offices With SESI
---- -------------------------------
<S> <C>
Dale Schuh Director and Chairman of the Board
Susan M. DeBruin President
Glen E. Scott Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
</TABLE>
28
<PAGE> 31
Registered representatives are compensated on a commission and service fee basis
by SESI. The Company reimburses SESI for the compensation it pays to registered
representatives and for other direct and indirect expenses SESI incurs in
marketing and selling the Policy. These expenses include advertising and
promotion, field management compensation, and deferred compensation and
insurance benefits for registered representatives and field managers. The amount
of brokerage commission and expense reimbursement received by SESI as of
December 31, 1998, for distributing the Policy was $100,541.
The following chart shows the levels of compensation paid by SESI to registered
representatives.
<TABLE>
<S> <C>
----------------------------------------------------------------------------------
First-Year Commissions 50% to 55% of the first-year premium paid; the
commission may be higher under certain circumstances,
but will not exceed 80% of the first-year premium paid.
----------------------------------------------------------------------------------
Renewal Commissions An amount not exceeding 2% of renewal premium paid.
----------------------------------------------------------------------------------
Service Fee An amount not exceeding .25% of the Cash Value of the
policies attributable to the registered representative
----------------------------------------------------------------------------------
Additional Compensation May be paid to registered representatives who meet
certain production and persistency requirements.
----------------------------------------------------------------------------------
</TABLE>
STATE REGULATION
The Company is subject to the insurance laws of the state of Wisconsin and is
regulated by the Wisconsin Insurance Department. It is also subject to the
insurance laws of each state in which it is authorized to do business. Each
year, the Company files an annual statement with the various state insurance
departments which contains information about the operation of the Company and
its financial condition as of the most recent year-end. The Wisconsin Insurance
Department periodically examines the Company's books and records in order to
certify that the Company has correctly stated its policy liabilities and
reserves. In addition, the National Association of Insurance Commissioners
periodically conducts a full examination of the Company's operations. Any
regulation or examination of the Company does not involve supervision of the
Company's management or its investment practices or policies.
REPORTS TO POLICY OWNERS
As a Policy Owner, you will receive confirmation of the following transactions:
- receipt of any premiums (except premiums received before the
date the Policy is issued and those received via an automatic
premium payment plan)
- any change in the allocation of premiums
- any transfer between Subaccounts
- any loan, interest repayment, or loan repayment
- any partial surrenders
- any return of premium necessary to comply with applicable
maximum premium limitations.
If you have chosen an automatic premium payment plan, you will receive an annual
statement showing the dates and amounts of premiums paid. You will be entitled
to a receipt for any premium payment upon request.
You will receive confirmation of the following transactions within 7 days:
- exercise of the free-look privilege
- exchange of the Policy
- full surrender of the Policy
- payment of the death benefit
Within 30 days after each Policy Anniversary, you will receive an annual
statement containing the following information:
- the current amount of death benefit
- the current Cash Value
- the current Cash Surrender Value
- current Policy indebtedness
- all premiums paid and charges deducted for the previous Policy
Year
- all transactions confirmed during the previous Policy Year
29
<PAGE> 32
Semi-annually, you will receive a Neuberger Berman Advisers Management Trust
report which contains all applicable information and financial statements
required by federal securities laws and regulations.
LEGAL PROCEEDINGS
Neither the Variable Life Account nor SESI are parties to any legal proceedings.
The Company is engaged in various kinds of routine litigation which, in the
opinion of the Company, are not material to the operation of the Company or to
its financial condition.
EXPERTS
The statutory financial statements of the Company as of December 31, 1998 and
1997, and for the years then ended, and the financial statements of the Variable
Life Account as of December 31, 1998, and for each of the three years in the
period then ended, included in this Prospectus and in the registration statement
filed with the Securities and Exchange Commission have been audited by
PricewaterhouseCoopers LLP, independent accountant. The audit reports are
included in this Prospectus.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Policy.
FINANCIAL STATEMENTS
The Company's financial statements included in this Prospectus should only be
considered in relation to the Company's ability to meet its obligations in
connection with the Policy.
The Company's most current financial statements are as of December 31, 1998. The
Company does not prepare financial statements more often than annually and
preparing more current financial information cannot be justified when the
nominal benefit it would provide is compared to preparation and delivery
expenses that would be incurred. The Company represents that there have been no
adverse changes in its financial condition or operations between December 31,
1998 and the date of this Prospectus.
30
<PAGE> 33
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
Report on Audits of Financial Statements
For the Years Ended 1998, 1997 and 1996
31
<PAGE> 34
[PricewaterhouseCoopers LOGO]
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
203 North LaSalle Street
Chicago, IL 60601-1210
Telephone (312) 701-5500
Facsimile (312) 701-6533
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE LIFE ACCOUNT I:
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
net assets present fairly, in all material respects, the financial position of
the Sentry Variable Life Account I, and the Liquid Asset Portfolio, Growth
Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio thereof, at
December 31, 1998, the results of each of their operations and changes in each
of their net assets for each of the three years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Sentry Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998, by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/s/ PricewaterhouseCoopers L.L.P.
