<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. 17
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust: Sentry Variable Life Account I
B. Name of Depositor: Sentry Life Insurance Company
C. Complete Address of Depositor's Principal Executive Offices:
1800 North Point Drive, Stevens Point, WI 54481
D. Name and Address of Agent for Service:
William M. O'Reilly, Esq.
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on January 7, 2000, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
E. Title and Amount of Securities Being Registered: Individual Flexible
Premium Variable Life Insurance Policies
F. Approximate date of proposed public offering:
[ ] Check box if it is proposed that this filing will become effective on
(date) at (time) pursuant to Rule 487.
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CROSS REFERENCE TO ITEMS REQUIRED BY FORM N-8B-2
<TABLE>
<CAPTION>
N-8B-2 Item Caption in Prospectus
- ----------- ---------------------
<S> <C> <C>
1 ............................ The Company, The Variable Life Account
2 ............................ The Company
3 ............................ Not Applicable
4 ............................ Distribution of the Policy
5 ............................ The Variable Life Account
6(a) ............................ Not Applicable
(b) ............................ Not Applicable
9 ............................ Legal Proceedings
10 ............................ The Policy
11 ............................ Investments of the Variable Life Account
12 ............................ Investments of the Variable Life Account
13 ............................ Charges and Deductions
14 ............................ The Policy
15 ............................ The Variable Life Account
16 ............................ Investments of the Variable Life Account
17 ............................ Policy Benefits and Rights
18 ............................ The Policy
19 ............................ Not Applicable
20 ............................ Not Applicable
21 ............................ Not Applicable
22 ............................ Not Applicable
23 ............................ Not Applicable
24 ............................ Not Applicable
25 ............................ The Company
26 ............................ Management of the Company
27 ............................ The Company
28 ............................ The Company, Management of the Company
29 ............................ The Company
30 ............................ The Company
31 ............................ Not Applicable
32 ............................ Not Applicable
33 ............................ Not Applicable
34 ............................ Not Applicable
35 ............................ The Company
37 ............................ Not Applicable
38 ............................ Distribution of the Policy
39 ............................ Distribution of the Policy
40(a) ............................ Distribution of the Policy
41(a) ............................ Distribution of the Policy
42 ............................ Not Applicable
43 ............................ Distribution of the Policy
44 ............................ The Policy
45 ............................ Not Applicable
46 ............................ Policy Benefits and Rights
47 ............................ Not Applicable
48 ............................ Not Applicable
49 ............................ Not Applicable
50 ............................ Not Applicable
51 ............................ The Company, The Policy
52 ............................ Investments of the Variable Life Account
53 ............................ Federal Tax Status
54 ............................ Financial Statements
55 ............................ Not Applicable
</TABLE>
<PAGE> 3
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
Issued by
SENTRY VARIABLE LIFE ACCOUNT I
and
SENTRY LIFE INSURANCE COMPANY
The life insurance policy described in this Prospectus is a flexible premium
variable life insurance policy (the "Policy") offered by Sentry Life Insurance
company designed for individuals. The Policy provides life insurance protection
until the Policy Anniversary Date on or after your 95th birthday.
You can allocate the Cash Value of the Policy to the Sentry Variable Life
Account I (the "Variable Life Account"), which is a segregated investment
account of Sentry Life Insurance Company. The Variable Life Account invests in
shares of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series,
Inc., and Janus Aspen Series, Inc., each an open-end diversified management
investment company. Through the Variable Life Account, you may invest in the
following Portfolios:
<TABLE>
<CAPTION>
T. Rowe Price Fixed Income Series, Inc. T. Rowe Price Equity Series, Inc.
--------------------------------------- ---------------------------------
<S> <C>
- T. Rowe Price Prime Reserve Portfolio - T. Rowe Price Personal Strategy Balanced Portfolio
- T. Rowe Price Limited-Term Bond Portfolio
Janus Aspen Series
------------------
- Aggressive Growth Portfolio
</TABLE>
As the owner of the Policy, you may choose one or more Portfolios in which to
invest; however, you will bear the complete investment risk for the amount you
allocate to the Variable Life Account. The Cash Value of your Policy, and under
certain circumstances, the death benefit, may increase or decrease depending on
the investment experience of the Variable Life Account.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectuses for T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc., and Janus Aspen Series accompany 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 January 7, 2000
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Definitions .................................................................................................. 4
Summary ...................................................................................................... 5
The Company .................................................................................................. 7
The Variable Life Account .................................................................................... 8
Investments of the Variable Life Account ..................................................................... 8
Initial Investment Selection ............................................................................... 8
Transfers .................................................................................................. 8
Telephone Transfers ........................................................................................ 9
T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., and Janus Aspen Series ......... 9
Substitution of Securities ................................................................................. 10
The Policy ................................................................................................... 10
General .................................................................................................... 10
How to Purchase a Policy ................................................................................... 11
Free Look .................................................................................................. 11
Medical Examination ........................................................................................ 11
Right to Exchange the Policy ............................................................................... 11
Illustrations .............................................................................................. 12
Premiums ..................................................................................................... 12
Maximum Premium Limitation ................................................................................. 13
Death Benefit Guarantee .................................................................................... 13
Grace Period ............................................................................................... 13
Reinstatement .............................................................................................. 13
Charges and Deductions ....................................................................................... 14
Deductions from Premiums ................................................................................... 14
Deductions from the Variable Life Account .................................................................. 14
Deductions from Cash Value ................................................................................. 14
Deductions from Surrendered Values ......................................................................... 15
Annual Expenses of Portfolios of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc.,
and, Janus Aspen Series ................................................................................... 16
Group Arrangements ......................................................................................... 17
Policy Benefits and Rights ................................................................................... 17
Death Benefit .............................................................................................. 17
Death Benefit Options ...................................................................................... 17
Corridor Percentages ....................................................................................... 18
Changing Death Benefit Options ............................................................................. 18
Changing the Specified Amount .............................................................................. 19
Effects of Changing the Specified Amount ................................................................... 19
Policy Maturity ............................................................................................ 20
Cash Value ................................................................................................. 20
Determination of Accumulation Unit ......................................................................... 20
Policy Surrender ............................................................................................. 21
Partial Surrender .......................................................................................... 21
Full Surrender ............................................................................................. 21
Policy Loans ................................................................................................. 21
Allocation of Loans ........................................................................................ 22
Interest Charged ........................................................................................... 22
Interest Credited .......................................................................................... 22
Lapse Due to Loan .......................................................................................... 22
Loan Repayment ............................................................................................. 22
</TABLE>
2
<PAGE> 5
TABLE OF CONTENTS (CONTINUED)
<TABLE>
<CAPTION>
Page
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<S> <C>
Other Policy Provisions .................................................................................. 23
Policy Owner .......................................................................................... 23
Contingent Policy Owner ............................................................................... 23
Changing the Policy Owner or Contingent Policy Owner................................................... 23
Beneficiary ........................................................................................... 23
Changing the Beneficiary .............................................................................. 23
Assignment ............................................................................................ 23
Incontestability ...................................................................................... 23
Misstatement of Age or Sex ............................................................................ 23
No Dividends .......................................................................................... 23
Optional Settlement Plans ............................................................................. 24
Suspension of Payments ................................................................................... 24
Federal Tax Status ....................................................................................... 24
Introduction .......................................................................................... 24
Modified Endowment Contract ........................................................................... 25
Diversification ....................................................................................... 26
Tax Treatment of the Policy ........................................................................... 26
Policy Proceeds ....................................................................................... 27
Multiple Policies ..................................................................................... 27
Tax Treatment of Assignments .......................................................................... 27
Qualified Plans ....................................................................................... 27
Income Tax Withholding ................................................................................ 27
Variable Life Account Voting Rights ...................................................................... 27
Voting Instructions Disregarded ....................................................................... 28
Management of the Company ................................................................................ 28
Directors and Officers ................................................................................ 28
Distribution of the Policy ............................................................................... 28
State Regulation ......................................................................................... 29
Reports to Policy Owners ................................................................................. 29
Legal Proceedings ........................................................................................ 30
Experts .................................................................................................. 30
Legal Opinions ........................................................................................... 30
Financial Statements ..................................................................................... 30
Appendix A - Illustration of Benefits .................................................................... 73
</TABLE>
3
<PAGE> 6
DEFINITIONS
Following are definitions of certain terms used in this Prospectus.
<TABLE>
<S> <C>
Anniversary Date or Policy Anniversary Date The same day and month each year calculated from the date
the Policy was first issued (Policy Date).
Beneficiary The person named in the application, unless changed, entitled to receive the
death benefit when it becomes payable.
Cash Surrender Value The amount available in cash, after deducting any outstanding policy loans and
the full surrender charge, if you voluntarily terminate the Policy before it
matures or before the death benefit is paid.
Cash Value The amount available in cash, without deducting any outstanding policy loans or
surrender charges, if you voluntarily terminate the Policy before it matures or
before the death benefit is paid. It is equal to the sum of all Subaccount Cash
Value and any Cash Value held in the General Account to secure a policy loan.
Company Sentry Life Insurance Company at its home office located at 1800 North Point
Drive, Stevens Point, WI 54481, telephone (800)533-7827.
Mutual Fund(s) The Mutual Funds designated in the Policy as investment options of the Variable
Life Account.
General Account The General Account of the Company. The Variable Life Account is separate from
the General Account.
Initial Investment Period The 25-day period immediately following the date the Policy is issued.
Insured The person whose life is covered under the Policy. It is assumed the Insured
and the Policy Owner are the same person and both are referred to as "you" in
this Prospectus.
Maturity Date The date on which you will be paid the Cash Value of the Policy, less any
outstanding Policy indebtedness, PROVIDED the Policy is in effect on that date.
The Maturity Date is the anniversary date of the Policy on or after your 95th
birthday.
Monthly Processing Day The day each month when charges under the Policy are deducted from the Variable
Life Account.
Net Premiums Gross premiums less any amounts deducted for front-end sales charges and premium
taxes.
Policy Date The day, month and year that the Policy becomes effective and from which the
Policy Anniversary Date is determined.
Policy Issue Date The day, month and year that underwriting is completed and the Company issues
the Policy.
Policy Month The period of time starting on one Monthly Processing Day and ending the day
before the next Monthly Processing Day.
Policy Owner The person named as the owner of the Policy on the application, unless
subsequently changed. It is assumed the Insured and the Policy Owner are the
same person and both are referred to as "you" in this Prospectus.
Policy Year The period of time from one Policy Anniversary Date to the day before the next
Policy Anniversary Date.
Portfolio An investment option that is a segment of a Mutual Fund constituting a separate
and distinct class of shares.
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C>
Specified Amount The amount of the initial death benefit payable under the Policy, plus or minus
any subsequent changes to that amount.
Subaccount A segment of the Variable Life Account that invests in a Mutual Fund or
Portfolio.
Target Surrender Premium The premium, which is shown on the specification page of your Policy, that is
used to calculate the deferred sales charge. The Target Surrender Premium is
based on the guideline annual premium pursuant to rules adopted under the
Investment Company Act of 1940.
Valuation Date The date on which the Cash Value of the Policy is determined. The Valuation
Date is each day that the New York Stock Exchange is open for trading.
Valuation Period The period from 4:00 p.m. E.S.T. on each Valuation Date to 4:00 p.m. E.S.T. on
the next succeeding Valuation Date.
</TABLE>
SUMMARY
The Policy described in this Prospectus is a flexible premium individual
variable life insurance policy. You can allocate premium payments, less
applicable charges, to the Variable Life Account for investment. The Variable
Life Account is a separate account established by Sentry Life Insurance Company
(the "Company"). Through the Variable Life Account, you can invest in the
following Portfolios:
T. Rowe Price Fixed Income Series, Inc.
- Prime Reserve Portfolio
- Limited-Term Bond Portfolio
T. Rowe Price Equity Series, Inc.
- Personal Strategy Balanced Portfolio
Janus Aspen Series
- Aggressive Growth Portfolio
POLICY FEATURES
The Policy offers the following features:
FLEXIBLE PREMIUM PAYMENTS - The frequency and amount of premium payments can
vary, subject to certain minimum requirements. Premium payment plans are
available.
CASH VALUE - The Policy's Cash Value can be used to obtain a Policy loan, and,
if the Policy is surrendered, determines the surrender value. Depending on the
investment experience of the Variable Life Account, the Cash Value of your
Policy may increase or decrease. The Cash Value will vary with the amount of
monthly charges deducted. There is no minimum guaranteed Cash Value.
POLICY LOANS - The Policy may be used to secure a loan from the Company. The
maximum loan amount is 90% of (a) MINUS (b), where:
(a) is the Policy's Cash Value, and
(b) is the full surrender charge.
SURRENDER - The Policy can be partially surrendered or completely surrendered
for the full Cash Surrender Value. The Company will deduct any applicable
surrender charges.
DEATH BENEFIT - There are two death benefit options available under the Policy.
The amount of the death benefit will depend on three factors:
- the death benefit option selected;
- the Specified Amount of death benefit; and
- the Cash Value of the policy.
Under certain circumstances, the death benefit may increase or decrease
depending on the investment experience of the Variable Life Account.
5
<PAGE> 8
GUARANTEED DEATH BENEFIT - Provided you have met certain minimum premium payment
requirements and certain other requirements, the Policy will not lapse and the
Company guarantees a death benefit.
POLICY MATURITY - If the Policy is in effect on the Policy Anniversary Date on
or after your 95th birthday, the Company will pay you the Cash Value of the
Policy, less any amounts owed for policy loans.
EXCHANGE RIGHT - Within 24 months after the Policy is issued, you may exchange
it for a life insurance policy on the life of the Insured offered by the Company
that has a fixed premium and a fixed death benefit. Any outstanding Policy loans
must be repaid before an exchange will be made.
INVESTMENT OPTIONS - You may select from among the four available Portfolios in
which to invest the assets underlying the Policy. Subject to certain conditions
and charges, you may make transfers among the Portfolios.
FREE-LOOK PROVISION - Subject to varying state law and certain time
restrictions, the Policy may be returned to the Company if you change your mind
about purchasing it. The Policy will be canceled as if it were never issued and
the Company will refund any premiums you paid.
GRACE PERIOD - Provided certain conditions are met, there is a 61-day grace
period in which the Policy will remain in effect even if a premium payment or
loan repayment is not made.
