<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. 15
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust: Sentry Variable Life Account I
B. Name of Depositor: Sentry Life Insurance Company
C. Complete Address of Depositor's Principal Executive Offices:
1800 North Point Drive, Stevens Point, WI 54481
D. Name and Address of Agent for Service:
William M. O'Reilly, Esq.
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ x] on May 1, 1999 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 ............................ Not Applicable
41(a) ............................ Distribution of the Policy
42 ............................ Not Applicable
43 ............................ Not Applicable
44 ............................ The Policy
45 ............................ Not Applicable
46 ............................ Policy Benefits and Rights
47 ............................ Not Applicable
48 ............................ Not Applicable
49 ............................ Not Applicable
50 ............................ Not Applicable
51 ............................ The Company, The Policy
52 ............................ Investments of the Variable Life Account
53 ............................ Federal Tax Status
54 ............................ Financial Statements
55 ............................ Not Applicable
</TABLE>
2
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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 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>
<S> <C>
Definitions .................................................................4
Summary .....................................................................6
Sentry Life Insurance Company ..............................................8
The Variable Life Account ...................................................8
Investments of the Variable Life Account ....................................9
Initial Investment Selection ..............................................9
Transfers .................................................................9
Telephone Transfers .......................................................9
Neuberger Berman Advisers Management Trust ...............................10
Substitution of Securities ...............................................11
The Policy .................................................................12
General ..................................................................12
How to Purchase a Policy .................................................12
Medical Examination ......................................................12
Right to Exchange the Policy .............................................12
Illustrations ............................................................13
Premiums ...................................................................13
Maximum Premium Limitations ..............................................14
Death Benefit Guarantee ..................................................14
Grace Period .............................................................14
Reinstatement ............................................................15
Charges and Deductions .....................................................15
Deductions from Premiums .................................................15
Deductions from the Variable Life Account ................................15
Deductions from Cash Value ...............................................16
Deductions from Surrendered Values .......................................16
Trust and Managers Trust Annual Expenses .................................18
Group Arrangements .......................................................19
Policy Benefits and Rights .................................................19
Death Benefit ............................................................19
Death Benefit Options.....................................................20
Corridor Percentages .....................................................20
Changing the Death Benefit Options........................................20
Changing the Specified Amount ............................................21
Effect of Changing the Specified Amount ..................................21
Policy Maturity ..........................................................22
Cash Value ...............................................................22
Determination of Accumulation Unit .......................................22
Policy Surrender ...........................................................23
Partial Surrender ........................................................23
Full Surrender ...........................................................23
Policy Loans ...............................................................24
Allocation of Loans.......................................................24
Interest Charged .........................................................24
Interest Credited.........................................................24
Lapse Due to Loan.........................................................24
Loan Repayment ...........................................................24
</TABLE>
2
<PAGE> 5
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<S> <C>
Other Policy Provisions ....................................................25
Policy Owner .............................................................25
Contingent Policy Owner ..................................................25
Changing the Policy Owner of Contingent Policy Owner .....................25
Beneficiary ..............................................................25
Changing the Beneficiary .................................................25
Assignment ...............................................................25
Incontestability .........................................................25
Misstatement of Age or Sex ...............................................26
No Dividends .............................................................26
Optional Settlement Plans ................................................26
Suspension of Payments .....................................................26
Federal Tax Status .........................................................27
Introduction .............................................................27
Modified Endowment Contract ..............................................27
Diversification ..........................................................28
Tax Treatment of the Policy ..............................................29
Policy Proceeds ..........................................................29
Multiple Policies ........................................................29
Tax Treatment of Assignments .............................................29
Qualified Plans ..........................................................29
Income Tax Withholding ...................................................30
Variable Life Account Voting Rights ........................................30
Disregard of Voting Instructions .........................................30
Management of the Company ..................................................31
Directors and Officers ...................................................31
Distribution of the Policy .................................................31
State Regulation ...........................................................31
Reports to Owners ..........................................................32
Legal Proceedings ..........................................................32
Experts ....................................................................32
Legal Opinions .............................................................32
Financial Statements .......................................................32
Appendix A - Illustration of Benefits ......................................34
</TABLE>
3
<PAGE> 6
DEFINITIONS
Following are definitions of certain terms used in this Prospectus.
Anniversary Date or The same day and month each year calculated from
Policy Anniversary 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 30-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.
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<PAGE> 7
DEFINITIONS (CONTINUED)
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.
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, shown on the specification page of
the 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.
5
<PAGE> 8
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.
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 four available Portfolios 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.
6
<PAGE> 9
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 "The
Policy-Illustrations."
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 Charge - 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.
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
7
<PAGE> 10
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 benefits 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
in 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.
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.
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<PAGE> 11
- 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 30-day period starting on
the date the Company issues the Policy), 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 30-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:
a. the amount to be transferred
b. the Portfolio the transfer is being made from, and
c. 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.