Chicago, Illinois
February 11, 1999
32
<PAGE> 35
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 164,605
shares (cost $164,605) $ 164,605
Growth Portfolio, 183,894
shares (cost $4,652,183) 4,834,535
Limited Maturity Bond Portfolio, 12,216
shares (cost $168,180) 168,875
Balanced Portfolio, 86,792
shares (cost $1,377,410) 1,418,179
----------
Total investments 6,586,194
Dividends receivable 673
----------
Total assets 6,586,867
LIABILITIES:
Accrued expenses 1,703
----------
NET ASSETS $6,585,164
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
33
<PAGE> 36
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
-----------------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
----------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 7,551 $ 10,121 $ 9,580 $ -- $ -- $ 997
Expenses:
Risk charges 1,740 2,305 2,288 45,238 37,804 29,155
--------- --------- --------- ----------- ----------- -----------
Net investment income (loss) 5,811 7,816 7,292 (45,238) (37,804) (28,158)
--------- --------- --------- ----------- ----------- -----------
Realized net investment gain (loss) -- -- -- 130,456 143,719 48,754
Unrealized appreciation (depreciation), net -- -- -- (607,832) 478,813 (44,382)
Capital gain distributions received -- -- -- 1,138,697 264,588 233,304
--------- --------- --------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- -- 661,321 887,120 237,676
--------- --------- --------- ----------- ----------- -----------
Net increase in net assets
from operations 5,811 7,816 7,292 616,083 849,316 209,518
--------- --------- --------- ----------- ----------- -----------
Purchase payments 229,539 447,087 96,463 690,677 698,213 549,845
Transfers between subaccounts, net (200,831) (427,134) (59,472) 134,665 304,525 56,399
Withdrawals and surrenders (2,093) (80,269) (32,192) (460,042) (375,499) (184,653)
Monthly deductions (18,659) (16,117) (13,163) (291,193) (250,870) (217,320)
Policy loans (282) (60) (709) (27,406) (32,746) (10,421)
--------- --------- --------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from principal transactions 7,674 (76,493) (9,073) 46,701 343,623 193,850
--------- --------- --------- ----------- ----------- -----------
Total increase (decrease) in net assets 13,485 (68,677) (1,781) 662,784 1,192,939 403,368
Net assets at beginning of year 150,989 219,666 221,447 4,171,215 2,978,276 2,574,908
--------- --------- --------- ----------- ----------- -----------
Net assets at end of year $ 164,474 $ 150,989 $ 219,666 $ 4,833,999 $ 4,171,215 $ 2,978,276
========= ========= ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE> 37
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ------------------------------------- ----------------------------------------- -------------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10,093 $ 8,980 $ 15,386 $ 28,603 $ 16,109 $ 18,652 $ 46,247 $ 35,210 $ 44,615
1,731 1,647 1,797 13,274 10,422 8,680 61,983 52,178 41,920
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
8,362 7,333 13,589 15,329 5,687 9,972 (15,736) (16,968) 2,695
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
(290) (1,219) (2,558) 14,003 15,467 8,235 144,169 157,967 54,431
(2,702) 2,465 (6,306) (86,499) 100,185 (76,957) (697,033) 581,463 (127,645)
-- -- -- 200,904 41,345 103,719 1,339,601 305,933 337,023
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
(2,992) 1,246 (8,864) 128,408 156,997 34,997 786,737 1,045,363 263,809
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
5,370 8,579 4,725 143,737 162,684 44,969 771,001 1,028,395 266,504
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
24,332 20,154 25,849 222,905 176,611 142,335 1,167,453 1,342,065 814,492
(2,103) 793 (9,331) 68,269 121,816 12,404 -- -- --
(10,939) (7,924) (37,994) (98,008) (19,038) (59,749) (571,082) (482,730) (314,588)
(11,050) (11,054) (12,163) (109,415) (93,257) (83,683) (430,317) (371,298) (326,329)
(551) 1,987 (306) (1,098) (219) (6,732) (29,337) (31,038) (18,168)
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
(311) 3,956 (33,945) 82,653 185,913 4,575 136,717 456,999 155,407
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
5,059 12,535 (29,220) 226,390 348,597 49,544 907,718 1,485,394 421,911
163,497 150,962 180,182 1,191,745 843,148 793,604 5,677,446 4,192,052 3,770,141
- --------- --------- --------- ----------- ----------- --------- ----------- ----------- -----------
$ 168,556 $ 163,497 $ 150,962 $ 1,418,135 $ 1,191,745 $ 843,148 $ 6,585,164 $ 5,677,446 $ 4,192,052
========= ========= ========= =========== =========== ========= =========== =========== ===========
</TABLE>
35
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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. Actual results could differ from those estimates.
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 at the reported net asset values of
such portfolios, which value their investment securities at fair value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the
ex-dividend date. The cost of investments sold and the corresponding
investment gains and losses are determined on a specific identification
basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of
the Internal Revenue Code. The operations of the Variable 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
net assets 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 $1,703 at December 31, 1998.
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.
36
<PAGE> 39
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, 1998 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 10,192 $16.14 $ 164,474
Growth Portfolio 145,685 33.18 4,833,999
Limited Maturity Bond Portfolio 9,319 18.09 168,556
Balanced Portfolio 61,296 23.14 1,418,135
----------
Total net assets $6,585,164
==========
</TABLE>
At December 31, 1998 significant concentrations of ownership were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 2 32.4
Limited Maturity Bond Portfolio 1 29.6
</TABLE>
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 net assets $5,677,446
==========
</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 9,110 16.57 150,962
Balanced Portfolio 47,830 17.63 843,148
----------
Total net assets $4,192,052
==========
</TABLE>
37
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$2,839,658 and $1,379,167, 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 $272,325 $2,009,596 $35,610 $522,127 $2,839,658
Proceeds on sales 258,175 869,198 27,828 223,966 1,379,167
</TABLE>
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>
38
<PAGE> 41
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
39
<PAGE> 42
[PRICEWATERHOUSECOOPERS LOGO]
PriceWaterhouseCoopers LLP
203 North LaSalle Street
Chicago, IL 60601-1210
Telephone (312) 701-5500
Facsimile (312) 701-6533
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Sentry Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Sentry Life
Insurance Company (the Company) as of December 31, 1998 and 1997, and the
related statutory-basis statements of operations, changes in capital stock and
surplus and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to report
on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the insurance department of the State of Wisconsin, which practices
differ from generally accepted accounting principles (GAAP). We have only been
engaged by the Company to audit the accompanying financial statements on a
statutory basis of accounting. The Company is not required to prepare GAAP
financial statements and does not prepare GAAP financial statements. The effects
on the financial statements of the variances between the statutory basis of
accounting and GAAP, although not reasonably determinable, are presumed to be
material. We are therefore required in the following paragraph to issue an
adverse opinion on GAAP.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Sentry Life Insurance Company as of December 31, 1998 and 1997, or the
results of its operations and its cash flows for the years then ended.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with accounting practices prescribed or permitted
by the insurance department of the State of Wisconsin.
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of assets and liabilities is presented to comply with the
National Association of Insurance Commissioners' annual statement instructions
and is not a required part of the statutory-basis financial statements. Such
information has been subjected to the auditing procedures applied in our audit
of the statutory basis financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the statutory-basis financial
statements taken as a whole.