CHARGES AND DEDUCTIONS
Below is a summary of the charges and deductions that are applied to the Policy
described in this Prospectus. For a more complete explanation of these charges
and deductions, see the sections titled "Charges and Deductions" and "Appendix
A-Illustrations of Benefits."
FROM PREMIUM
Front-end Sales Expense Charge - 5% of each premium payment. (There is also
a deferred sales charge of 25% of the Target Surrender Premium or 25% of the
actual premium paid in the first Policy Year, if less. Together these
charges total 30%.)
PREMIUM TAXES - Premium taxes are assessed by the state in which you reside
and currently vary by state from 0% to 3.5%.
FROM THE VARIABLE LIFE ACCOUNT
Mortality and Expense Risk Premium - Equal on an annual basis to 0.90% of
the daily net asset value of the Variable Life Account.
Death Benefit Guarantee Risk Charge - Equal on an annual basis to .15% of
the daily net asset value of the Variable Life Account.
Taxes - The Company is not currently making a deduction for income taxes
resulting from the investment operation of any Subaccount; however, it
reserves the right to do so at any time.
FROM CASH VALUE
Monthly Deduction - Deducted from Cash Value at the beginning of each Policy
Month and consists of:
Cost of Insurance for the Policy and any additional benefits provided by
rider for the Policy Month; and
Monthly Administrative Fee - $5 per Policy Month.
FROM SURRENDER VALUES
Partial Surrender Charge - A percentage of the full surrender charge.
Partial Surrender Administrative Fee - The lesser of 2% of the amount
surrendered or $25.
6
<PAGE> 9
Full Surrender Charge - If there is no increase in the Specified Amount, it
remains the same for the first 5 Policy Years and declines in policy years 6
through 9 until it is zero. It is the sum of the following:
Contingent Deferred Administrative Expense Charge - $3.50 per $1,000 on
the first $100,000 of Specified Amount, plus $1.50 per $1,000 on the
excess above the first $100,000 of Specified Amount. The maximum
contingent deferred administrative expense charge is $750;
Deferred Sales Charge - 25% of the Target Surrender Premium or of the
actual premium paid in the first Policy Year, if less; and
Additional Contingent Deferred Administrative Expense Charge and Deferred
Sales Charge which result from an increase in the Specified Amount.
Other Charges and Fees
Maximum Transfer Fee - $25
Maximum Service Fee for Additional Projections - $25
T. ROWE PRICE FIXED INCOME SERIES, INC., T. ROWE PRICE EQUITY SERIES, INC., AND
JANUS ASPEN SERIES
There are annual operating expenses (including investment management and
administrative fees) paid out of the assets of the Portfolios.
RISK FACTORS
Following is a summary of the risks associated with the Policy:
INVESTMENT RISK - You will bear the complete investment risk for all Net
Premiums you allocate to the Variable Life Account. If the invested assets of
the Variable Life Account experience poor investment performance, the Cash Value
and, under certain circumstances, the death benefit of the Policy may decrease.
The Policy is not intended to be, nor is it suitable as, a short-term savings
vehicle.
POLICY LAPSE - Certain charges are deducted monthly from the Cash Value of the
Policy. If the guaranteed death benefit is not in effect and if the Cash Value
is insufficient to cover the monthly charges, and sufficient premiums are not
made during the 61-day grace period, the Policy will lapse and all coverage will
terminate without value.
LIMITATIONS ON CASH VALUE - The Cash Value of the Policy will vary and is not
guaranteed. The investment performance of the Variable Life Account and the
amount of monthly charges deducted affect the Cash Value.
ADVERSE TAX CONSEQUENCES - Your Policy has been designed to comply with the
definition of life insurance in the Internal Revenue Code. As a result, the
death benefit paid under the Policy should be excludable from the gross income
of your Beneficiary. Any earnings in your Policy are not taxed until you take
them out. The tax treatment of the loan proceeds and surrender proceeds will
depend on whether the Policy is considered a Modified Endowment Contract (MEC).
Proceeds taken out of a MEC are considered to come from earnings first and are
includible in taxable income. If you are younger than 59 1/2 when you take money
out of a MEC, you may also be subject to a 10% federal tax penalty on the
earnings withdrawn. Neither the Company nor the Company's registered sales
representatives can provide tax advice. You should consult your own tax adviser
before purchasing or making any changes to the Policy, or before exchanging,
surrendering or taking loans from the Policy.
THE COMPANY
Sentry Life Insurance Company (the "Company") is a life insurance company formed
on October 23, 1958 under the laws of the state of Wisconsin. Its home office is
located at 1800 North Point Drive, Stevens Point, Wisconsin. The Company is
authorized to write life insurance and annuity contracts in the District of
Columbia and in all states except New York. The Company is owned by Sentry
Insurance a Mutual Company ("SIAMCO"). SIAMCO is also a Wisconsin insurance
company and shares its home office with the Company at 1800 North Point Drive,
Stevens Point, Wisconsin. SIAMCO writes property and casualty insurance
nationwide. In addition to the Company, SIAMCO owns and controls, either
directly or indirectly, a group of insurance and related companies, including
Sentry Life Insurance Company of New York and Sentry Equity Services, Inc., a
securities broker-dealer.
7
<PAGE> 10
THE VARIABLE LIFE ACCOUNT
Sentry Variable Life Account I (the "Variable Life Account") was established by
the Company's Board of Directors on February 12, 1985, under the insurance laws
of Wisconsin. The Variable Life Account is registered with the Securities and
Exchange Commission as a unit investment trust pursuant to the Investment
Company Act of 1940. However, this does not mean that the Securities and
Exchange Commission supervises the management of the Variable Life Account or
the Company.
The Variable Life Account is a "segregated asset account." This means:
- The assets of the Variable Life Account are segregated from the assets
of the Company's General Account, but remain the property of the
Company.
- Other than liabilities connected with the Variable Life Account
business, the assets of Variable Life Account cannot be charged with
liabilities incurred by the Company in connection with its other
business.
- The Company does not guarantee the investment performance of the
Variable Life Account.
- The income, gains, and losses, whether realized or unrealized,
associated with the investments made with the Variable Life Account's
assets are credited to or charged against the Variable Life Account
without regard to the Company's other income, gains or losses.
- Company obligations in connection with the Policy are general
corporate obligations of the Company.
INVESTMENTS OF THE VARIABLE LIFE ACCOUNT
Currently, you can allocate Net Premiums (premiums paid, less applicable
deductions) to the Variable Life Account which invests in one or more investment
Portfolios of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc., and Janus Aspen Series at net asset value. The assets of the
Variable Life Account are divided by investment portfolio. This creates a series
of Subaccounts within the Variable Life Account. The Company may, from time to
time, add new investment options.
As the Policy Owner, you may direct the investment of your Net Premiums into one
or more of the available investment options, subject to certain conditions, when
you complete the Policy application. You may change your selection prospectively
without cost by notifying the Company in writing. The change becomes effective
for Net Premiums received after the Company receives your written notice.
INITIAL INVESTMENT SELECTION
Prior to and during the Initial Investment Period (a 25-day period starting on
the date the Company issues the Policy, which corresponds to the 20-day free
look period, plus mailing time), your Net Premiums are invested in the T. Rowe
Price Prime Reserve Portfolio even if you selected one or more different
investment portfolios on the application. At the end of the 25-day Initial
Investment Period, your Cash Value in the T. Rowe Price Prime Reserve 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 investment
selections.
TRANSFERS
Your Net Premiums will continue to be allocated to the Variable Life Account
Subaccounts according to the investment selection you made on the application
unless you request a transfer. You may transfer of all or part of the
Subaccount Cash Values between Portfolio(s) subject to the following conditions:
1. You must request a transfer in writing and you must clearly specify three
things:
- the amount to be transferred
- the Portfolio the transfer is being made from, and
- the Portfolio the transfer is being made to.
2. The minimum amount that can be transferred is $250, or if the Cash Value in
the Subaccount is less than $250, the entire Cash Value will be
transferred.
3. You can only make four transfers in any Policy Year. The Company must
approve additional transfer requests. A request for a transfer from one
Portfolio to two Portfolios, or from two Portfolios to one Portfolio, will
count as one transfer.
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.
8
<PAGE> 11
The Company reserves the right to terminate, suspend or modify the transfer
privilege at any time and without notice.
The Company may add new investment options from time to time, and you may have
the opportunity to select the added investments subject to limitations imposed
by the Company.
TELEPHONE TRANSFERS
Transfers by telephone are permitted if you follow these steps:
(1) Check the "Yes" box in the telephone transfer section of the Policy
application form.
(2) Telephone the Company at (800)533-7827. Be prepared to give the customer
service representative specific information about the Policy, including the
Policy number, and your social security number and/or birth date. You may
be required to provide additional information concerning the Policy in
order to verify that the request is genuine.
(3) Specific detail must be given to the customer service representative as to
the amount to be transferred, the Portfolio the transfer is being made
from, and the Portfolio the transfer is being made to.
Transfers requested before 3 p.m., C.S.T., will take effect that day. Transfers
requests received after 3 p.m. C.S.T. will take effect on the next business day
after the request is received.
To prevent losses due to unauthorized or fraudulent transfer instructions, the
Company will use reasonable procedures to ensure that a telephone transfer
request is genuine. The Company will not be liable for losses incurred in
complying with a telephone transfer request it believes is genuine if reasonable
procedures were followed to confirm the legitimacy of the request.
The Company has the right to reject any telephone transfer request.
T. ROWE PRICE FIXED INCOME SERIES, INC. AND T. ROWE PRICE EQUITY SERIES, INC.,
AND JANUS ASPEN SERIES
On November 17, 1999, the Securities and Exchange Commission issued an order
approving the substitution of shares of certain Portfolios of T. Rowe Price
Equity Series, Inc., T. Rowe Price Fixed Income Series, Inc., and Janus Aspen
Series for shares of the Portfolios of Neuberger Berman Advisers Management
Trust held by the Variable Account to fund variable annuity contracts issued by
the Company as follows:
1. shares of the T. Rowe Price Prime Reserve Portfolio of T. Rowe Price Fixed
Income Series, Inc. for shares of Neuberger Berman AMT Liquid Asset
Portfolio;
2. shares of the T. Rowe Price Limited-Term Bond Portfolio of T. Rowe Price
Fixed Income Series, Inc. for shares of Neuberger Berman AMT Limited
Maturity Bond Portfolio;
3. shares of the T. Rowe Price Personal Strategy Balanced Portfolio of T. Rowe
Price Equity Series, Inc. for shares of Neuberger Berman AMT Balanced
Portfolio; and
4. shares of the Aggressive Growth Portfolio of Janus Aspen Series for shares
of Neuberger Berman AMT Growth Portfolio.
Each Subaccount invests in one Portfolio of T. Rowe Price Fixed Income Series,
Inc., T. Rowe Price Equity Series, Inc. or Janus Aspen Series (collectively,
the Funds).
Shares of the Funds may be 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. Certain Funds may also be
sold directly to qualified plans. The Funds believe that offering their shares
in this manner will not be disadvantageous to you.
The Company may enter into certain arrangements under which it is reimbursed by
the Funds' advisers, distributions and/or affiliates for the administrative
services which it provides to the Portfolios.
The investment objective and policies of certain Portfolios are similar to the
investment objectives and policies of other mutual funds that certain of the
investment advisers manage. Although the objectives and policies may be similar,
the investment results of the Portfolios may be higher or lower than the results
of such other mutual funds. The investment advisers cannot guarantee, and make
no representation, that the investment results of similar funds will be
comparable even though the funds have the same investment advisers.
T. Rowe Price Fixed Income Series, Inc. and T. Rowe Price Equity Series, Inc.,
are diversified open-end management investment companies of the series type.
Both are registered with the Securities and Exchange Commission under the
Investment Company Act of 1940.
9
<PAGE> 12
T. Rowe Price Associates, Inc., located at 100 East Pratt Street, Baltimore
Maryland, 21202, is registered with the Securities and Exchange Commission as an
investment adviser and serves as investment adviser to each of the Portfolios.
As the investment adviser, T. Rowe Price Associates, Inc. is responsible for
selection and management of the Portfolio investments. T. Rowe Price Associates,
Inc. is not affiliated with the Company, and the Company has no legal
responsibility for the management or operation of the Portfolios.
A summary of the investment objective of each Portfolio is set forth below.
There is no assurance that any Portfolio will achieve its objective. More
detailed information is contained in each Portfolio's prospectus, including the
risks associated with the investments and the investment techniques of each
Portfolio.
T. Rowe Price Prime Reserve Portfolio. The investment objectives of the
Prime Reserve Portfolio are preservation of capital, liquidity, and
consistent with these, the highest possible current income. It seeks to
attain these objectives by investing in high-quality, U.S. dollar-
denominated money market securities.
T. Rowe Price Limited-Term Bond Portfolio. The investment objective of the
Limited-Term Bond Portfolio is to seek a high level of income consistent
with moderate fluctuations in principal value by investing primarily in
short- and intermediate-term investment-grade debt securities.
T. Rowe Price Personal Strategy Balanced Portfolio. The investment
objective of the Personal Strategy Balanced Portfolio is to seek the
highest total return over time consistent with an emphasis on both capital
appreciation and income.
Janus Aspen Series is a non-diversified open-end management company series.
Janus Aspen Series is registered with the Securities and Exchange Commission
under the Investment Company Act of 1940. Janus Aspen Series offers 11
Portfolios, one of which, the Aggressive Growth Portfolio, is currently offered
in connection with the Policy.
Janus Capital, 100 Fillmore Street, Denver, Colorado, 80206-4928, registered
with the Securities and Exchange Commission as an investment adviser, is the
investment adviser to Janus Aspen Series and is responsible for the day-to-day
management of the investment portfolio and other business affairs.
Janus Capital is not affiliated with the Company, and the Company has no
responsibility for the management or operations of Janus Aspen Series.
A summary of the investment objective of Janus Aspen Series Aggressive Growth
Portfolio is set forth below. There is no assurance that the Portfolio will
achieve its objective. More detailed information is contained in the Portfolio's
prospectus, including the risks associated with the investments and the
investment techniques of the Portfolio.