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:
9
<PAGE> 12
(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 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.
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.
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
10
<PAGE> 13
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 Portfolio 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 Portfolio becomes inappropriate in view of the Variable Life
Account's purposes, the Company may substitute another Portfolio 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.
11
<PAGE> 14
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.
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.
12
<PAGE> 15
"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
- 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 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.
PREMIUMS
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
Minimum Premium premiums, 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>
<CAPTION>
Planned Premium
Frequency of Payment Minimum Amount
-------------------- --------------
<S> <C>
Annual $200
Semi-Annual $125
Quarterly $ 75
Monthly $ 15
(Automatic Bank Withdrawal Only)
</TABLE>
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
13
<PAGE> 16
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
Premiums $50 at 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.
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 payment is to be applied to the
outstanding Policy loan.
MAXIMUM PREMIUM LIMITATIONS
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.
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 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 month 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.
14
<PAGE> 17
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
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.
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%.
DEDUCTIONS FROM THE VARIABLE LIFE ACCOUNT
Mortality and The Company deducts a mortality and expense risk
Expense Risk premium equal, on an annual basis to 0.90% of the
Premium daily net asset 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
Guarantee Risk charge which is equal on an annual basis to 0.15% of
Charge the daily net 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
15
<PAGE> 18
Subaccount. The Company does not currently make a
deduction for income taxes.
DEDUCTIONS FROM CASH VALUE
Monthly The Company makes a monthly deduction from the Cash
Deduction Value of the 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.
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.
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.
DEDUCTIONS FROM SURRENDERED VALUES
Full Surrender If you totally surrender the Policy prior to the
Charge Maturity Date, the Company may impose a full
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.
16
<PAGE> 19
<TABLE>
<CAPTION>
Completed Policy Years Applicable Percentages
---------------------- ----------------------
<S> <C>
0-4 100
5 80
6 60
7 40
8 20
9+ 0
</TABLE>
The 4 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 on the first $100,000 of the Specified
Amount, plus $1.50 per $1,000 on 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 Target
Surrender Premium is show on the specifications
page of the Policy and is calculated to be less
than or equal to the guideline annual premium
as defined in the applicable rules and
regulations 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 on 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.
Federal securities laws limit the sales load that can
be charged. The total of all front-end sales charges
and deferred sales charges applicable to the Policy
will not exceed the federal limitation.
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.
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
17
<PAGE> 20
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
Charge of 2% of 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.
TRUST AND MANAGERS TRUST ANNNAL 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 undertaken to
reimburse the Liquid Asset Portfolio for certain operating expenses, including
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.
18
<PAGE> 21
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 4 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.
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.
19
<PAGE> 22
Corridor Percentages
<TABLE>
<CAPTION>
Age % Age % Age %
--- - --- - --- -
<S> <C> <C> <C> <C> <C>
40 or less 250 55 150 70 115
41 243 56 146 71 113
42 236 57 142 72 111
43 229 58 138 73 109
44 222 59 134 74 107
45 215 60 130 75 105
46 209 61 128 76 105
47 203 62 126 77 105
48 197 63 124 78 105
49 191 64 122 79-90 105
50 185 65 120 91 104
51 178 66 119 92 103
52 171 67 118 93 102
53 164 68 117 94 101
54 157 69 116 95+ 100
</TABLE>
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.
<TABLE>
<CAPTION>
Effect of Increased Cash Value on Death Benefit Options
- -------------------------------------------------- --------------------------------------------------------
<S> <C>
Option 1 Option 2
- -------------------------------------------------- --------------------------------------------------------
Decreases amount of the monthly deductions Increases the Policy's death benefit
and the amount of premium necessary to keep
the Policy in effect.
- -------------------------------------------------- --------------------------------------------------------
Increases the amounts available for Policy loans Increases the amounts available for Policy loans and
and surrenders. and 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.
20
<PAGE> 23
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.
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. 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 5% (8.08% gross investment return).
The following table shows the effect on Cash Values and Cash Surrender
Values under 3 alternatives:
21
<PAGE> 24
(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 5 years after the policy is issued.
<TABLE>
<CAPTION>
No change in Increase in Specified Decrease in Specified
Specified Amount Amount to $250,000 Amount to $50,000
---------------- ------------------ -----------------
Cash Cash Cash
End of Cash Surrender Cash Surrender Cash Surrender
Policy Yr. Value Value Value Value Value Value
<S> <C> <C> <C> <C> <C> <C>
5 $ 6,586 $ 6,004 $ 6,586 $ 6,004 $ 6,586 $ 6,004
6 8,105 7,668 10,528 8,932 7,300 6,863
7 9,696 9,405 14,663 13,212 8,046 7,755
10 14,940 14,940 28,328 27,400 10,495 10,495
20 38,636 38,636 90,775 90,775 21,359 21,359
Age 65 55,504 55,504 135,742 135,742 28,941 28,941
</TABLE>
Explanation: The premium paid in all cases is assumed to be equal to
the minimum death benefit guarantee premium, which would be $1,511 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 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 (Portfolio 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
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<PAGE> 25
Initially, the value of an 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 premum
and any other charges such as taxes the Company has deducted; and
(3) dividing this amount by the number of outstanding Accumulation
Units.