/s/ PRICEWATERHOUSECOOPERS L.L.P.
- ---------------------------------
Chicago, Illinois
February 12, 1999
40
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
--------------
<TABLE>
<CAPTION>
ASSETS 1998 1997
-------------- --------------
<S> <C> <C>
Investments:
Bonds ......................... $1,118,191,869 $1,103,011,418
Investments in subsidiaries ... 9,532,940 9,817,647
Mortgage loans ................ 18,723 68,657
Policy loans .................. 24,036,498 25,020,637
Cash and short-term investments 29,877,016 20,636,124
-------------- --------------
Total investments ....... 1,181,657,046 1,158,554,483
Accrued investment income ....... 18,681,577 18,231,430
Premiums deferred and uncollected 4,474,663 4,377,983
Due from affiliates ............. -- 3,008,778
Other assets .................... 1,177,498 6,099,831
Assets held in separate accounts 604,877,464 533,613,785
-------------- --------------
Total admitted assets ... $1,810,868,248 $1,723,886,290
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
41
<PAGE> 44
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
--------------
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
- ----------- -------------- --------------
<S> <C> <C>
Future policy benefits:
Life ........................................................ $ 255,692,269 $ 250,618,823
Accident and health ......................................... 15,440,434 14,967,065
Annuity ..................................................... 134,582,450 138,902,775
Policy and contract claims .................................... 4,140,344 4,720,182
Premium and other deposit funds ............................... 624,627,002 604,285,476
Other policyholder funds ...................................... 10,445,827 26,118,724
Accounts payable and other liabilities ........................ 11,177,061 3,477,182
Federal income taxes accrued .................................. 9,417,827 11,555,703
Asset valuation reserve ....................................... 5,706,987 5,264,578
Interest maintenance reserve .................................. 7,087,699 6,175,922
Liabilities related to separate account ....................... 603,897,819 528,643,523
-------------- --------------
Total liabilities ..................................... $1,682,215,719 $1,594,729,953
============== ==============
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $10 par value; authorized 400,000 shares; issued
and outstanding 316,178 shares in 1998 and 1997 ............. 3,161,780 3,161,780
Paid-in surplus ............................................... 43,719,081 43,719,081
Earned surplus, unappropriated ................................ 81,771,668 82,275,476
-------------- --------------
Total capital stock and surplus ....................... 128,652,529 129,156,337
-------------- --------------
Total liabilities, capital stock and surplus .......... $1,810,868,248 $1,723,886,290
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
42
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations ...................... $ 76,847,662 $ 74,408,562
Other fund deposits ...................................... 62,791,049 52,574,356
Commissions and expense allowances on
reinsurance ceded ..................................... 11,560,785 18,912,935
Net investment income .................................... 93,544,822 91,589,939
Other income ............................................. 8,931,046 8,512,462
------------- -------------
Total premiums and other income .................... 253,675,364 245,998,254
------------- -------------
Benefits and expenses:
Policyholder benefits and fund withdrawals ............... 199,613,380 188,108,969
Increase in future life policy benefits
and other reserves .................................... 21,803,214 7,695,811
Commissions .............................................. 7,358,122 10,638,144
Other expenses ........................................... 27,780,333 30,477,161
Transfers from separate accounts, net .................... (16,816,030) (16,336,976)
------------- -------------
Total benefits and expenses ........................ 239,739,019 220,553,109
------------- -------------
Income before federal income tax expense
and net realized losses on investments ................... 13,936,345 25,445,145
Federal income tax expense, less tax on net realized
losses and transfers to the IMR .................. 5,684,753 9,177,337
------------- -------------
Income before net realized losses on investments ........... 8,251,592 16,267,808
Net realized losses on investments ................. (514,506) (272,063)
------------- -------------
Net income ................................................. $ 7,737,086 $ 15,995,745
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
43
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Capital stock, beginning and end of year ...... $ 3,161,780 $ 3,161,780
------------- -------------
Paid-in surplus, beginning and end of year .... 43,719,081 43,719,081
------------- -------------
Earned surplus, unappropriated:
Balance at beginning of year ................ 82,275,476 67,368,745
Net income .................................. 7,737,086 15,995,745
Change in non-admitted assets ............... (4,430) 1,850
Change in liability for reinsurance ......... (9,348) (650)
Change in asset valuation reserve ........... (442,409) 6,192,639
Dividend to stockholder ..................... (7,500,000) (7,500,000)
Change in net unrealized gains on investments (284,707) 217,147
------------- -------------
Balance at end of year ...................... 81,771,668 82,275,476
------------- -------------
Total capital stock and surplus ....... $ 128,652,529 $ 129,156,337
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
44
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Premiums and annuity considerations ................. $ 76,630,869 $ 74,046,843
Other fund deposits ................................. 62,791,049 52,574,356
Other premiums, considerations and deposits ......... 165,851 170,518
Allowances and reserve adjustments received on
reinsurance ceded ................................. 11,507,443 25,981,339
Investment income received (excluding realized gains
and losses and net of investment expenses) ........ 90,358,325 88,152,129
Other income received ............................... 13,079,807 8,341,945
Life and accident and health claims paid ............ (35,698,918) (24,600,136)
Surrender benefits .................................. (132,575,939) (99,192,578)
Other benefits to policyholders paid ................ (48,180,669) (46,821,006)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) .................. (34,763,025) (41,375,759)
Net transfers from separate accounts ................ 16,492,034 16,364,694
Cash in receivable status from separate accounts .... -- (4,318,844)
Changes in asset charges receivable ................. -- 6,765
Dividends to policyholders paid ..................... (317,700) (316,156)
Federal income taxes paid ........................... (8,853,213) (9,002,003)
Net decrease in policy loans ........................ 984,139 368,610
------------- -------------
Net cash from operations .......................... 11,620,053 40,380,717
------------- -------------
Proceeds from investments sold, matured, or repaid:
Bonds ............................................. 147,260,947 101,049,805
Mortgage loans .................................... 49,934 82,308
Tax on net capital gains .......................... (577,663) (105,566)
------------- -------------
Total investment proceeds ................... 146,733,218 101,026,547
------------- -------------
Other cash provided ................................. 17,175,517 10,746,587
------------- -------------
Total cash provided ......................... 175,528,788 152,153,851
------------- -------------
Cost of investments acquired ........................ 157,699,531 146,935,141
Other cash applied:
Dividend to stockholder ........................... 7,500,000 7,500,000
Other applications, net ........................... 1,088,365 5,819,079
------------- -------------
Total cash applied .......................... 166,287,896 160,254,220
------------- -------------
Net change in cash and short-term investments 9,240,892 (8,100,369)
Cash and short-term investments:
Beginning of year ................................. 20,636,124 28,736,493
------------- -------------
End of year ....................................... $ 29,877,016 $ 20,636,124
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
45
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
--------------
(1) BASIS OF PRESENTATION AND SIGNIFICANT STATUTORY-BASIS ACCOUNTING
POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company (the Company) is a wholly-owned
subsidiary of Sentry Insurance a Mutual Company (SIAMCO). The Company
writes insurance products in all states except New York primarily
through direct writers who market the Company's individual life
insurance, annuities and group health and pension products. The Company
also uses direct mail and third party administrators for the marketing
of its group life and health products.