Aggressive Growth Portfolio. The Aggressive Growth Portfolio seeks long-
term growth of capital through a non-diversified portfolio that invests
primarily in common stocks of foreign and domestic companies selected for
their growth potential. The Aggressive Growth Portfolio normally invests at
least 50 percent of its equity assets in securities issued by medium-sized
companies.
SUBSTITUTION OF SECURITIES
If a Subaccount is no longer available for investment by the Variable Life
Account, or if the Company's Board of Directors determines that further
investment in a Subaccount becomes inappropriate in view of the Variable Life
Account's purposes, the Company may substitute another Subaccount already
available or that will become available for investment by the Variable Life
Account. No substitution of securities in any Subaccount may take place without
the prior approval of and subject to the requirements of the Securities and
Exchange Commission.
THE POLICY
GENERAL
The Policy described in this Prospectus is an individual flexible premium
variable life insurance policy. The Policy is designed to provide you with
insurance protection and flexibility in determining your premium payments and
death benefit. As long as there is sufficient Cash Surrender Value to pay the
monthly charges, or as long as the guaranteed death benefit is in effect, the
Policy will not lapse.
10
<PAGE> 13
HOW TO PURCHASE A POLICY
Complete an application form and give it to your sales representative or send it
to:
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
The first premium payment is due on or before the date the Policy is issued. You
should send your first premium payment with the application.
Restrictions:
- The Company will not accept your application for the Policy if you are
older than age 75.
- All applications are subject to the Company's underwriting standards,
and the Company may, in its sole discretion, reject any application
for any reason.
- The initial Specified Amount of the death benefit is subject to the
Company's administrative rules. Currently, the initial Specified
Amount must be at least $50,000.
FREE LOOK
If you change your mind about purchasing the Policy, you can return it to the
Company at the address given on page 1, or to your sales representative. You
must return the Policy within 20 days (or longer in states where required) from
the date you receive it. When the Company receives the returned Policy, it will
be canceled as if it had never been issued and any premiums you paid will be
refunded. During the underwriting process and during the free look period, your
initial premium payment is allocated to the T. Rowe Price Fixed Income Series,
Inc., Prime Reserve Portfolio. See "Initial Investment Selection" on page 8.
MEDICAL EXAMINATION
Insurance underwriting is designed to group applicants of the same age and sex
into categories that can be expected to produce mortality experience consistent
with that class. Based on the Company's underwriting practices, you may be
required to obtain a medical examination. Your sales representative will advise
you if it is necessary. The cost of insurance, which is deducted monthly from
Cash Value, is determined in part on your age, sex, and risk class. There are
four risk classes:
- standard non-smoker
- special smoker
- substandard smoker
- medically substandard
RIGHT TO EXCHANGE POLICY
Within 24 months after the Policy Issue Date, you may exchange it for a
permanent fixed premium, fixed benefit life insurance policy issued by the
Company, subject to the following conditions:
(1) The person insured cannot be changed.
(2) Any outstanding Policy loans must be repaid and any other charges or
fees due must be paid.
(3) The new policy will have the same Policy Issue Date, issue age, and risk
classification as the original Policy.
(4) The Policy Owner and the Beneficiary of the new policy will be the same as
the Policy Owner and Beneficiary of the original Policy
(5) You may select the amount of the death benefit under the new policy, but it
must be equal to either:
a) the initial Specified Amount of the original Policy, OR
b) the net amount at risk under the original Policy on the date of
exchange.
"Net amount at risk" means the difference between the death benefit and
the Cash Value of the Policy.
In order to exchange the Policy, you must take the following action:
- send a written request for exchange to the Company,
- return the original Policy to the Company, and
- pay any outstanding loan amounts or other charges due under the
original Policy.
11
<PAGE> 14
If the Policy's Specified Amount is increased from the initial Specified Amount,
and the increase is not due to a change in the death benefit option, the amount
of the increase can be exchanged for a permanent fixed premium, fixed benefit
life insurance policy issued by the Company. The death benefit payable under the
new policy will equal the Specified Amount increase. You may be able to transfer
the Cash Value attributable to the Specified Amount increase under the original
Policy to the new policy. The Cash Value attributable to the increase is the
amount by which total premiums paid exceed the maximum premium limitation (see
"Maximum Premium Limitation" on page 12) 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 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.
12
<PAGE> 15
Unless you instruct otherwise, all payments the Company receives will be
considered premium payments, even if there is a loan outstanding. If you are
making a loan repayment, you must state that the payment is to be applied to the
outstanding Policy loan.
MAXIMUM PREMIUM LIMITATION
In order to comply with federal tax law, the Company will limit the total amount
of premiums, both planned and additional, that may be paid during each Policy
Year. This is the "maximum premium limitation." Because the maximum premium
limitation is dependent in part on the Policy's Specified Amount, changes in the
Specified Amount may affect this limitation. In the event you pay a premium
which causes the maximum premium limitation to be exceeded, the Company will
accept only that portion of the premium up to the maximum limitation and return
the excess to you. Thereafter, no premiums will be accepted until they do not
exceed the maximum premium limitation.
DEATH BENEFIT GUARANTEE
If the minimum premium requirement described below is met, the Policy will not
lapse, even if the Cash Surrender Value is insufficient to cover the monthly
deductions when due.
The minimum premium requirement is met when the sum of all premiums paid is not
less than:
(1) the sum of all monthly death benefit guarantee premiums as shown on the
specifications page of the Policy, PLUS
(2) the current Policy indebtedness, PLUS
(3) the sum of all partial surrenders, partial surrender charges, and partial
surrender administrative fees, PLUS
(4) the sum of all monthly deductions for any additional benefits provided by a
rider to the Policy.
All sums in the minimum premium requirement include values for the current
Policy Month.
The initial monthly death benefit guarantee premium is shown on the
specifications page of your Policy. This premium will change if you increase or
decrease the Specified Amount or if you change the death benefit option. At the
time of the change, the Company will recalculate the monthly death benefit
guarantee premium based on your age, the death benefit option you have chosen,
and the new Specified Amount. Any change in the amount of the death benefit
guarantee premium will be shown on a Policy amendment which the Company will
send to you.
GRACE PERIOD
If the death benefit guarantee is not in effect, and if the Cash Surrender Value
is not sufficient to cover the monthly deduction when due, a grace period of 61
days will be allowed for you to make a premium payment or a loan repayment which
is sufficient to cover the monthly deduction. The grace period begins on the
Monthly Processing Day during which there is insufficient Cash Surrender Value.
The Company will mail a notice to your last known address that the grace period
is in effect.
The Policy will not lapse during the grace period. During the grace period, the
death benefit will equal the amount of death benefit in effect immediately prior
to the grace period, less any outstanding Policy loans and unpaid charges.
Under certain circumstances, even if there is insufficient Cash Surrender Value
to cover the monthly deduction, the Policy will not lapse if the death benefit
guarantee is in effect.
REINSTATEMENT
After a lapse, you may request that the Policy be reinstated. Policy
reinstatement is subject to the following conditions:
- You must request reinstatement in writing and it must be received by the
Company's home office within three years from the date of lapse; AND
- The Company must receive proof that you, or if you were not the Insured,
the person whose life was insured under the Policy, is still insurable;
AND
- You must make a premium payment that is sufficient to cover the monthly
deductions for the first two Policy Months following reinstatement.
The Policy will be reinstated on the next Valuation Date following the date that
all of the above conditions have been met. If you surrender the Policy for its
full Cash Surrender Value, the Company will not reinstate the Policy.
13
<PAGE> 16
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 premium
Expense Risk equal, on an annual basis, to 0.90% of the daily net
Premium 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 charge
Guarantee Risk which is equal, on an annual basis, to 0.15% of the daily
Charge 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 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 Value
Deduction 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
14
<PAGE> 17
"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 Maturity
Charge 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.
Completed Policy Years Applicable Percentages
---------------------- ----------------------
0-4 100
5 80
6 60
7 40
8 20
9+ 0
The four charges used to calculate the full surrender
charge are:
(1) Contingent Deferred Administrative Expense Charge.
This charge is calculated as $3.50 per $1,000 of the
first $100,000 of the Specified Amount, plus $1.50
per $1,000 of the excess above $100,000. The maximum
contingent deferred administrative charge is $750.
This charge covers the administrative expenses in
connection with issuing the Policy.
(2) Deferred Sales Charge. This charge is calculated as
25% of the Target Surrender Premium, or 25% of the
actual premiums you paid in the first Policy Year, if
less. The amount of the Target Surrender Premium is
shown on the specifications page of your Policy and
is calculated to be less than or equal to the
guideline annual premium as defined in the applicable
rules and regulations under the Investment Company
Act of 1940.
(3) Additional Contingent Deferred Administrative Expense
Charge. This charge may result from an increase in
the Specified Amount. The maximum charge is
calculated as $3.50 per $1,000 of the first $100,000
of the Specified Amount increase, plus $1.50 per
$1,000 above $100,000. The maximum charge is $750 for
each increase in the Specified Amount.
(4) Additional Deferred Sales Charge. This charge may
result from an increase in the Specified Amount and
is 25% of the lesser of:
a) the Target Surrender Premium for the increase in
the Specified Amount as shown on the Policy
amendment; or
b) the portion of the actual premiums paid in the
first 12 Policy Months following the effective
date of the increase in the Specified Amount that
exceeds the Target Surrender Premium for the
Policy that was in effect prior to the increase
in the Specified Amount.
15
<PAGE> 18
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.
The full surrender charge as calculated above will be
reduced by the total of all partial surrender charges
previously deducted. In no event will the full surrender
charge be less than zero. There are five factors that
contribute to the maximum surrender charge you could pay.
These factors are your age, your sex, your risk category,
the Specified Amount, and the premium paid during the
first Policy Year or in the year following an increase in
Specified Amount.
<TABLE>
<S> <C> <C>
Examples: Age 35, male,non-smoker, $6.46 per $1,000 of Specified Amount
death benefit option 1
Age 55, male, smoker, $14.22 per $1,000 of Specified Amount
death benefit option 2
Age 75, male, smoker, $40.38 per $1,000 of Specified Amount
death benefit option 2
</TABLE>
A decrease in the Specified Amount will not change any
existing surrender charges.
Partial Surrender The Company may impose this charge when the Policy is
Charge partially surrendered; that is, when you withdraw a
portion of the Cash Value. The partial surrender charge
is a percentage of the full surrender charge equal to the
percentage of Cash Surrender Value being withdrawn. For
example, if the partial withdrawal is 20% of the Policy's
Cash Surrender Value, then 20% of the full surrender
charge will be imposed.
Partial Surrender The Company imposes this charge to compensate it for
Administrative processing the partial surrender. It is the lesser of 2%
Charge 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; however, the deduction for these charges is
not subject to the surrender charge.
ANNUAL EXPENSES OF T. ROWE PRICE FIXED INCOME SERIES, INC., T. ROWE PRICE EQUITY
SERIES, INC., AND JANUS ASPEN SERIES.
There are deductions from and expenses paid out of the assets of the available
Portfolios, which are summarized below. See the accompanying prospectuses for a
complete description.
<TABLE>
<CAPTION>
INVESTMENT MANAGEMENT OTHER TOTAL ANNUAL
PORTFOLIO AND ADMINISTRATION FEES EXPENSES EXPENSES
- --------- ----------------------- -------- --------
<S> <C> <C> <C>
T. Rowe Price Fixed Income Series, Inc.
- T. Rowe Price Prime Reserve 0.55% 0.00% 0.55%
- T. Rowe Price Limited-Term Bond 0.70% 0.00% 0.70%
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Personal Strategy Balanced 0.90% 0.00% 0.90%
Janus Aspen Series
- Aggressive Growth 0.72% 0.03% 0.75%
</TABLE>
Portfolios of T. Rowe Price Fixed Income Series, Inc. and T. Rowe Price Equity
Series, Inc. have an annual all-inclusive Investment Management and
Administrative Fee based on their average daily net assets, which includes all
expenses related to the Portfolios. The Portfolios calculate and accrue the fees
daily. The Investment Management and Administrative Fee for the Janus Aspen
Series are separate from related fees.
16
<PAGE> 19
GROUP ARRANGEMENTS
The following charges and minimum amounts may be reduced or eliminated when the
Policy is issued to individuals or a group of individuals resulting in sales or
administrative expense savings:
- front-end sales charge
- monthly administrative charge
- deferred sales charge
- deferred administrative expense charge
- minimum premium
- minimum amount of insurance
The Company will determine if a group is entitled to have the charges and
minimum amounts reduced or eliminated based on these four factors:
(1) The size and type of group. Generally, sales expenses for larger groups
are less than for small groups because more policies can be issued to a
large group with fewer sales contacts.
(2) The total amount of premium that will be received. Per-policy sales
expenses are likely to be less on larger premiums payments than on
smaller ones.
(3) Any prior or existing relationship with the Company. Per-policy sales
and administrative expenses are likely to be less when an established
relationship exists.
(4) Other group factors may come to light that warrant a reduction or
elimination of the charges and minimum amounts.
From time to time, the Company may modify both the amounts of reductions and the
criteria for qualification, but in no event will reduction or elimination of
these charges or of any other provision of the Policy be permitted if it will be
unfairly discriminatory to any person.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
A death benefit will be payable as long as the Policy is in effect. The death
benefit will be reduced by any outstanding Policy loans and any unpaid charges
applicable to the Policy. If you are the Insured, when you die, the death
benefit will be paid to the named Beneficiary. All or part of the death benefit
may be paid in cash or applied under one or more the optional settlement plans.
DEATH BENEFIT OPTIONS
There are two death benefit options available, and the amount of the death
benefit will depend on the death benefit option in effect at the time of your
death. You may elect one of two options to determine the amount of the death
benefit.
Option 1 The death benefit equals the greater of the Specified Amount
or the Cash Value multiplied by the applicable corridor
percentage.
Option 2 The death benefit is the greater of
(a) the Specified Amount PLUS the Cash Value; or
(b) the Cash Value multiplied by a corridor percentage.
17
<PAGE> 20
The Specified Amount and the Cash Value used to determine the death benefit will
be calculated at the end of the Valuation Period next following the date of your
death.