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.
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<PAGE> 26
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.
- 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
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<PAGE> 27
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.
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 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 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
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<PAGE> 28
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.
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:
Plan 1 The Company will hold the Policy proceeds and make payments
Proceeds Held at the times and in the amounts that you and the Company
at Interest agree on, as long as the Policy remains in effect. 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 as long as the payee
Lifetime Payments lives. A guaranteed number of payments may be chosen. If the
with a Guarantee payee dies before the guaranteed number of payments has been
made, the Company will continue the payments until the
guaranteed number of payments has been made.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone any payment under the
Policy when:
(1) the New York Stock Exchange is closed on other than customary
weekend and holiday closings;
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists 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.
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<PAGE> 29
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, 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 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.
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 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 Internal Revenue Code of 1986, as amended; 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.
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<PAGE> 30
If a policy is not classified as a modified endowment contract, then any
surrenders will be treated first as a recovery of the investment in the policy
which would not be received as taxable income. However, if a distribution is the
result of a reduction in benefits under the policy within the first 15 years
after the policy is issued in order to comply with Section 7702, such
distribution will, under rules set forth in Section 7702, be taxed as ordinary
income to the extent of income in the policy.
Any loan from a policy that is not classified as a modified endowment contract
will be treated as indebtedness of the Policy Owner and not as a distribution.
Upon complete surrender or when maturity benefits are paid, if the amount
received plus loan indebtedness exceeds the total premiums paid that are not
treated as previously surrendered by the Policy Owner, the excess generally will
be treated as ordinary income.
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 Internal Revenue
Code of 1986, as amended (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.
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 Internal Revenue Service in which it was held that a Policy owner
was not the owner of the assets of a separate account. It is unknown whether
28
<PAGE> 31
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 that the Internal Revenue Service will not concur with the Company's
interpretations of Section 7702 that were made in determining such compliance.
In the event the Policy is determined not to comply, it would not qualify for
the favorable tax treatment usually accorded life insurance policies. You should
consult a tax adviser regarding the tax consequences of purchasing the Policy.
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from the
Policy will depend on whether the Policy is considered to be a modified
endowment contract. 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 that are
issued within a calendar year period to the same Policy owner by one company or
its affiliates are treated as one modified endowment contract for purposes of
determining the taxable portion of any loans or distributions. Such treatment
may result in adverse tax consequences including more rapid taxation of the
loans or distributed amounts from 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.
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<PAGE> 32
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.
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.
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<PAGE> 33
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, President, Chairman of the Board, Chief
and Director Executive Officer and 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.
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 following charts shows the levels of compensation paid 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
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<PAGE> 34
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 POLICYOWNERS
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
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 an
independent accounting firm. 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.
FINANCAL 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.
32
<PAGE> 35
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.
[FINANCIAL STATEMENTS TO BE FILED BY AMENDMENT]
33
<PAGE> 36
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
fact that the net investment return of the Subaccounts is lower than the gross
investment return on the assets held in the Portfolios because of the charges
levied against the Subaccounts. The daily investment management and
administration fee is assumed to be equivalent to an annual rate of 0.75% 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 .21% of the average daily net
assets of the Trust. These assumptions are based on the fee schedule in effect
as of May, 1999. 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 .15% 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%, or 12%
by an amount sufficient to cover the tax charges in order to produce the values
illustrated.
[ILLUSTRATION TABLES TO BE FILED BY AMENDMENT]
<PAGE> 37
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> 38
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 58 pages.
The undertaking to file reports.
The signatures.
Written consents of the counsel, independent accountant and actuary. [TO BE
FILED BY AMENDMENT]
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 [TO BE FILED BY AMENDMENT]
C. Consent of Independent Accountants [TO BE FILED BY AMENDMENT]
D. Consent of Actuary [TO BE FILED BY AMENDMENT]
* 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> 39
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 19th day
of February, 1999.
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> 40
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
s/Dale R. Schuh February 19, 1999
- ------------------------------------------------
Dale R. Schuh, Chairman of the
Board, President and Director
s/William M. O'Reilly February 19, 1999
- ------------------------------------------------
William M. O'Reilly, Secretary and
Director
s/William J. Lohr February 19, 1999
- ------------------------------------------------
William J. Lohr, Treasurer and
Director
s/Janet L. Fagan February 19, 1999
- ------------------------------------------------
Janet L. Fagan, Director
<PAGE> 41
WRITTEN CONSENTS
POST-EFFECTIVE AMENDMENT NO. 15
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
[TO BE FILED BY AMENDMENT]