The accompanying statutory-basis financial statements of the Company
have been prepared in conformity with the accounting practices
prescribed or permitted by the insurance department of the State of
Wisconsin. Prescribed statutory accounting principles include a variety
of publications of the National Association of Insurance Commissioners
(NAIC), as well as state laws, regulations, and general administrative
rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. The Company does not employ any
material permitted practices in the preparation of its statutory-basis
financial statements.
The accompanying statutory-basis financial statements have been
prepared in accordance with statutory accounting principles which
require management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the NAIC.
Bonds which qualify for amortization are stated at amortized cost;
bonds not qualifying are carried at the lesser of amortized cost or
NAIC market values. Under GAAP, bonds would be classified as either
trading, available for sale, or held-to-maturity. Bonds classified as
trading or as available for sale would be carried at market with
unrealized gains and losses, net of applicable taxes, recognized as net
income (trading securities) or as a direct surplus adjustment
(available for sale). Common stock of the Company's unconsolidated
subsidiary is carried at its underlying statutory capital and surplus.
The change in the subsidiary's underlying equity between years is
reflected as a change in unrealized gains (losses). Under GAAP, this
entity's balance sheet and results of operations would be consolidated
with the Company. Mortgage loans on real estate are carried at their
aggregate unpaid principal balances. Policy loans are carried at the
aggregate of unpaid principal balances plus accrued interest and are
not in excess of cash surrender values of the related policies.
Short-term investments are carried at amortized cost, which
approximates market value. Investment income is recorded when earned.
Market value adjustments, on investments carried at market, are
reflected in earned surplus as unrealized gains (losses) on
investments. Realized gains and losses are determined on the specific
identification method and are recorded directly in the statements of
operations, net of federal income taxes and after transfers to the
Interest Maintenance Reserve, as prescribed by the NAIC.
Income on mortgage-backed securities is recognized using a constant
effective yield based on anticipated prepayments and the estimated
economic life of the securities. When actual prepayments differ
significantly from anticipated prepayments, the effective yield is
recalculated to reflect actual payments to date and anticipated future
payments. The net investment in the securities is adjusted to the
amount that would have existed had the new effective yield been applied
since the acquisition of the securities. This adjustment is reflected
in net investment income.
46
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
--------------
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER DEPOSIT
FUNDS
The Company issues group annuity contracts both to affiliated companies
and others. The deposits received in connection with these contracts
are placed in deposit administration funds and in separate accounts.
The Company also issues variable annuity contracts and variable
universal life contracts. Deposits for those contracts are also placed
in separate accounts. A separate account is an accounting entity
segregated as a discrete operation within an insurance company. The
stockholder of the Company and its policyholders have no claim to
assets held in the separate accounts. The contract holders are the only
persons having rights to any assets in the separate accounts or to
income arising from these assets. All separate and variable accounts
held by the Company are non-guaranteed and represent funds where the
benefit is determined by the performance of the investments held in the
separate account. Assets are carried at market value and reserves are
calculated using the cash value of the contract. All reserves fall into
the category allowing discretionary withdrawals at market value. For
the variable annuity contract, if it has been in effect at least six
years, there is no surrender charge. For the variable universal life
contract, there is a surrender charge through the ninth year. The
admitted asset value of separate accounts consists primarily of common
stock.
C. NON-ADMITTED ASSETS
For statutory accounting purposes, certain assets designated as
"non-admitted" (principally certain receivables) have been excluded
from the statutory-basis balance sheets and charged to earned surplus.
Under GAAP, such assets would be recognized at net realizable value.
Non-admitted assets totaled $4,752 and $322 at December 31, 1998 and
1997, respectively.
D. POLICY BENEFITS
Liabilities for traditional life and limited-payment life contracts are
computed using methods, mortality and morbidity tables and interest
rates which conform to the valuation laws of the State of Wisconsin.
The liabilities are primarily calculated on a modified reserve basis.
The effect of using a modified reserve basis partially offsets the
effect of immediately expensing acquisition costs by providing a policy
benefit reserve increase in the first policy year which is less than
the reserve increase in renewal years.
Future policy benefits for life policies and contracts were primarily
determined using the Commissioner's reserve valuation method with
interest rates ranging from 2.5% to 6%. Additional statutory policy
deficiency reserves have been provided where the valuation net premium
exceeds the gross premiums.
Future policy benefits for annuity contracts, primarily for individual
and group deferred annuities, were primarily determined using the
Commissioner's annuity reserve valuation method with interest rates
ranging from 3% to 11%. Group Health reserves consist predominantly of
long-term disability reserves representing present value of amounts not
yet due calculated using standard disability tables and various
interest rates.
Reserves for universal life-type and investment contracts are based on
the contract account balance, if future benefit payments in excess of
the account balance are not guaranteed, or on the present value of
future benefit payments when such payments are guaranteed.