CORRIDOR PERCENTAGES
AGE % AGE % AGE %
--- --- --- --- --- ---
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
Under both Option 1 and Option 2, premium payments and favorable investment
results will increase the Cash Value. However, increased Cash Value has a
different effect on each option.
Effect of Increased Cash Value on Death Benefit Options
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Option 1 Option 2
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Decreases amount of the monthly deductions and the Increases the Policy's death benefit
amount of premium necessary to keep the Policy
in effect.
- ------------------------------------------------------------------------------------------------------------------------------------
Increases the amounts available for Policy loans and Increases the amounts available for Policy loans and
surrenders surrenders
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Your insurance goals should determine the death benefit option you choose.
Choose Option 1
if you are satisfied with the amount of your life insurance coverage and
prefer to have premium payments and favorable investment results reflect an
increase in Cash Value.
Choose Option 2
if you prefer to have favorable investment results partly reflect an
increase in the death benefit.
CHANGING DEATH BENEFIT OPTIONS
You may change the death benefit option you have selected by sending a written
request to the Company. When the Company approves the request, the change will
take effect on the Monthly Processing Day next following the date the Company
receives the request. A change may result in a new Specified Amount and you may
be asked to provide evidence of insurability satisfactory to the Company before
the change will be made.
A change from Option 2 to Option 1
will increase the Specified Amount by the Policy's Cash Value calculated at
the end of the Valuation Period next following the effective date of the
change. When Option 2 is changed to Option 1, the Company may require
evidence of insurability.
A change from Option 1 to Option 2
will decrease the Specified Amount by the Policy's Cash Value calculated at
the end of the Valuation Period next following the effective date of the
change.
18
<PAGE> 21
Changing the death benefit option will also change the cost-of-insurance charge
for the duration of the Policy. The mortality charge is the same under both
options, but the difference between the death benefit and the Cash Value varies
directly with the Cash Value under Option 1, but is constant under Option 2,
unless the death benefit is determined by applying a corridor percentage.
CHANGING THE SPECIFIED AMOUNT
You may increase or decrease the Specified Amount of the death benefit by
sending a written request to the Company. Any change is subject to the following
conditions:
- The Specified Amount cannot be changed during the first Policy Year.
- The Specified Amount can only be changed once during any subsequent
Policy Year.
- The Specified Amount cannot be less than the minimum Specified Amount,
which is currently $50,000, unless the Company's current rules allow a
lower amount.
A decrease will become effective on the Monthly Processing Day following the
date the Company receives a request and will be effected on a last-in-first-out
basis. That is, for purposes of determining the cost of insurance charge, a
decrease will apply to the Specified Amount provided by the most recent
increase; then the next most recent increase successively; then the initial
Specified Amount. The Company will not permit a decrease in the Specified Amount
if the decrease causes the Policy to violate the maximum premium limitation (see
"Maximum Premium Limitation" on page 12). The Company will impose a deferred
sales charge when the Specified Amount is decreased.
You must submit a supplemental application to request an increase in the
Specified Amount. You will be required to provide satisfactory evidence of
insurability. Any increase approved by the Company will become effective on the
Monthly Processing Day next following the Company's approval. An increase will
not become effective if the Policy's Cash Surrender Value is insufficient to
cover the monthly deduction for the Policy Month following the increase. When
the Specified Amount is increased, you have the right to the free-look and
Policy exchange privileges.
EFFECTS OF CHANGING THE SPECIFIED AMOUNT
Changing the Specified Amount will result in a change in the cost of insurance
charge because the amount of the cost of insurance charge depends on the
difference between the death benefit option in effect and the Cash Value.
In addition, changing the Specified Amount may affect the premium requirement
for the minimum death benefit guarantee.
Whenever the Specified Amount is increased, a separate full surrender charge
will be calculated based on the amount of the increase, unless the increase is
due to a change from death benefit Option 2 to death benefit Option 1. No
increase will be allowed if the Policy does not have sufficient Cash Surrender
Value to support the additional deferred charges. As a condition following an
increase, the Company may require payment of additional premium equal to the
first year minimum premium that would be charged based on the then-age and risk
class for a newly-issued policy with a Specified Amount equal to the amount of
increase. Because the cost of insurance varies directly with the difference
between the death benefit and the Cash Value, an increase in the Specified
Amount will generally require higher premium payments to support the Policy.
Example: Assume a 40-year-old non-smoker buys a $100,000 policy and chooses
death benefit Option 1. Also assume that all policy charges and deductions
are made and that the net investment return after all asset-based charges
are deducted is 6% (7.98% gross investment return). The following table
shows the effect on Cash Values and Cash Surrender Values under three
alternatives:
(1) the Specified Amount is not changed
(2) the Specified Amount is increased to $250,000
(3) the Specified Amount is decreased to $50,000
The changes occur five years after the policy is issued.
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<PAGE> 22
<TABLE>
<CAPTION>
No change in Increase in Specified Decrease in Specified
Specified Amount Amount to $250,000 Amount to $50,000
---------------- ------------------ -----------------
Sum of Cash Sum of Cash Sum of Cash
End of Premiums Cash Surrender Premiums Cash Surrender Premium Cash Surrender
Policy Yr. Paid Value Value Paid Value Value Paid Value Value
---------- ---- ----- ----- ---- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 $ 7,563 $ 6,582 $ 6,000 $ 7,563 $ 6,582 $ 6,000 $ 7,563 $ 6,582 $ 6,000
6 9,076 8,097 7,660 11,931 10,522 8,947 8,121 7,296 6,859
7 10,589 9,683 9,391 16,299 14,652 13,223 8,679 8,042 7,751
10 15,127 14,894 14,894 29,403 28,289 27,379 10,353 10,490 10,490
20 30,253 38,036 38,036 73,084 90,226 90,226 15,934 21,350 21,350
Age 65 57,817 53,891 53,891 94,924 134,196 134,196 18,724 28,929 28,929
</TABLE>
Explanation: The premium paid in all cases is assumed to be equal to the
minimum death benefit guarantee premium, which would be $1,513 at issue,
increases to $4,368 when the Specified Amount is increased to $250,000, and
decreases to $558 when the Specified Amount is decreased to $50,000.
POLICY MATURITY
If the Policy is in effect on the Policy Anniversary Date on or after your 95th
birthday, the Policy will mature and the Cash Value, less any amounts owed for
Policy loans calculated at the end of the Valuation Period following the
Maturity Date, will be paid to you. You may take the Cash Value in a lump sum or
payment can be made under a settlement option acceptable to the Company.
CASH VALUE
The Policy's Cash Value is the sum of the Subaccount Cash Values and any Cash
Value held in the Company's General Account to secure a Policy loan. Cash values
will be determined at the end of every Valuation Period and may change on each
Valuation Date. The Cash Value will vary with the investment performance of the
underlying Portfolios and in relation to the charges deducted and the premiums
paid. THERE IS NO GUARANTEED MINIMUM CASH VALUE.
DETERMINATION OF ACCUMULATION UNIT
An accumulation unit is an accounting unit of measure used to calculate Policy
values. The value of an accumulation unit may vary from Valuation Period to
Valuation Period. Net premiums allocated to a Subaccount are credited in
accumulation units. Charges deducted from a Subaccount, including monthly
deductions, result in cancellation of accumulation units. The number of
accumulation units credited to or canceled from a Subaccount is determined by
dividing the dollar value of the credit or cancellation by the value of one
accumulation unit.
Example: Dollar value of credit (net premium payment) = $100
Value of one Subaccount accumulation unit = $ 10
$100/$10 = 10 accumulation units credited to Subaccount
The Subaccount Cash Value is determined by multiplying the number of
accumulation units attributable to the Subaccount by the value of one
accumulation unit for the Subaccount.
Example: Number of Policy Owner accumulation units
in Subaccount = 250
Value of one Subaccount accumulation unit = $10
250 x $10 = $2,500 Cash Value
Initially, the value of one accumulation unit was set at $10. For each
subsequent Valuation Period, the Company determines the accumulation unit value.
It does this by
(1) determining the total amount of money invested in the particular
Subaccount;
(2) subtracting from that amount the mortality and expense risk premium,
the death benefit guarantee risk charge and any other charges, such as
taxes, the Company has deducted; and
(3) dividing this amount by the number of outstanding accumulation units.
20
<PAGE> 23
POLICY SURRENDER
While the Policy is in effect, you may request a partial or full surrender of
the Policy. Your request for a surrender must meet the following requirements:
- it must be in writing
- it must made while the Policy is in effect
- it must be made during your lifetime
- it must be made prior to the Maturity Date
PARTIAL SURRENDER
A partial surrender is treated as a withdrawal of part of the Policy's Cash
Value. The amount of the surrender will be taken from the Cash Value of the
Subaccount or Subaccounts you designate and will result in cancellation of
Subaccount accumulation units. Unless you specify otherwise, accumulation units
will be canceled from each applicable Subaccount in the ratio that the Cash
Value of each Subaccount bears to the total of all Subaccount Cash Values.
The Company will deduct a partial surrender administrative charge equal to 2% of
the amount surrendered or $25, whichever is less. The Company may also deduct a
partial surrender charge.
The Policy's Cash Value and death benefit will be reduced by the sum of
(1) the amount of the partial surrender, PLUS
(2) the partial surrender administrative charge, PLUS
(3) the partial surrender charge.
If you have selected death benefit Option 1, a partial surrender will cause the
Specified Amount to decrease by the sum of
(1) the amount of the partial surrender, PLUS
(2) the partial surrender administrative charge, PLUS
(3) the partial surrender charge.
While there currently is no limit to the number of partial surrenders that you
can make during a Policy Year, the Company reserves the right to impose a limit.
You should consult your tax adviser as to the possible tax consequences if the
amount of the partial surrender exceeds premiums paid. It may be more
advantageous for you to take out a Policy loan if the need for cash is
temporary.
FULL SURRENDER
Under a full surrender, the Company will pay you the entire Cash Surrender Value
of the Policy and the Policy will terminate. The full Cash Surrender Value is
equal to the Cash Value calculated at the end of the Valuation Period next
following the date on which the Company receives the request for full surrender,
less any outstanding Policy loans and less the full surrender charge. The full
surrender charge is calculated as of the end of the Valuation Period next
following the date on which the Company receives the request for a full
surrender.
POLICY LOANS
As long as the Policy is in effect, you may obtain a loan from the Company using
the Policy as the only security, subject to the following restrictions:
- You cannot make a request before the first Anniversary Date of the
Policy.
- You must make the request in writing.
- The maximum loan amount is 90% of (a) MINUS (b), where:
(a) is the Policy's Cash Value, and
(b) is the full surrender charge at the end of the Valuation Period
during which the loan request is received.
- The maximum amount you can borrow at any one time is the maximum loan
amount, less any outstanding Policy indebtedness, including any other
outstanding Policy loans.
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<PAGE> 24
- If the loan is approved, the Company will send a check within seven
days after it receives the loan request.
- Payment of any loan proceeds may be suspended under certain
circumstances as detailed in the section entitled "Suspension of
Payments."
- Loan proceeds may be taxable if the Policy is a modified endowment
contract. See "Federal Tax Status."
ALLOCATION OF LOANS
At the end of the Valuation Period during which the loan is made, a portion of
the Cash Value equal to the loan amount will be transferred from the Subaccounts
of the Variable Life Account into the General Account of the Company. The amount
transferred to the General Account does not participate in the investment
experience of the Variable Life Account. The amount of any interest due on the
loan that remains unpaid is also transferred to the General Account. These
transfers result in the cancellation of accumulation units within the
Subaccounts of the Variable Life Account. Unless you specify otherwise,
accumulation units will be canceled from each applicable Subaccount in the ratio
that the Cash Value of each Subaccount bears to the total of all Subaccount Cash
Values.
INTEREST CHARGED
The Company will charge an annual effective interest rate of 8% on Policy loans.
Interest is due at the end of each Policy Year. Unpaid interest will be added to
the existing Policy loan and charged interest at 8%.
INTEREST CREDITED
Interest will accrue daily on the Cash Value held in the General Account at an
annual rate of 6% and will be credited at the end of each Policy Year. Credited
interest will be transferred to the Variable Life Account and allocated to the
Subaccounts in the same manner that premium payments are allocated to the
Subaccounts.
LAPSE DUE TO LOAN
Policy indebtedness is the sum of all outstanding Policy loans and accrued
interest. If Policy indebtedness causes the Cash Surrender Value of the Policy
to equal zero or become negative, and the death benefit guarantee is not in
effect, the Company will notify you, along with any collateral assignee of
record, that the Policy will lapse and terminate without value.
In order to prevent the Policy from lapsing and terminating without value, you
must make a payment to the Company within 61 days from the date the notice is
sent. The payment must at least equal the amount by which the Policy
indebtedness exceeds the Cash Value less any remaining surrender charges. Policy
indebtedness will affect the applicability of the death benefit guarantee.
LOAN REPAYMENT
You may repay Policy loans in full or in part at any time while the Policy is in
effect. Outstanding Policy loans and accrued interest are subtracted from final
payments made under the Policy. These are:
- the death benefit paid on your death
- the Cash Value when there is a full surrender of the Policy
- the Cash Value payable at the Maturity Date
When you make a Policy loan payment, an amount equal to the payment is
transferred from the Cash Value in the General Account securing the loan to the
Variable Life Account and is allocated to the Subaccounts in the same manner
that premium payments are allocated to the Subaccounts. If you send a loan
payment to the Company, you must indicate that it is a loan repayment.
Otherwise, the payment will be treated as a premium payment.
22
<PAGE> 25
OTHER POLICY PROVISIONS
POLICY OWNER
It is assumed that the Policy Owner is the Insured, unless otherwise specified
in the Policy application. The Policy Owner may exercise all rights and
privileges granted under the Policy without the consent of any revocable
Beneficiary.
CONTINGENT POLICY OWNER
If you are the Policy Owner, but not the Insured, you may name a Contingent
Policy Owner. In that situation, if you die before the Insured, the Contingent
Policy Owner you have named in the application becomes the Policy Owner and
possesses all rights of the Policy Owner. At your death, if the Contingent
Policy Owner is deceased, or if you have not named a Contingent Policy Owner,
ownership of the Policy passes to your estate.
CHANGING THE POLICY OWNER OR CONTINGENT POLICY OWNER
By providing the Company with a dated and signed written notice, you may change
the Policy Owner or the Contingent Policy Owner if you are not also the Insured.