GAAP reserves are computed using mortality, withdrawal and interest
rate assumptions that are based on Company experience.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized investment gains and losses on bonds attributable to interest
rate changes are deferred in the IMR account. The IMR is recorded as a
liability and amortized into investment income over the approximate
remaining maturities of the bonds sold. This policy for recognition of
such realized gains and losses is prescribed by the NAIC in order to
smooth the impact of such activity on the Company's earned surplus. For
GAAP purposes, there is no such reserve.
47
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets including
bonds, stocks, mortgage loans, real estate and other invested assets.
Changes in the AVR are included in policyholders' surplus. For GAAP
purposes, a writedown, for other than temporary declines in value, is
recognized as a realized loss on an individual asset basis.
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and limited-payment
contracts are taken into income when due. For investment contracts without
mortality risk (such as deferred annuities and immediate annuities with
benefits paid for a period certain) and contracts that permit the insured to
make changes in the contract terms (such as universal life products),
deposits are recorded as revenue when received. Under GAAP, deposits are
recorded as increases to liabilities and revenue is recognized as mortality
and other assessments are charged to policyholders.
As the Company has no direct employees and does not own equipment, it
utilizes services provided by employees and equipment of SIAMCO and occupies
space in SIAMCO's office building. Accordingly, the Company participates in
an expense allocation system with certain affiliated companies. Expenses of
the Company consist of direct charges incurred and an allocation of expenses
(principally salaries, salary-related items, rent, and data processing
services) between certain affiliated companies. The Company recognized
expenses of $29,212,951 and $31,900,482 for 1998 and 1997, respectively,
under this allocation agreement.
H. ACQUISITION COSTS
Costs directly related to the acquisition of insurance premiums, such as
commissions and premium taxes, are charged to operations as incurred. Under
GAAP, such acquisition costs would be capitalized and amortized over the
policy periods.
I. FEDERAL INCOME TAX
The Company is included in the consolidated federal income tax return of
SIAMCO. Income taxes payable or recoverable are determined on a separate
return basis by the Company in accordance with a written tax allocation
agreement. Deferred federal income taxes are not provided for temporary
differences between tax and financial reporting as they would be under GAAP.
Additionally, federal income taxes are not provided for unrealized gains
(losses) on investments.
J. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated companies
in a defined benefit pension plan which covers substantially all of their
employees. Generally, the companies' funding and accounting policies are to
make the maximum contribution required under applicable regulations and to
charge such contributions to expense in the year they are deductible for tax
purposes. GAAP periodic net pension expense is based on the cost of
incremental benefits for employee service during the period, interest on the
projected benefit obligation, actual return on plan assets and amortization
of actuarial gains and losses.
In addition to providing the pension benefits, the Company, with SIAMCO and
its affiliated subsidiaries, provides certain health care, dental and life
insurance benefits to retired employees and their dependents. Substantially
all of the employees may become eligible for those benefits if they reach
normal retirement age while working for the Companies. The expected costs of
providing those benefits to employees and the employees' beneficiaries and
covered dependents are accounted for on an accrual basis during the years
that employees render service in accordance with NAIC policy. SIAMCO is
amortizing its transition obligation, created upon the initial valuation of
postretirement benefits, over a period of twenty years and a portion of the
annual expense is allocated to the Company.
48
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1998 VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 44,847,324 3,875,945 0 $ 48,723,269
Obligations of states and
political subdivisions 441,814 92,159 0 533,973
Corporate securities 819,379,743 73,859,271 (3,201,476) 890,037,538
Mortgage-backed securities 253,522,988 14,734,376 (20,123) 268,237,241
-------------- ------------ ----------- --------------
Total $1,118,191,869 $092,561,751 $(3,221,599) $1,207,532,021
============== ============ =========== ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1997 VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 51,872,626 $ 3,446,572 $ (609) $ 55,318,589
Obligations of states and
political subdivisions 439,817 99,564 0 539,381
Corporate securities 757,760,027 60,329,883 (1,178,355) 816,911,555
Mortgage-backed securities 292,938,948 22,571,116 (553,953) 314,956,111
-------------- ------------ ----------- --------------
Total $1,103,011,418 $ 86,447,135 $(1,732,917) $1,187,725,636
============== ============ =========== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1998, by
contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because certain issuers have the right to
call or prepay obligations with or without call or prepayment
penalties. Because most mortgage-backed securities provide for periodic
payments throughout their lives, they are listed below in a separate
category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- -----
<S> <C> <C>
Due in one year or less $ 18,650,144 $ 19,101,785
Due after one year through five years 66,661,672 69,833,730
Due after five years through ten years 157,206,519 169,106,006
Due after ten years 622,150,546 681,253,259
-------------- --------------
Subtotal 864,668,881 939,294,780
Mortgage-backed securities 253,522,988 268,237,241
-------------- --------------
Total $1,118,191,869 $1,207,532,021
============== ==============
</TABLE>
49
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The bond portfolio distribution by quality rating (primarily Moody's)
at December 31, 1998 is summarized as follows:
<TABLE>
<S> <C>
Aaa 28.04%
Aa 5.35%
A 42.06%
Baa 22.98%
Ba & below and not rated 1.57%
------
100.00%
======
</TABLE>
Generally, bonds with ratings Baa and above are considered to be
investment grade.
Proceeds from sales of bonds during 1998 and 1997, including maturities
and calls, were $147,260,947 and $101,049,805, respectively. In 1998
and 1997, respectively, gross gains of $3,633,126 and $1,525,602, and
gross losses of $508,150 and $652,460 were realized on these sales
before transfer to the IMR liability.
At December 31, 1998 and 1997, investments carried at $4,335,822 and
$4,384,747, respectively, were on deposit with various governmental
agencies as required by law.
(3) UNCONSOLIDATED SUBSIDIARIES
The Company wholly owed Sentry Life Insurance Company of New York
(SLONY) during 1998 and 1997. Condensed financial information regarding
SLONY is shown as follows:
<TABLE>
<CAPTION>
SLONY
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
Investments $33,868,989 $35,406,623
Total assets 38,308,361 38,955,256
Policy reserves and benefits 19,401,383 19,699,749
Total liabilities 28,775,421 29,137,609
Statutory capital and surplus 9,532,940 9,817,647
Premium income 7,151,770 8,331,937
Net investment income 2,627,438 2,783,625
Benefits and expenses 8,687,989 9,917,561
Net income 659,539 764,439
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Dividends received from affiliates $ 880,000 $ 750,000
Interest:
Bonds 89,112,233 87,232,271
Short-term investments 1,111,775 1,124,220
Other investments 1,676,371 1,763,787
Amortization of IMR 1,119,458 1,113,741
----------- -----------
Gross investment income 93,899,837 91,984,019
Investment expense 355,015 394,081
----------- -----------
Net investment income $93,544,822 $91,589,939
=========== ===========
</TABLE>
50
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The components of net realized gains (losses) and changes in net
unrealized gains (losses) on investments which are reflected in the
accompanying statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
-------------------------- -----------------------
1998 1997 1998 1997
----------- --------- --------- --------
<S> <C> <C> <C> <C>
Common stock of unconsolidated -- -- $(284,707) $217,147
subsidiary
Bonds 3,124,975 873,142 -- --
Capital gains tax (1,608,247) (577,663) -- --
----------- --------- --------- --------
Pre-IMR capital gains, net of tax 1,516,728 295,479 (284,707) 217,147
IMR capital gains transferred
into the reserve net of taxes (2,031,234) (567,542) -- --
----------- --------- --------- --------
$ (514,506) $(272,063) $(284,707) $217,147
=========== ========= ========= ========
</TABLE>
(5) INCOME TAXES
Federal income tax expense in the statutory-basis statements of
operations differs from that computed based on the federal statutory
corporate income tax rate of 35%. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 4,877,721 $ 8,905,800
Accrual of bond discount (937,906) (633,561)
Adjustment for deferred acquisition costs (33,295) 12,178
Dividends received from subsidiaries (308,000) (262,500)
Different basis used to compute future policy benefits 2,678,735 1,720,817
Amortization of interest maintenance reserve (391,810) (389,809)
Other, net (200,692) (175,588)
----------- -----------
Total $ 5,684,753 $ 9,177,337
=========== ===========
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion of a
life insurance company's "gain from operations" was not subject to
current income taxation but was accumulated, for tax purposes, in a
memorandum account designated as the "policyholders' surplus account."
The amounts included in this account are includable in taxable income
of later years at rates then in effect if the life insurance company
elects to distribute tax basis policyholders' surplus to stockholders
as dividends or takes certain other actions. Any distributions are
first made from another tax memorandum account known as the
"stockholders' surplus account." The accumulation in the tax
policyholders' surplus and stockholders' surplus accounts of the
Company were $5,605,476 and $84,735,704, respectively, at December 31,
1998.
Federal income tax returns of SIAMCO have been examined through 1994
and the Company and the Internal Revenue Service have reached agreement
on all issues relating to 1994 and prior years. In the opinion of
management, the Company has adequately provided for the possible effect
of future assessments related to prior years.
(6) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Values of Financial Instruments," requires
disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheets, for which it is
practicable to estimate those values. SFAS 107 defines fair value of a
financial instrument as the amount at which that instrument could be
exchanged in a current transaction between willing parties, other than
in a forced or liquidated sale.
The fair values presented on the next page represent management's best
estimates and may not be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate
settlement of the instruments. Certain financial instruments and all
nonfinancial instruments are exempt from the disclosure requirements of
SFAS 107. Financial instruments which are exempt include life policy
benefits with mortality or morbidity risk. Therefore, the aggregate
fair value amounts presented do not represent the underlying value of
the Company.
51
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
For cash and short-term investments and accrued investment income, the carrying
amount approximates fair value.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
BONDS
Estimated fair value is generally based on quotes provided by independent
pricing services. If a quoted market price is not available, fair value is
estimated by management based on the quoted market price of comparable
instruments.
POLICY LOANS
Policy loans have no stated maturity dates; therefore, no reasonable estimate of
fair value can be made. Interest rates range from 5 to 8 percent.
SEPARATE ACCOUNTS
The fair value of the assets held in separate accounts and offsetting
liabilities are estimated based on the fair value of the underlying assets.
AGGREGATE RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of investment-type insurance contracts is estimated by reducing
the policyholder liability for applicable surrender charges.
STRUCTURED SETTLEMENTS
The fair value of the liability for structured settlements is estimated by
discounting future cash flows using the current rates being offered for similar
settlements.
LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The fair value for contracts with stated maturities is estimated by discounting
future cash flows using current rates being offered for similar contracts. For
those contracts with no stated maturity, the fair value is estimated by
calculating the surrender value.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1998 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,118,191,869 $1,207,532,021
Assets held in separate accounts 604,877,464 604,877,464
Liabilities:
Aggregate reserves for
investment-type contracts 75,976,747 75,638,874
Structured settlements 53,328,059 63,023,295
Liability for premium and
other deposit funds 624,627,002 624,347,222
Liabilities related to
separate accounts 603,897,819 603,897,819
</TABLE>
52
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1997 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,103,011,148 $1,187,725,636
Assets held in separate accounts 533,613,785 533,613,785
Liabilities:
Aggregate reserves for
investment-type contracts 80,815,675 80,386,603
Structured settlements 52,717,040 59,537,099
Liability for premium and
other deposit funds 604,285,476 603,300,638
Liabilities related to
separate accounts 528,643,523 528,643,523
</TABLE>
(7) PENSION AND 401K PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially
all of their employees. The benefits are based on years of service, the
average of the three highest of the last fifteen years of an employee's
compensation and primary social security benefits, as defined in the
plan. The Company is not a separately assignable entity for purposes of
allocation of accumulated plan benefits or assets. The Company was
allocated pension expense by SIAMCO of approximately $0 and $283,000 in
1998 and 1997, respectively.
The Company participates with SIAMCO and its affiliated subsidiaries in
a qualified 401k Plan. Employees who meet certain eligibility
requirements may elect to participate in the Plan. Participants must
contribute at least one percent but no more than 16 percent of base
compensation. Highly compensated employees may contribute a maximum of
10 percent on a pre-tax basis. For non-highly compensated employees,
the entire 16% may be deposited on a pre-tax basis. The Company matches
up to 25% of employee contributions up to the first 6 percent of base
salary deposited by an employee. The Company may make additional annual
contributions to the Plan based on operating profit. The Company was
allocated approximately $429,000 and $260,000 by SIAMCO for 401k Plan
benefits in 1998 and 1997, respectively.