After the Company records the change, it becomes effective as of the date of the
written notice. The Insured does not have to be living when the Company records
a change in Policy Owner in order for the change to be effective. You do not
have to be living when the Company records a change of Contingent Policy Owner
in order for it to be effective. The Company will not be responsible for any
payment made or any other action taken before it records a change.
BENEFICIARY
The Beneficiary is named in the application. If, for whatever reason, there is
no Beneficiary when the Insured dies, the Company will pay the death benefit to
you as the Policy Owner, or to your estate if you are deceased when the Insured
dies. If the Beneficiary dies at the same time or within 10 days of the Insured,
the death benefit will be paid as though the Beneficiary died before the
Insured.
CHANGING THE BENEFICIARY
By providing the Company with a dated and signed written notice, you may change
the Beneficiary. After the Company records the change, it becomes effective as
of the date of the written notice. The Insured does not have to be living when
the Company records a change in Beneficiary in order for it to be effective. The
Company will not be responsible for any payment made or any other action taken
before it records the change.
ASSIGNMENT
As the Policy Owner, you may assign the Policy as collateral. The Company is not
responsible for the validity or effect of any collateral assignment. The
interest of any revocable Beneficiary will be subject to the terms of the
assignment. The Company will not be responsible for knowledge of any assignment
until it receives written notice of the assignment and it records the
assignment.
INCONTESTABILITY
Except if you fail to pay premiums, the Company will not contest the validity of
the Policy after it has been in effect during the Insured's lifetime for two
years from the date the Policy was issued. This will not apply to any riders to
the Policy. Any increase in the Specified Amount after the date the Policy is
issued will be incontestable only after the increase has been in effect during
the Insured's lifetime for two years after the effective date of the increase.
MISSTATEMENT OF AGE OR SEX
If your age or sex has been misstated in the application, the death benefit will
be adjusted by the difference between the monthly charges actually deducted and
the monthly charges that would have been deducted at the correct age and sex.
The adjustment will be accumulated based on investment returns that were
credited to the Cash Value.
NO DIVIDENDS
The Policy is non-participating, which means you will not receive dividends or
share in the Company's profits or surplus.
23
<PAGE> 26
OPTIONAL SETTLEMENT PLANS
The Company will pay benefits under the Policy in one lump sum unless you choose
an optional settlement plan. The following provisions apply:
- - You may choose a settlement plan while the Policy is in effect and while the
Insured is living.
- - If you have not chosen a settlement plan, your Beneficiary may choose one
after your death.
- - In order to choose a settlement plan, you must send a dated and signed
written notice to the Company.
- - If approved by the Company, the plan you choose will be effective from the
date the notice was signed.
- - The Company will not be responsible for any payment made or other action
taken before the selection has been recorded by the Company.
You can choose from the following settlement plans:
Plan 1 The Company will hold the Policy proceeds in the General
Proceeds Held Account and make payments at the times and in the amounts
at Interest that you and the Company agree on, as long as the Policy
remains in effect. Payments can be made monthly,
quarterly, annually, or in a lump sum, or any other mode
that you and the Company may agree on. The Company will
credit the Policy proceeds held with an effective annual
interest rate of at least 4%. When the payee dies, any
remaining Policy proceeds will be paid to his or her
estate, unless otherwise specified.
Plan 2 The Company will make monthly payments in a fixed amount
Lifetime Payments as long as the payee lives. A guaranteed number of
with a Guarantee payments maybe chosen. If the payee dies before the
guaranteed number of payments has been made, the Company
will continue the payments until the guaranteed number of
payments has been made.
SUSPENSION OF PAYMENTS
The Company reserves the right to suspend or postpone any payment under the
Policy when:
(1) the New York Stock Exchange is closed on other than customary weekend
and holiday closings;
(2) trading on the New York Stock Exchange is restricted;
(3) an emergency exists and it is not reasonably practicable to dispose of
the securities held in the Variable Life Account, or it is not
reasonably practicable to determine the net asset value of the Variable
Life Account; or
(4) during any other period when the Securities and Exchange Commission
permits suspension of payments.
The applicable rules and regulations of the Securities and Exchange Commission
will control as to whether conditions (2) or (3) exist.
FEDERAL TAX STATUS
NOTE: THE FOLLOWING DISCUSSION IS BASED ON THE COMPANY'S UNDERSTANDING OF
CURRENT FEDERAL TAX LAWS APPLICABLE TO LIFE INSURANCE IN GENERAL. THE COMPANY
CANNOT PREDICT IF THESE LAWS WILL CHANGE. SECTION 7702 OF THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "CODE"), DEFINES THE TERM "LIFE INSURANCE
CONTRACT" FOR PURPOSES OF APPLYING THE TAX LAWS TO LIFE INSURANCE POLICIES. THE
COMPANY BELIEVES THAT THE POLICY QUALIFIES AS A LIFE INSURANCE CONTRACT UNDER
SECTION 7702; HOWEVER, THE COMPANY DOES NOT GUARANTEE THE TAX STATUS OF THE
POLICY. YOU BEAR COMPLETE RISK THAT THE POLICY MAY NOT BE DEEMED A LIFE
INSURANCE CONTRACT BY THE INTERNAL REVENUE SERVICE ("IRS"). THE FOLLOWING
DISCUSSION IS NOT EXHAUSTIVE AND YOU SHOULD UNDERSTAND THAT THERE MAY BE SPECIAL
FEDERAL TAX RULES NOT DISCUSSED IN THIS PROSPECTUS THAT ARE APPLICABLE IN
CERTAIN SITUATIONS. YOU ARE CAUTIONED TO CONSULT YOUR OWN TAX ADVISER REGARDING
HOW FEDERAL TAX LAWS MAY APPLY TO THE POLICY.
INTRODUCTION
This discussion of federal tax status is general in nature and is not intended
to provide you with tax advice. You should discuss the applicability of federal
tax laws on the Policy with your tax adviser. No attempt has been made to
consider any state tax laws or any other tax laws. The Company is not making any
representations or guarantees that current federal tax laws will not be changed
or that current interpretations of the federal tax laws will not be changed.
24
<PAGE> 27
The Company is taxed as a life insurance company under federal tax laws. For
federal income tax purposes, the Variable Life Account is not a separate entity
from the Company and its operations form a part of the Company.
MODIFIED ENDOWMENT CONTRACTS
Federal tax laws alter the treatment accorded to loans and certain distributions
from life insurance policies that are considered to be modified endowment
contracts. Generally, the variable life insurance policy described in this
Prospectus will not be considered a modified endowment contract.
A modified endowment contract is a contract which is entered into or materially
changed on or after June 21, 1988, and fails to meet the 7-pay test. A policy
fails to meet the 7-pay test when the cumulative amount paid under a contract at
any time during the first 7 years of the contract exceeds the sum of the net
level premiums that would have been paid on or before such time if the contract
provided for paid-up future benefits after the payment of 7 level annual
premiums. A material change includes any increase in the future benefits or
addition of qualified additional benefits provided under a contract unless the
increase is due to
- the payment of premiums necessary to fund the lowest death benefit and
qualified additional benefits payable in the first 7 years of the
contract; or
- the crediting of interest or other earnings (including dividends) with
respect to such premiums.
Additionally, any policy issued in exchange for a policy classified as a
modified endowment contract will be treated as a modified endowment contract
regardless of whether it meets the 7-pay test. However, an exchange under
Section 1035 of the Code of a life insurance policy entered into before June 21,
1988 for the Policy will not cause the Policy to be treated as a modified
endowment contract if no additional premiums are paid. Due to the flexible
premium feature of a variable life insurance policy, the circumstances of each
policy will be considered individually in determining whether it will be treated
as a modified endowment contract.
If a policy is determined to be a modified endowment contract, partial or full
surrenders and/or loan proceeds are taxable to the extent of income in the
policy. Such distributions are deemed to be on a last-in-first-out basis, which
means that the taxable income is distributed first. Loan proceeds and/or
surrender payments, including those resulting from the lapse of the Policy, may
also be subject to an additional 10% federal income tax penalty applied to the
income portion of loans or surrenders. The penalty will not apply to any
distribution:
- made to a taxpayer who is at least age 59 1/2 on the date of the
distribution;
- made to a taxpayer who is disabled as defined in Section 72(m)(7) of
the Code; or
- made as part of a series of substantially equal periodic payments (not
less frequently than annually) made for the life (or life expectancy)
of the taxpayer or the joint lives (or joint life expectancies) of the
taxpayer and his or her beneficiary.
If a policy is not classified as a modified endowment contract, then any
surrenders will be treated first as a recovery of the investment in the policy
which would not be received as taxable income. However, if a distribution is the
result of a reduction in benefits under the policy within the first 15 years
after the policy is issued in order to comply with Section 7702, such
distribution will, under rules set forth in Section 7702, be taxed as ordinary
income to the extent of income in the policy.
Any loan from a policy that is not classified as a modified endowment contract
will be treated as indebtedness of the Policy Owner and not as a distribution.
Upon complete surrender (or lapse of the Policy) or when maturity benefits are
paid, if the amount received plus loan indebtedness exceeds the total premiums
paid that are not treated as previously surrendered by the Policy Owner, the
excess generally will be treated as ordinary income.
Interest paid on a policy loan is generally not deductible. Furthermore, no
deduction will be allowed for interest on a loan under a policy covering the
life of any employee or officer of the taxpayer or any person financially
interested in the business carried on by the taxpayer to the extent the
indebtedness for such employee, officer or financially interested person exceeds
$50,000. The deductibility of interest payable on policy loans may be subject to
further rules and limitations under Sections 163 and 264 of the Code.
YOU SHOULD CONSULT YOUR OWN TAX ADVISER REGARDING THE TREATMENT OF YOUR POLICY
AND THE POSSIBLE TAX CONSEQUENCES OF TAKING LOANS OR SURRENDERS FROM YOUR
POLICY.
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<PAGE> 28
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable life insurance policies. The Code provides that a
variable life insurance policy will not be treated as life insurance for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the U.S. Treasury
Department. If it is determined that your variable life insurance policy does
not qualify as a life insurance contract, you will be liable for federal income
taxes on the earnings portion of the Policy prior to receiving any pay-outs from
the policy. The Code has a safe harbor provision which provides that life
insurance policies, such as your variable life Policy, meet the diversification
requirements if, as of the close of each calendar quarter, the underlying assets
meet the diversification standards for a regulated investment company and no
more than 55% of the total assets consist of cash, cash items, U.S. Government
securities and securities of other regulated investment companies. There is an
exception for securities issued by the U.S. Treasury in connection with variable
life insurance policies.
In 1989, the Treasury Department issued regulations which amplify the
diversification requirements for variable contracts and provide an alternative
to the safe harbor provision described above. Under the regulations, an
investment portfolio will be deemed adequately diversified if
- no more than 55% of the value of the total assets of the portfolio is
represented by any one investment;
- no more than 70% of the value of the total assets of the portfolio is
represented by any two investments;
- no more than 80% of the total assets of the portfolio is represented by
any three investments;
- no more than 90% of the total assets of the portfolio is represented by
any four investments.
For purposes of the regulations, all securities of the same issuer are treated
as a single investment and each U.S. government agency or instrumentality is
treated as a separate issuer.
The Company intends that all underlying assets of the Variable Life Account will
be managed in order to comply with these diversification requirements.
Currently, there is no official guidance as to whether, or under what
circumstances, control of the investments of the Variable Life Account by the
owners of variable life policies will cause the owners to be treated as owners
of the assets of the Variable Life Account, thereby causing the variable life
policy to lose its favorable tax treatment.
The amount of Policy Owner control which may be exercised under the Policy is
different in some respect from the situations addressed in published rulings
issued by the IRS in which it was held that a policy owner was not the owner of
the assets of a separate account. It is unknown whether these differences, such
as the Policy Owner's ability to transfer among investment choices or the number
and type of investment choices available, would cause the Policy Owner to be
considered the owner of the assets of the Variable Life Account.
In the event any forthcoming guidance or ruling sets forth a new position, the
guidance or ruling will generally be applied only prospectively. However, if the
ruling or guidance does not set forth a new position, it may be applied
retroactively, resulting in the Policy Owner being retroactively determined to
be the owner of the assets of the Variable Life Account.
Due to the uncertainty in this area, the Company reserves the right to modify
the Policy in an attempt to maintain favorable tax treatment.
TAX TREATMENT OF THE POLICY
The Policy has been designed to comply with the definition of a life insurance
contract contained in Section 7702 of the Code. Although some interim guidance
has been provided and proposed regulations have been issued, final regulations
have not been adopted. Section 7702 of the Code requires the use of reasonable
mortality and other expense charges. In establishing these charges, the Company
has relied on the interim guidance provided in IRS Notice 88-128 and proposed
regulations issued on July 5, 1991. Currently, there is even less guidance as to
a policy issued on a substandard risk basis and thus it is even less clear
whether a Policy issued on such basis would meet the requirements of Section
7702 of the Code.
While every attempt has been made by the Company to comply with Section 7702,
the law in this area is very complex and unclear. There is a risk, therefore,
that that the IRS will not concur with the Company's interpretations of Section
7702 that were made in determining such compliance. In the event the Policy is
determined not to comply, it would not qualify for the favorable tax treatment
usually accorded life insurance policies. You should consult a tax adviser
regarding the tax consequences of purchasing the Policy.
26
<PAGE> 29
POLICY PROCEEDS
The tax treatment accorded to loan proceeds and/or surrender payments from the
Policy will depend on whether the Policy is considered to be a modified
endowment contract. Otherwise, the Policy should receive the same federal income
tax treatment as any other type of life insurance. As such, the death benefit is
excluded from the gross income of the Beneficiary under Section 101(a) of the
Code. Also, you, as the Policy Owner are not deemed to be in constructive
receipt of the Cash Value or Cash Surrender Value, including increments thereon,
under the Policy until there is a distribution of such amounts.
If death benefit proceeds are held by the Company at interest, any interest
credited is included in the Beneficiary's taxable income for the year in which
the interest is credited. If the Policy death proceeds are paid under the
lifetime payments with a guarantee plan, the payments will be prorated between
the amount attributable to the death benefit, which is excluded from the
Beneficiary's income, and the amount attributable to interest, which is included
in the Beneficiary's income.