In addition to the above-mentioned benefits, the Company, with SIAMCO
and its affiliated subsidiaries, provides certain health care, dental
and life insurance benefits to retired employees and their covered
dependents. The retiree health care benefits allocated to the Company
by SIAMCO were approximately $470,000 for 1998 and $445,000 for 1997.
(8) REINSURANCE
The Company had entered into reinsurance contracts for participation in
reinsurance pools and surplus protection for its wholly-owned
subsidiaries. Assumed life in-force amounted to approximately 31% and
30% of total in-force (before ceded reinsurance) at December 31, 1998
and 1997, respectively.
The Company has entered into reinsurance ceded contracts to limit the
net loss potential arising from large risks. Generally, life benefits
in excess of $250,000 and all group health liabilities, except for
liabilities relating to SIAMCO's employee benefit plans, are ceded to
reinsurers. The group health liabilities are ceded to SIAMCO.
53
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY
Notes to Statutory-Basis Financial Statements (continued)
------------------
The Company cedes insurance to other insurers under various contracts
which cover individual risks or entire classes of business. Although
the ceding of insurance does not discharge the Company from its primary
liability to policyholders in the event any reinsurer might be unable
to meet the obligations assumed under the reinsurance agreements, it is
the practice of insurers to reduce their balances for amounts ceded.
The amounts included in the accompanying statutory-basis financial
statements for reinsurance were as follows:
<TABLE>
<CAPTION>
1998
----
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $306 $ 28,380 $ 6,459 $3,563
Benefits 372 43,926 6,539 1,634
Commissions 10 11,083 (3) 477
Future Policy Benefits:
Life & Annuities 34 -- 18 1,213
Accident & Health -- 226,031 175 73
Intercompany Receivable -- 333 -- --
</TABLE>
<TABLE>
<CAPTION>
1997
----
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $306 $ 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 -- --
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various legal actions and
proceedings pending against the Company. In the opinion of management
and legal counsel, the ultimate resolution of these matters will not
have a material adverse impact on the Company's statutory-basis
financial statements.
State guaranty funds can assess the Company for losses of insolvent or
rehabilitated companies. Mandatory assessments may be partially
recovered through a reduction in future premium taxes in some states.
The Company believes that its ultimate cost for these assessments is
not expected to have a material adverse effect on the financial
statements.
(10) OTHER RELATED PARTY TRANSACTIONS
The Company is the direct writer of certain employee benefit plans for
SIAMCO. Premiums included in the accompanying statutory-basis
statements of operations (net of ceded premiums) are approximately
$25,742,000 and $20,360,000 in 1998 and 1997, respectively.
The Company has provided coverage in the form of annuity contracts as
structured settlements for SIAMCO workers' compensation claims.
Reserves for future policy benefits at December 31, 1998 and 1997
included $53,328,059 and $52,717,040, respectively, relating to these
contracts.
Also, see Notes 7 and 8 for other related party transactions.
(11) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposits of approximately $1,286.0 million and
$1,202.0 million in 1998 and 1997, respectively, are subject to
withdrawal at the discretion of the annuity contract holders.
Approximately 96% and 95%, respectively, carry surrender charges.
54
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
55
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1998
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 .............................................. $ 322,647
Other bonds (unaffiliated) .................................... 88,789,586
Common stocks of affiliates ................................... 880,000
Mortgage loans ................................................ 4,509
Premium notes, policy loans and liens ......................... 1,631,171
Short-term investments ........................................ 1,111,775
Aggregate write-ins for investment income ..................... 40,691
--------------
Gross investment income ....................................... $ 92,780,379
==============
Mortgage Loans - Book Value:
Residential mortgages ......................................... $ 18,723
==============
Mortgage Loans By Standing - Book Value:
Good standing ................................................. $ 18,723
==============
Bonds and Stocks of Parents, Subsidiaries
and Affiliates - Book Value:
Common stocks ................................................. $ 9,532,940
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ................................. $ 39,078,263
Over 1 year through 5 years ................................. 164,828,536
Over 5 years through 10 years ............................... 263,873,963
Over 10 years through 20 years .............................. 310,147,916
Over 20 years ............................................... 340,263,191
--------------
Total by Maturity ........................................... $1,118,191,869
==============
</TABLE>
56
<PAGE> 59
<TABLE>
<S> <C>
Bonds by Class - Statement Value
Class 1...................................................... $ 798,070,889
Class 2...................................................... 304,364,338
Class 3...................................................... 15,756,642
Class 4...................................................... 0
Class 5...................................................... 0
Class 6...................................................... 0
--------------
Total by Class .............................................. $1,118,191,869
==============
Total Bonds Publicly Traded ................................. $1,111,613,198
==============
Total Bonds Privately Placed ................................ $ 6,578,671
==============
Short-Term Investments - Book Value ............................. $ 29,877,016
==============
Cash on Deposit ................................................. $ 0
==============
Life Insurance In Force (000's omitted):
Ordinary ...................................................... $ 4,684,362
==============
Group Life .................................................... $ 3,189,201
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ........................................ $ 116,889
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary ...................................................... 21,189
==============
Group Life .................................................... 115
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ........................................... $ 0
==============
Income Payable .............................................. $ 390,642
==============
Ordinary - Involving Life Contingencies
Income Payable .............................................. $ 195,275
==============
</TABLE>
57
<PAGE> 60
<TABLE>
<S> <C>
Annuities:
Ordinary
Immediate - Amount of Income Payable ........................ $ 1,707,764
==============
Deferred - Fully paid account balance ....................... $ 20,071,365
==============
Deferred - Not fully paid account balance ................... $ 89,150,724
==============
Group
Amount of income payable .................................... $ 5,081,573
==============
Fully paid account balance .................................. $ 9,507,969
==============
Not fully paid account balance .............................. $1,166,706,277
==============
Accident and Health Insurance - Premiums In Force:
Ordinary ...................................................... $ 157,622
==============
Group ......................................................... $ 36,000,900
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ...................... $ 349,083
==============
Claim Payments 1998:
Group Accident and Health Year - Ended December 31, 199X
1998......................................................... $ 2,665,883
==============
1997......................................................... $ 1,954,794
==============
1996......................................................... $ 1,606,833
==============
1995 & prior................................................. $ 7,612,173
==============
Other Accident & Health
1998......................................................... $ 16,632
==============
1997......................................................... $ 33,798
==============
1996......................................................... $ 15,336
==============
1995 & prior................................................. $ 89,013
==============
</TABLE>
58
<PAGE> 61
APPENDIX A
ILLUSTRATIONS OF BENEFITS
Customized computer generated proposal illustrations tailored to the unique life
insurance needs of an individual will play a major role in the sales process.