Federal estate and state and local estate, inheritance and other tax
consequences of ownership, or receipt of Policy proceeds depend on the
circumstances of each Policy Owner or Beneficiary.
MULTIPLE POLICIES
Federal tax laws provide that multiple modified endowment contracts which are
issued within a calendar year period to the same Policy owner by one company or
its affiliates are treated as one modified endowment contract for purposes of
determining the taxable portion of any loans or distributions. Such treatment
may result in adverse tax consequences including more rapid taxation of the
loans or distributed amounts from the combination of contracts. You should
consult a tax adviser prior to purchasing more than one modified endowment
contract in any calendar year period.
TAX TREATMENT OF ASSIGNMENTS
Assigning or pledging the Policy may be a taxable event. You should consult a
tax adviser before assigning or pledging the Policy.
QUALIFIED PLANS
The Policy may be used in conjunction with certain qualified retirement plans.
Because the rules governing such use are complex, you should consult with a
pension consultant before purchasing the Policy.
INCOME TAX WITHHOLDING
All distributions or the portion thereof which is includible in gross income of
the Policy Owner are subject to federal income tax withholding. However, in most
cases, you may elect not to have taxes withheld. You may be required to pay
penalties under the estimated tax rules, if withholding and estimated tax
payments are insufficient.
VARIABLE LIFE ACCOUNT VOTING RIGHTS
The Company is the legal owner (shareholder) of the shares of T. Rowe Price
Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., and Janus Aspen
Series. However, the Company believes that when a Mutual Fund solicits proxies
in connection with a vote of shareholders, it is required to obtain from you,
and other affected Policy Owners, instructions as to how to vote those shares.
For purposes of voting the Mutual Fund shares held in the Variable Life Account
at a shareholder meeting of the Mutual Fund, your voting interest will be
determined as follows: you may cast one vote for each $100 of Cash Value of your
Policy allocated to the Subaccount on the record date for the shareholder
meeting of the Mutual Fund. If, however, you have a Policy loan outstanding, any
amount transferred from the Variable Life Account to the General Account in
connection with the loan will not be considered in determining your voting
interest.
If a Mutual Fund holds a shareholder meeting at which you are entitled to vote,
you will receive periodic reports, proxy material, and a form on which you can
give voting instructions.
The Company will determine the number of shares that you will have a right to
vote as of a date chosen by it, which will not be more than 60 days prior to the
shareholder meeting. The Company will send you proxy material and a form for
giving voting instructions at least 14 days prior to the shareholder meeting.
27
<PAGE> 30
In accordance with its view of present law, the Company will vote the shares of
the applicable Mutual Fund held in the Variable Life Account in accordance with
instructions received from all persons having a voting interest in that
particular Mutual Fund. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. The Company will vote its own shares in the same
proportion as it votes shares for which it has received instructions.
If the applicable law with respect to voting rights is amended or if the
interpretation of the law changes, and it is determined that the Company has
authority to vote the shares of the mutual fund in its own right, it may elect
to do so.
VOTING INSTRUCTIONS DISREGARDED
The Company may, when required to do so by state insurance authorities, vote
shares of the applicable Mutual Fund without regard to instructions from persons
having a voting interest if the voting instructions would cause the Mutual Fund
to make (or refrain from making) investments that would result in changes in the
sub-classifications or investment objectives of the Mutual Fund. The Company may
also disapprove changes in the investment policy initiated by the persons having
a voting interest or by the directors or trustees of the Mutual Fund if the
Company's disapproval is reasonable and based on a good faith determination that
the change would violate state law or the change would not be consistent with
the investment objective of the Mutual Fund, or varies from the general quality
and nature of investments and investment techniques used by other Mutual Funds
with similar investment objectives underlying other separate accounts of the
Company or of an affiliated life insurance company.
In the event the Company does disregard voting instructions, it will provide a
summary of its reasons for doing so in the next semi-annual report to Policy
Owners.
MANAGEMENT OF THE COMPANY
The following table lists the officers and directors of the Company, along with
their principal occupations.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
NAME POSITION WITH COMPANY PRINCIPAL OCCUPATION
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Dale R. Schuh Chairman of the Board, Chairman of the Board, Chief Executive Officer and
President, and Director President of Sentry Insurance a Mutual Company
---------------------------------------------------------------------------------------------------------
Wallace D. Taylor Vice President Vice President, Life, Health and Annuities
of Sentry Insurance a Mutual Company
---------------------------------------------------------------------------------------------------------
William M. O'Reilly Secretary and Director Vice President, General Counsel and Corporate
Secretary of Sentry Insurance a Mutual Company
---------------------------------------------------------------------------------------------------------
William J. Lohr Treasurer and Director Vice President and Treasurer of Sentry Insurance
a Mutual Company
---------------------------------------------------------------------------------------------------------
Janet L. Fagan Director Vice President and Chief Actuary of Sentry
Insurance a Mutual Company
---------------------------------------------------------------------------------------------------------
</TABLE>
DISTRIBUTION OF THE POLICY
Sentry Equity Services, Inc. ("SESI"), a wholly owned subsidiary of Sentry
Insurance a Mutual Company, serves as principal underwriter of the Policy. The
Policy is sold by sales representatives who, in addition to being licensed as
life insurance agents for the Company, are also NASD registered representatives
for SESI. SESI may also enter into written sales agreements with other
broker-dealers.
The following persons are the officers and directors of SESI. The business
address for each person is 1800 North Point Drive, Stevens Point, WI 54481.
Name Positions and Offices With SESI
---- -------------------------------
Dale Schuh Director and Chairman of the Board
Susan M. DeBruin President
Glen E. Scott Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
28
<PAGE> 31
Registered representatives are compensated on a commission and service fee basis
by SESI. The Company reimburses SESI for the compensation it pays to registered
representatives and for other direct and indirect expenses SESI incurs in
marketing and selling the Policy. These expenses include advertising and
promotion, field management compensation, and deferred compensation and
insurance benefits for registered representatives and field managers. The amount
of brokerage commission and expense reimbursement received by SESI as of
December 31, 1998, for distributing the Policy was $100,541.
The following chart shows the levels of compensation paid by SESI to registered
representatives.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
STATE REGULATION
The Company is subject to the insurance laws of the state of Wisconsin and is
regulated by the Wisconsin Insurance Department. It is also subject to the
insurance laws of each state in which it is authorized to do business. Each
year, the Company files an annual statement with the various state insurance
departments which contains information about the operation of the Company and
its financial condition as of the most recent year-end. The Wisconsin Insurance
Department periodically examines the Company's books and records in order to
certify that the Company has correctly stated its policy liabilities and
reserves. In addition, the National Association of Insurance Commissioners
periodically conducts a full examination of the Company's operations. Any
regulation or examination of the Company does not involve supervision of the
Company's management or its investment practices or policies.
REPORTS TO POLICY OWNERS
As a Policy Owner, you will receive confirmation of the following transactions:
- receipt of any premiums (except premiums received before the date the
Policy is issued and those received via an automatic premium payment
plan)
- any change in the allocation of premiums
- any transfer between Subaccounts
- any loan, interest repayment, or loan repayment
- any partial surrenders
- any return of premium necessary to comply with applicable maximum
premium limitations.
If you have chosen an automatic premium payment plan, you will receive an annual
statement showing the dates and amounts of premiums paid. You will be entitled
to a receipt for any premium payment upon request.
You will receive confirmation of the following transactions within 7 days:
- exercise of the free-look privilege
- exchange of the Policy
- full surrender of the Policy
- payment of the death benefit
Within 30 days after each Policy Anniversary, you will receive an annual
statement containing the following information:
- the current amount of death benefit
- the current Cash Value
- the current Cash Surrender Value
- current Policy indebtedness
- all premiums paid and charges deducted for the previous Policy Year
- all transactions confirmed during the previous Policy Year
29
<PAGE> 32
Semi-annually, you will receive a report for T. Rowe Price Fixed Income Series,
Inc., T. Rowe Price Equity Series, Inc., and Janus Aspen Series which will
contain all applicable information and financial statements required by federal
securities laws and regulations.
LEGAL PROCEEDINGS
Neither the Variable Life Account nor SESI are parties to any legal proceedings.
The Company is engaged in various kinds of routine litigation which, in the
opinion of the Company, are not material to the operation of the Company or to
its financial condition.
EXPERTS
The statutory financial statements of the Company as of December 31, 1998 and
1997, and for the years then ended, and the financial statements of the Variable
Life Account as of December 31, 1998, and for each of the three years in the
period then ended, included in this Prospectus and in the registration statement
filed with the Securities and Exchange Commission have been audited by
PricewaterhouseCoopers LLP, independent accountant. The audit reports are
included in this Prospectus.
LEGAL OPINIONS
Blazzard, Grodd & Hasenauer, P.C., Westport, Connecticut, has provided advice on
certain matters relating to the federal securities and income tax laws in
connection with the Policy.
FINANCIAL STATEMENTS
The Company's financial statements included in this Prospectus should only be
considered in relation to the Company's ability to meet its obligations in
connection with the Policy.
The Company's most current audited financial statements are as of December 31,
1998 and are included in this Prospectus, along with unaudited financial
statements as of September 30, 1999.
30
<PAGE> 33
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
FINANCIAL STATEMENTS (UNAUDITED)
AS OF SEPTEMBER 30, 1999
31
<PAGE> 34
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1999 (Unaudited)
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 181,757
shares (cost $181,757) $ 181,757
Growth Portfolio, 202,888
shares (cost $5,100,599) 5,088,394
Limited Maturity Bond Portfolio, 13,442
shares (cost $183,041) 177,346
Balanced Portfolio, 90,444
shares (cost $1,425,810) 1,429,921
---------
Total investments 6,877,418
Dividends receivable 565
----------
Total assets 6,877,983
LIABILITIES:
Accrued expenses 1,650
----------
NET ASSETS $6,876,333
==========
The accompanying notes are an integral part of these financial statements
33
<PAGE> 35
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the nine months ended September 30, 1999, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
--------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends 4,869 5,575 7,119 -- -- --
Expenses:
Risk charges 1,259 1,268 1,633 39,096 34,551 27,165
--------- --------- --------- --------- --------- ---------
Net investment income (loss) 3,610 4,307 5,486 (39,096) (34,551) (27,165)
--------- --------- --------- --------- --------- ---------
Realized net investment gain (loss) -- -- -- 1,679 121,726 99,349
Unrealized appreciation (depreciation), net -- -- -- (194,557) (1,625,844) 604,969
Capital gain distributions received -- -- -- 263,051 1,138,697 264,588
--------- --------- --------- --------- --------- ---------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- -- -- 70,173 (365,421) 968,906
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity from operations 3,610 4,307 5,486 31,077 (399,972) 941,741
--------- --------- --------- --------- --------- ---------
Purchase payments 154,520 100,294 147,369 700,438 500,378 534,358
Transfers between subaccounts, net (121,209) (66,343) (136,155) 122,902 30,465 136,842
Withdrawals and surrenders (3,872) (896) (34,288) (312,796) (328,994) (302,992)
Monthly deductions (15,136) (12,818) (11,304) (256,629) (214,412) (183,061)
Policy loans (128) (327) (37) (24,043) (16,560) (29,685)
Death Benefit -- -- -- (7,184) -- --
--------- --------- --------- --------- --------- ---------
Net increase (decrease) in contract owners'
equity derived from principal transactions 14,175 19,910 (34,415) 222,688 (29,123) 155,462
--------- --------- --------- --------- --------- ---------
Total increase (decrease) in contract owners'
equity 17,785 24,217 (28,929) 253,765 (429,095) 1,097,203
Contract owners' equity at beginning of year 164,474 150,989 219,666 4,833,999 4,171,215 2,978,276
--------- --------- --------- --------- --------- ---------
Contract owners' equity at end of period 182,259 175,206 190,737 5,087,764 3,742,120 4,075,479
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE> 36
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- --------------------------------- --------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
9,279 10,093 8,979 23,533 28,603 16,108 37,681 44,271 32,206
1,350 1,290 1,218 11,242 9,989 7,465 52,947 47,098 37,481
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
7,929 8,803 7,761 12,291 18,614 8,643 (15,266) (2,827) (5,275)
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(1,018) (218) (1,209) (4,250) 14,079 9,025 (3,589) 135,587 107,165
(6,389) (3,265) 484 (36,659) (285,738) 115,242 (237,605) (1,914,847) 720,695
-- -- -- 34,863 200,904 41,345 297,914 1,339,601 305,933
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
(7,407) (3,483) (725) (6,046) (70,755) 165,612 56,720 (439,659) 1,133,793
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
522 5,320 7,036 6,245 (52,141) 174,255 41,454 (442,486) 1,128,518
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
21,424 18,098 15,466 223,757 166,146 135,192 1,100,139 784,916 832,385
984 (3,370) 773 (2,677) 39,248 (1,460) -- -- --
(5,745) (10,742) (7,931) (120,977) (94,063) (8,434) (443,390) (434,695) (353,645)
(8,953) (7,373) (8,391) (85,727) (79,329) (69,924) (366,445) (313,932) (272,680)
(113) (474) 2,041 (4,971) (3,651) 6,043 (29,255) (21,012) (21,638)
-- -- -- (4,150) -- -- (11,334) -- --
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
7,597 (3,861) 1,958 5,255 28,351 61,417 249,715 15,277 184,422
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
8,119 1,459 8,994 11,500 (23,790) 235,672 291,169 (427,209) 1,312,940
168,556 163,497 150,962 1,418,135 1,191,745 843,148 6,585,164 5,677,446 4,192,052
- --------- --------- --------- --------- --------- --------- --------- --------- ---------
176,675 164,956 159,956 1,429,635 1,167,955 1,078,820 6,876,333 5,250,237 5,504,992
========= ========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
35
<PAGE> 37
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1999, 1998 AND 1997
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life Account) is a
segregated investment account of the Sentry Life Insurance Company (the
Company) and is registered with the Securities and Exchange Commission as a
unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. The Variable Life Account was established by the Company on
February 12, 1985 and commenced operations on January 13, 1987. Accordingly,
it is an accounting entity wherein all segregated account transactions are
reflected.