The tables in Appendix A illustrate the way in which the 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 Policy Owner has not requested any changes in the
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. The 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
facts 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 0.75% of the
average daily net assets of Neuberger Berman Advisers Management Trust. The
values also assume that of Neuberger Berman Advisers Management Trust will incur
other expenses annually which are assumed to be .18% of the average daily net
assets of the Trust. These assumptions are based on the fee schedule in effect
as of May, 1999, and are arithmetic averages of the fees and expenses for all
Portfolios. The Liquid Asset Portfolios is subject to reimbursement for certain
operating expenses, including the compensation of NB Management and excluding
certain other expenses that exceed in the aggregate, 1% of the Liquid Asset
Portfolio's average daily net asset value. Absent such reimbursement, the total
annual expenses for the year ended December 31, 1998, would have been 1.14% for
the Liquid Asset Portfolio. This expense reimbursement policy is subject to
termination upon 60 days written notice and there can be no assurance that it
will be continued thereafter. If the expense reimbursement were discontinued,
the values shown in the illustrations would be lower.
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 Variable Life Account. The
Variable Life Account will also be assessed for the death benefit guarantee risk
at an annual rate of .145% of the net asset value of the Variable Life 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 charge in order to
produce the values illustrated.
59
<PAGE> 62
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.
60
<PAGE> 63
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.
61
<PAGE> 64
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.
62
<PAGE> 65
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 4199652
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
63
<PAGE> 66
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 180362
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.
64
<PAGE> 67
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 124909
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.
65
<PAGE> 68
UNDERWRITER FOR THE POLICY INDEPENDENT ACCOUNTANTS
Sentry Equity Services, Inc. FOR SENTRY LIFE INSURANCE COMPANY
Stevens Point, Wisconsin PricewaterhouseCoopers LLP
Chicago, Illinois
LEGAL OPINIONS FOR NEUBERGER BERMAN ADVISERS
Blazzard, Grodd & Hasenauer, P.C. MANAGEMENT TRUST
Westport, Connecticut Ernst & Young L.L.P.
Boston, Massachusetts
INVESTMENT MANAGER, ADMINISTRATOR AND DISTRIBUTOR FOR
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Management Incorporated
New York, New York
SENTRY VARIABLE LIFE ACCOUNT I
The Variable Life Account is a segregated asset account registered as a unit
investment trust. The assets of the Account are the property of Sentry Life
Insurance Company.
INVESTMENTS
Purchases applied to the Variable Life Account are invested in one or more of
the Portfolios of Neuberger Berman Advisers Management Trust. Currently,
Neuberger Berman Advisers Management Trust consists of eight separate
Portfolios, four of which are currently available in connection with the
Policies offered under this Prospectus:
- Liquid Asset Portfolio
- Growth Portfolio
- Limited Maturity Bond Portfolio
- Balanced Portfolio
[LOGO]
Sentry Life
Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
<PAGE> 69
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.
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> 70
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 65 pages.
The undertaking to file reports.
The signatures.
Written consents of the following persons:
Dean A. Klingenberg, FSA, MAAA
PricewaterhouseCoopers LLP, Independent Accountant
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 Accountant
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> 71
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 26th day
of April, 1999. The Registrant certifies that it meets the requirements of
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> 72
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.
<TABLE>
<S> <C>
s/Dale R. Schuh April 26, 1999
- -------------------------------
Dale R. Schuh, Chairman of the
Board, President and Director
s/William M. O'Reilly April 26, 1999
- -------------------------------
William M. O'Reilly, Secretary
and Director
s/William J. Lohr April 26, 1999
- -------------------------------
William J. Lohr, Treasurer and
Director
s/Janet L. Fagan April 26, 1999
- -------------------------------
Janet L. Fagan, Director
</TABLE>
<PAGE> 73
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 16
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
Exhibit B Written Consent of Counsel
Blazzard, Grodd & Hasenauer, P.C.
Exhibit C Written Consent of Independent Accountant
PricewaterhouseCoopers LLP
Exhibit D Written Consent of Actuary
Dean A. Klingenberg, FSA, MAAA
<PAGE> 74
EXHIBIT B
<PAGE> 75
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
April 16, 1999
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 Post-Effective Amendment No. 16 to a
Registration Statement on form N-4 for the Individual Deferred Variable Annuity
Contracts (the "Contracts") to be issued by Sentry Life Insurance Company 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 purchase payments made by an Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the Registration
Statement and upon compliance with applicable law, such an Owner will have a
legally-issued, fully paid, non-assessable contractual interest under such
Policy.
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.
You may use this opinion letter, or a copy thereof, as an exhibit to
Post-Effective Amendment No. 16 to the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: /s/ Lynn Korman Stone
-----------------------------
Lynn Korman Stone
<PAGE> 76
EXHIBIT C
<PAGE> 77
PRICEWATERHOUSECOOPERS
PricewaterhouseCoopers LLP
203 North LaSalle Street
Chicago, IL 60601-1210
Telephone (312) 701 5500
Facsimile (312) 701 6533
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 16 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, 1999, on our audits of the financial
statements of the Account; and
(2) Our report dated February 12, 1999, on our audits of the
statutory-basis financial statements of Sentry Life Insurance Company.
We also consent to the reference to our Firm under the caption "Experts."
/s/ PricewaterhouseCoopers LLP
April 28, 1999
<PAGE> 78
EXHIBIT D
<PAGE> 79
April 26, 1999
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