The assets of the Variable Life Account are invested in one or more of the
portfolios of Neuberger Berman Advisers Management Trust (the Trust) at the
portfolio's net asset value in accordance with the selection made by the
contract owners.
A copy of the Neuberger Berman Advisers Management Trust Annual Report is
included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are
based on the daily closing prices of the underlying securities in the
Trust's portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the ex-dividend
date. The cost of investments sold and the corresponding capital gains and
losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable Life Account are part
of the total operations of the Company and are not taxed as a separate
entity.
Under Federal income tax law, net investment income and net realized capital
gains of the Variable Life Account which are applied to increase net assets
are not taxed.
3. EXPENSES
A mortality and expense risk premium and a death benefit guarantee risk
charge are deducted by the Company from the Variable Life Account on a daily
basis which is equal, on an annual basis, to 1.05% (.90% mortality and
expense risk and .15% death benefit guarantee risk charge) of the daily net
asset value of the Variable Life Account. These charges compensate the
Company for assuming these risks under the variable life contract. The
liability for accrued mortality and expense risk premium and death benefit
guarantee risk charge amounted to $1,650 at September 30, 1999.
At the beginning of each policy month, the company makes a deduction, per
contract holder, from the cash value of the policy by canceling accumulation
units. This deduction consists of the cost of insurance for the policy and
any additional benefits provided by rider, if any, for the policy month and
a $5 monthly administrative fee. The administrative fee reimburses the
Company for administrative expenses relating to the issuance and maintenance
of the contract.
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in connection with
issuing a policy. The full surrender charge will be reduced during the first
nine contract years until it reaches zero in the tenth contract year.
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are imposed
by certain states.
36
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
4. NET ASSETS
Net assets are represented by accumulation units in the related Variable
Life Account.
At September 30, 1999 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Neuberger Berman
Advisers Management Trust:
Liquid Asset Portfolio 11,042 $16.51 $ 182,259
Growth Portfolio 152,717 33.32 5,087,764
Limited Maturity Bond Portfolio 9,739 18.14 176,675
Balanced Portfolio 61,616 23.20 1,429,635
----------
Total net assets $6,876,333
==========
</TABLE>
At September 30, 1998 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Neuberger Berman
Advisers Management Trust:
Liquid Asset Portfolio 10,950 $16.00 $ 175,206
Growth Portfolio 142,953 26.18 3,742,120
Limited Maturity Bond Portfolio 9,123 18.08 164,956
Balanced Portfolio 58,692 19.90 1,167,955
----------
Total net assets $5,250,237
==========
</TABLE>
37
<PAGE> 39
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
SEPTEMBER 30, 1999, 1998 AND 1997
5. PURCHASES AND SALES OF SECURITIES
In 1999, purchases and proceeds on sales of the Trust's shares aggregated
$1,663,919 and $1,131,500, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $181,757 $1,127,752 $ 33,726 $320,684 $1,663,919
Proceeds on sales 164,605 681,015 17,847 268,033 1,131,500
</TABLE>
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$2,377,444 and $132,766, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $169,901 $1,742,935 $ 28,846 $435,762 $2,377,444
Proceeds on sales 1,761 107,609 4,964 18,432 132,766
</TABLE>
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$1,436,823 and $952,210, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $197,101 $979,204 $27,327 $233,191 $1,436,823
Proceeds on sales 226,345 586,155 18,388 121,322 952,210
</TABLE>
38
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1998, 1997 AND 1996
39
<PAGE> 41
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE LIFE ACCOUNT I:
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
net assets present fairly, in all material respects, the financial position of
the Sentry Variable Life Account I, and the Liquid Asset Portfolio, Growth
Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio thereof, at
December 31, 1998, the results of each of their operations and changes in each
of their net assets for each of the three years in the period then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Sentry Life Insurance Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998, by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
/s/PricewaterhouseCoopers L.L.P.
Chicago, Illinois
February 11, 1999
40
<PAGE> 42
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 164,605
shares (cost $164,605) $ 164,605
Growth Portfolio, 183,894
shares (cost $4,652,183) 4,834,535
Limited Maturity Bond Portfolio, 12,216
shares (cost $168,180) 168,875
Balanced Portfolio, 86,792
shares (cost $1,377,410) 1,418,179
----------
Total investments 6,586,194
Dividends receivable 673
----------
Total assets 6,586,867
LIABILITIES:
Accrued expenses 1,703
----------
NET ASSETS $6,585,164
==========
The accompanying notes are an integral part of these financial statements
41
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
------------------------------- ---------------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 7,551 $ 10,121 $ 9,580 $ -- $ -- $ 997
Expenses:
Risk charges 1,740 2,305 2,288 45,238 37,804 29,155
-------- -------- -------- ---------- ---------- ----------
Net investment income (loss) 5,811 7,816 7,292 (45,238) (37,804) (28,158)
-------- -------- -------- ---------- ---------- ----------
Realized net investment gain (loss) -- -- -- 130,456 143,719 48,754
Unrealized appreciation (depreciation), net -- -- -- (607,832) 478,813 (44,382)
Capital gain distributions received -- -- -- 1,138,697 264,588 233,304
-------- -------- -------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- -- 661,321 887,120 237,676
-------- -------- -------- ---------- ---------- ----------
Net increase in net assets
from operations 5,811 7,816 7,292 616,083 849,316 209,518
-------- -------- -------- ---------- ---------- ----------
Purchase payments 229,539 447,087 96,463 690,677 698,213 549,845
Transfers between subaccounts, net (200,831) (427,134) (59,472) 134,665 304,525 56,399
Withdrawals and surrenders (2,093) (80,269) (32,192) (460,042) (375,499) (184,653)
Monthly deductions (18,659) (16,117) (13,163) (291,193) (250,870) (217,320)
Policy loans (282) (60) (709) (27,406) (32,746) (10,421)
-------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in net assets
derived from principal transactions 7,674 (76,493) (9,073) 46,701 343,623 193,850
-------- -------- -------- ---------- ---------- ----------
Total increase (decrease) in net assets 13,485 (68,677) (1,781) 662,784 1,192,939 403,368
Net assets at beginning of year 150,989 219,666 221,447 4,171,215 2,978,276 2,574,908
-------- -------- -------- ---------- ---------- ----------
Net assets at end of year $164,474 $150,989 $219,666 $4,833,999 $4,171,215 $2,978,276
======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
42
<PAGE> 44
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ----------------------------------------- --------------------------------------- -----------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10,093 $ 8,980 $ 15,386 $ 28,603 $ 16,109 $ 18,652 $ 46,247 $ 35,210 $ 44,615
1,731 1,647 1,797 13,274 10,422 8,680 61,983 52,178 41,920
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
8,362 7,333 13,589 15,329 5,687 9,972 (15,736) (16,968) 2,695
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
(290) (1,219) (2,558) 14,003 15,467 8,235 144,169 157,967 54,431
(2,702) 2,465 (6,306) (86,499) 100,185 (76,957) (697,033) 581,463 (127,645)
-- -- -- 200,904 41,345 103,719 1,339,601 305,933 337,023
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
(2,992) 1,246 (8,864) 128,408 156,997 34,997 786,737 1,045,363 263,809
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
5,370 8,579 4,725 143,737 162,684 44,969 771,001 1,028,395 266,504
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
24,332 20,154 25,849 222,905 176,611 142,335 1,167,453 1,342,065 814,492
(2,103) 793 (9,331) 68,269 121,816 12,404 -- -- --
(10,939) (7,924) (37,994) (98,008) (19,038) (59,749) (571,082) (482,730) (314,588)
(11,050) (11,054) (12,163) (109,415) (93,257) (83,683) (430,317) (371,298) (326,329)
(551) 1,987 (306) (1,098) (219) (6,732) (29,337) (31,038) (18,168)
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
(311) 3,956 (33,945) 82,653 185,913 4,575 136,717 456,999 155,407
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
5,059 12,535 (29,220) 226,390 348,597 49,544 907,718 1,485,394 421,911
163,497 150,962 180,182 1,191,745 843,148 793,604 5,677,446 4,192,052 3,770,141
- ----------- ----------- ----------- ----------- ----------- --------- ----------- ----------- -----------
$ 168,556 $ 163,497 $ 150,962 $ 1,418,135 $ 1,191,745 $ 843,148 $ 6,585,164 $ 5,677,446 $ 4,192,052
=========== =========== =========== =========== =========== ========= =========== =========== ===========
</TABLE>
43
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life Account) is a
segregated investment account of the Sentry Life Insurance Company (the
Company) and is registered with the Securities and Exchange Commission as a
unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. The Variable Life Account was established by the Company on
February 12, 1985 and commenced operations on January 13, 1987. Accordingly,
it is an accounting entity wherein all segregated account transactions are
reflected. The financial statements have been prepared in conformity with
generally accepted accounting principles which permit management to make
certain estimates and assumptions at the date of the financial statements.
Actual results could differ from those estimates.
The assets of the Variable Life Account are invested in one or more of the
portfolios of Neuberger Berman Advisers Management Trust (the Trust) at the
portfolio's net asset value in accordance with the selection made by the
contract owners.
A copy of the Neuberger Berman Advisers Management Trust Annual Report is
included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued at the reported net asset values of such
portfolios, which value their investment securities at fair value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the ex-dividend
date. The cost of investments sold and the corresponding investment gains
and losses are determined on a specific identification basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of the
Internal Revenue Code. The operations of the Variable Life Account are part
of the total operations of the Company and are not taxed as a separate
entity.
Under Federal income tax law, net investment income and net realized
investment gains of the Variable Life Account which are applied to increase
net assets are not taxed.
3. EXPENSES
A mortality and expense risk premium and a death benefit guarantee risk
charge are deducted by the Company from the Variable Life Account on a daily
basis which is equal, on an annual basis, to 1.05% (.90% mortality and
expense risk and .15% death benefit guarantee risk charge) of the daily net
asset value of the Variable Life Account. These charges compensate the
Company for assuming these risks under the variable life contract. The
liability for accrued mortality and expense risk premium and death benefit
guarantee risk charge amounted to $1,703 at December 31, 1998.
At the beginning of each policy month, the Company makes a deduction, per
contract holder, from the cash value of the policy by canceling accumulation
units. This deduction consists of the cost of insurance for the policy and
any additional benefits provided by rider, if any, for the policy month and
a $5 monthly administrative fee. The administrative fee reimburses the
Company for administrative expenses relating to the issuance and maintenance
of the contract.
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in connection with
issuing a policy. The full surrender charge will be reduced during the first
nine contract years until it reaches zero in the tenth contract year.
44
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are
imposed by certain states.
4. NET ASSETS
Net Assets are represented by accumulation units in the related Variable
Life Account.
At December 31, 1998 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 10,192 $ 16.14 $ 164,474
Growth Portfolio 145,685 33.18 4,833,999
Limited Maturity Bond Portfolio 9,319 18.09 168,556
Balanced Portfolio 61,296 23.14 1,418,135
----------
Total net assets $6,585,164
==========
</TABLE>
At December 31, 1998 significant concentrations of ownership were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 2 32.4
Limited Maturity Bond Portfolio 1 29.6
</TABLE>
At December 31, 1997 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 9,691 $15.58 $ 150,989
Growth Portfolio 143,731 29.02 4,171,215
Limited Maturity Bond Portfolio 9,339 17.51 163,497
Balanced Portfolio 57,188 20.84 1,191,745
----------
Total net assets $5,677,446
==========
</TABLE>
At December 31, 1996 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 14,611 $15.03 $ 219,666
Growth Portfolio 131,013 22.73 2,978,276
Limited Maturity Bond Portfolio 9,110 16.57 150,962
Balanced Portfolio 47,830 17.63 843,148
-----------
Total net assets $ 4,192,052
===========
</TABLE>
45
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$2,839,658 and $1,379,167, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
--------- ---------- -------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $272,325 $2,009,596 $ 35,610 $522,127 $2,839,658
Proceeds on sales 258,175 869,198 27,828 223,966 1,379,167
</TABLE>
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$2,245,774 and $1,500,435, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
--------- --------- -------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $501,151 $1,310,732 $ 32,033 $401,858 $2,245,774
Proceeds on sales 570,324 740,521 21,099 168,491 1,500,435
</TABLE>
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$1,368,190 and $872,040, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
--------- --------- -------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $153,780 $889,149 $ 44,216 $281,045 $1,368,190
Proceeds on sales 155,168 489,998 63,774 163,100 872,040
</TABLE>
46
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
FINANCIAL STATEMENTS (UNAUDITED)
AS OF SEPTEMBER 30, 1999
47
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds .............................. $1,127,943,499 $1,130,624,679
Investments in subsidiaries ........ 10,281,432 10,206,594
Mortgage loans ..................... 6,654 26,690
Policy loans ....................... 23,161,556 23,974,328
Cash and short-term investments .... 23,147,612 14,540,594
-------------- --------------
Total investments ............. 1,184,540,753 1,179,372,885
Accrued investment income ............. 21,076,101 21,074,987
Premiums deferred and uncollected ..... 4,637,053 4,426,796
Other assets .......................... 9,100,731 1,559,654
Assets held in separate accounts ...... 560,700,934 495,182,361
-------------- --------------
Total admitted assets ......... $1,780,052,572 $1,701,616,683
============== ==============
</TABLE>
48
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (UNAUDITED - CONTINUED)
SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
LIABILITIES 1999 1998
- ----------- ---- ----
<S> <C> <C>
Future policy benefits:
Life ............................................... $ 388,918,170 $ 387,871,709
Accident and health ................................ 15,985,405 15,347,489
Policy and contract claims ............................ 4,775,480 3,117,375
Premium and other deposit funds ....................... 644,955,667 624,372,014
Other policyholder funds .............................. 2,527,810 10,377,093
Accounts payable and other liabilities ................ 4,118,239 9,775,857
Federal income taxes accrued .......................... 7,307,197 8,212,827
Asset valuation reserve ............................... 5,828,518 5,664,196
Interest maintenance reserve .......................... 6,544,838 6,676,287
Liabilities related to separate accounts .............. 559,597,017 494,243,621
-------------- --------------
Total liabilities ............................. 1,640,558,341 1,565,658,468
-------------- --------------
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $10 par value;
authorized 400,000 shares; issued and
outstanding 316,178 shares in 1999 and 1998 ........ 3,161,780 3,161,780
Paid-in surplus ....................................... 43,719,081 43,719,081
Earned surplus, unappropriated ........................ 92,613,370 89,077,354
-------------- --------------
Total capital stock and surplus ............... 139,494,231 135,958,215
-------------- --------------
Total liabilities, capital stock and surplus .. $1,780,052,572 $1,701,616,683
============== ==============
</TABLE>
49
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations .......................... $ 52,807,864 $ 52,600,382
Other fund deposits .......................................... 56,525,089 45,372,902
Commissions and expense allowances on
reinsurance ceded ......................................... 8,269,116 8,645,969
Net investment income ........................................ 68,267,580 69,343,845
Other income ................................................. 5,722,551 7,104,853
------------ ------------
Total premiums and other income ......................... 191,592,200 183,067,951
------------ ------------
Benefits and expenses:
Policyholder benefits and fund withdrawals ................... 131,475,967 147,796,088
Increase in future policy benefits and
other reserves ............................................ 12,744,839 18,816,606
Commissions .................................................. 5,857,448 5,406,847
Other expenses ............................................... 21,056,442 20,796,168
Transfers to (from) separate accounts, net ................... 3,349,210 (22,051,914)
------------ ------------
Total benefits and expenses ............................. 174,483,906 170,763,795
------------ ------------
Income before Federal income tax expense and
net realized losses on investments ........................... 17,108,294 12,304,156
Federal income tax expense, less tax on net
realized losses and transfers to the IMR .............. 6,108,486 5,027,266
------------ ------------
Income before net realized losses on investments ................ 10,999,808 7,276,890
Net realized losses on investments ...................... (784,996) (459,939)
------------ ------------
Net income ...................................................... $ 10,214,812 $ 6,816,951
============ ============
</TABLE>
50
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Capital stock, beginning and end of year .......... $ 3,161,780 $ 3,161,780
------------ ------------
Paid-in surplus, beginning and end of year ........ 43,719,081 43,719,081
------------ ------------
Earned surplus, unappropriated:
Balance at beginning of year ................... 81,771,668 82,275,478
Net income ..................................... 10,214,812 6,816,951
Change in non-admitted assets .................. 67 (4,402)
Change in liability for reinsurance ............ -- --
Change in asset valuation reserve .............. (121,532) (399,617)
Dividend to stockholder ........................ -- --
Change in net unrealized gains on investments .. 748,355 388,944
------------ ------------
Balance at end of year ......................... 92,613,370 89,077,354
------------ ------------
Total capital stock and surplus ....... $139,494,231 $135,958,215
============ ============
</TABLE>
51
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
1999 1998
---- ----
<S> <C> <C>
Premiums and annuity considerations....................... $ 52,738,461 $ 52,504,532
Other fund deposits....................................... 56,525,089 45,372,902
Other premiums, considerations and deposits............... 60,632 132,018
Allowances and reserve adjustments received on
reinsurance ceded....................................... 8,320,648 8,641,969
Investment income received (excluding realized gains
and losses and net of investment expenses).............. 64,366,476 64,693,695
Other income received..................................... 5,613,828 6,972,836
Life and accident and health claims paid.................. (53,336,172) (57,318,645)
Surrender benefits........................................ (77,994,312) (107,863,652)
Other benefits to policyholders paid...................... (349,398) (427,469)
Commissions, other expenses, and taxes paid
(excluding federal income taxes)........................ (26,342,727) (25,954,995)
Net transfers (to) from separate accounts................. (3,425,528) 21,765,038)
Cash in receivable status from separate accounts.......... -- 4,318,397
Changes in asset charges receivable....................... -- --
Dividends to policyholders paid........................... (52,953) (53,493)
Federal income taxes paid................................. (6,615,383) (8,853,213)
Net decrease in policy loans.............................. 874,942 1,046,309
------------- ------------
Net cash from operations................................ 20,383,603 4,976,229
------------- ------------
Proceeds from investments sold, matured, or repaid:
Bonds................................................... 97,801,733 112,038,884
Mortgage loans.......................................... 12,069 41,967
Tax on net capital gains................................ (1,608,247) (577,663)
------------- -------------
Total investment proceeds........................ 96,205,555 111,503,188
------------- -------------
Other cash provided....................................... 944,727 15,420,228
------------- -------------
Total cash provided.............................. 117,533,885 131,899,645
------------- -------------
Cost of investments acquired.............................. 107,370,126 136,744,391
Other cash applied:
Dividend to stockholder................................. -- --
Other applications, net................................. 16,893,159 1,250,784
------------- -------------
Total cash applied............................... 124,263,285 137,995,175
------------- -------------
Net change in cash and short-term investments.... (6,729,400) (6,095,530)
Cash and short-term investments:
Beginning of year....................................... 29,877,012 20,636,124
------------- -------------
End of year............................................. $ 23,147,612 $ 14,540,594
============= =============
</TABLE>
Note: The interim financial data as of September 30, 1999 and for the nine
months ended September 30, 1999 and September 30, 1998 is unaudited; however, in
the opinion of the Company, the interim data includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the results for the interim periods.
52
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
53
<PAGE> 55
[PRICEWATERHOUSECOOPERS LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Sentry Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Sentry Life
Insurance Company (the Company) as of December 31, 1998 and 1997, and the
related statutory-basis statements of operations, changes in capital stock and
surplus and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to report
on these financial statements based on our audits.
We conducted our audits of the accompanying financial statements in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As discussed more fully in Note 1 to the financial statements, the Company
prepared these financial statements using accounting practices prescribed or
permitted by the insurance department of the State of Wisconsin, which practices
differ from generally accepted accounting principles (GAAP). We have only been
engaged by the Company to audit the accompanying financial statements on a
statutory basis of accounting. The Company is not required to prepare GAAP
financial statements and does not prepare GAAP financial statements. The effects
on the financial statements of the variances between the statutory basis of
accounting and GAAP, although not reasonably determinable, are presumed to be
material. We are therefore required in the following paragraph to issue an
adverse opinion on GAAP.
In our opinion, because of the effects of the matter discussed in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with generally accepted accounting principles, the financial position
of Sentry Life Insurance Company as of December 31, 1998 and 1997, or the
results of its operations and its cash flows for the years then ended.
In our opinion, the statutory-basis financial statements referred to above
present fairly, in all material respects, the admitted assets, liabilities, and
capital stock and surplus of Sentry Life Insurance Company as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with accounting practices prescribed or permitted
by the insurance department of the State of Wisconsin.
Our audit was conducted for the purpose of forming an opinion on the
statutory-basis financial statements taken as a whole. The accompanying
supplemental schedule of assets and liabilities is presented to comply with the
National Association of Insurance Commissioners' annual statement instructions
and is not a required part of the statutory-basis financial statements. Such
information has been subjected to the auditing procedures applied in our audit
of the statutory basis financial statements and, in our opinion, is fairly
stated, in all material respects, in relation to the statutory-basis financial
statements taken as a whole.
/S/ PricewaterhouseCooper L.L.P.
Chicago, Illinois
February 12, 1999
54
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds........................................ $1,118,191,869 $1,103,011,418
Investments in subsidiaries.................. 9,532,940 9,817,647
Mortgage loans............................... 18,723 68,657
Policy loans................................. 24,036,498 25,020,637
Cash and short-term investments.............. 29,877,016 20,636,124
-------------- --------------
Total investments..................... 1,181,657,046 1,158,554,483
Accrued investment income...................... 18,681,577 18,231,430
Premiums deferred and uncollected.............. 4,474,663 4,377,983
Due from affiliates............................ - 3,008,778
Other assets................................... 1,177,498 6,099,831
Assets held in separate accounts............... 604,877,464 533,613,785
-------------- --------------
Total admitted assets $1,810,868,248 $1,723,886,290
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
55
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES 1998 1997
- ----------- ---- ----
<S> <C> <C>
Future policy benefits:
Life.......................................... $ 255,692,269 $ 250,618,823
Accident and health........................... 15,440,434 14,967,065
Annuity....................................... 134,582,450 138,902,775
Policy and contract claims...................... 4,140,344 4,720,182
Premium and other deposit funds................. 624,627,002 604,285,476
Other policyholder funds........................ 10,445,827 26,118,724
Accounts payable and other liabilities.......... 11,177,061 3,477,182
Federal income taxes accrued.................... 9,417,827 11,555,703
Asset valuation reserve......................... 5,706,987 5,264,578
Interest maintenance reserve.................... 7,087,699 6,175,922
Liabilities related to separate accounts........ 603,897,819 528,643,523
-------------- --------------
Total liabilities................... $1,682,215,719 $1,594,729,953
============== ==============
CAPITAL STOCK AND SURPLUS
- -------------------------
Capital stock, $10 par value; authorized
400,000 shares; issued and outstanding
316,178 shares in 1998 and 1997............... 3,161,780 3,161,780
Paid-in surplus................................. 43,719,081 43,719,081
Earned surplus, unappropriated.................. 81,771,668 82,275,476
-------------- --------------
Total capital stock and surplus....... 128,652,529 129,156,337
-------------- --------------
Total liabilities, capital
stock and surplus................... $1,810,868,248 $1,723,886,290
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
56
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
--------------------
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations............................. $ 76,847,662 $ 74,408,562
Other fund deposits............................................. 62,791,049 52,574,356
Commissions and expense allowances on
reinsurance ceded............................................. 11,560,785 18,912,935
Net investment income........................................... 93,544,822 91,589,939
Other income.................................................... 8,931,046 8,512,462
-------------- --------------
Total premiums and other income.......................... 253,675,364 245,998,254
============== ==============
Benefits and expenses:
Policyholder benefits and fund withdrawals...................... 199,613,380 188,108,969
Increase in future life policy benefits
and other reserves............................................ 21,803,214 7,695,811
Commissions..................................................... 7,358,122 10,638,144
Other expenses.................................................. 27,780,333 30,477,161
Transfers from separate accounts, net........................... (16,816,030) (16,336,976)
-------------- --------------
Total benefits and expenses............................. 239,739,019 220,553,109
-------------- --------------
Income before federal income tax expense
and net realized losses on investments.......................... 13,936,345 25,445,145
Federal income tax expense, less tax on net realized
losses and transfers to the IMR....................... 5,684,753 9,177,337
-------------- --------------
Income before net realized losses on investments.................. 8,251,592 16,267,808
Net realized losses on investments...................... (514,506) (272,063)
-------------- --------------
Net income........................................................ $ 7,737,086 $ 15,995,745
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
57
<PAGE> 59
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Capital stock, beginning and end of year.......................... $ 3,161,780 $ 3,161,780
-------------- --------------
Paid-in surplus, beginning and end of year........................ 43,719,081 43,719,081
-------------- --------------
Earned surplus, unappropriated:
Balance at beginning of year.................................... 82,275,476 67,368,745
Net income...................................................... 7,737,086 15,995,745
Change in non-admitted assets................................... (4,430) 1,850
Change in liability for reinsurance............................. (9,348) (650)
Change in asset valuation reserve............................... (442,409) 6,192,639
Dividend to stockholder......................................... (7,500,000) (7,500,000)
Change in net unrealized gains on investments................... (284,707) (217,147)
-------------- --------------
Balance at end of year.......................................... 81,771,668 82,275,476
-------------- --------------
Total capital stock and surplus $ 128,652,529 $ 129,156,337
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
58
<PAGE> 60
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
---- ----
<S> <C> <C>
Premiums and annuity considerations ........................... $ 76,630,869 $ 74,046,843
Other fund deposits ........................................... 62,791,049 52,574,356
Other premiums, considerations and deposits ................... 165,851 170,518
Allowances and reserve adjustments received on
reinsurance ceded .................................... 11,507,443 25,981,339
Investment income received (excluding realized gains
and losses and net of investment expenses) ........... 90,358,325 88,152,129
Other income received ......................................... 13,079,807 8,341,945
Life and accident and health claims paid ...................... (35,698,918) (24,600,136)
Surrender benefits ............................................ (132,575,939) (99,192,578)
Other benefits to policyholders paid .......................... (48,180,669) (46,821,006)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) ..................... (34,763,025) (41,375,759)
Net transfers from separate accounts .......................... 16,492,034 16,364,694
Cash in receivable status from separate accounts .............. - (4,318,844)
Changes in asset charges receivable ........................... - 6,765
Dividends to policyholders paid ............................... (317,700) (316,156)
Federal income taxes paid ..................................... (8,853,213) (9,002,003)
Net decrease in policy loans .................................. 984,139 368,610
-------------- ---------------
Net cash from operations ............................. 11,620,053 40,380,717
============== ===============
Proceeds from investments sold, matured, or repaid:
Bonds ................................................ 147,260,947 101,049,805
Mortgage loans ....................................... 49,934 82,308
Tax on net capital gains ............................. (577,663) (105,566)
-------------- ---------------
Total investment proceeds ................... 146,733,218 101,026,547
-------------- ---------------
Other cash provided ........................................... 17,175,517 10,746,587
-------------- ---------------
Total cash provided ......................... 175,528,788 152,153,851
-------------- ---------------
Cost of investments acquired .................................. 157,699,531 146,935,141
Other cash applied:
Dividend to stockholder .............................. 7,500,000 7,500,000
Other applications, net .............................. 1,088,365 5,819,079
-------------- ---------------
Total cash applied .......................... 166,287,896 160,254,220
-------------- ---------------
Net change in cash and short-term
investments................................ 9,240,892 (8,100,369)
Cash and short-term investments:
Beginning of year .................................... 20,636,124 28,736,493
-------------- ---------------
End of year .......................................... $ 29,877,016 $ 20,636,124
============== ===============
</TABLE>
The accompanying notes are an integral part of these statutory-basis financial
statements.
59
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION AND SIGNIFICANT STATUTORY-BASIS ACCOUNTING POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company (the Company) is a wholly-owned
subsidiary of Sentry Insurance a Mutual Company (SIAMCO). The Company
writes insurance products in all states except New York primarily through
direct writers who market the Company's individual life insurance,
annuities and group health and pension products. The Company also uses
direct mail and third party administrators for the marketing of its group
life and health products.
The accompanying statutory-basis financial statements of the Company
have been prepared in conformity with the accounting practices prescribed
or permitted by the insurance department of the State of Wisconsin.
Prescribed statutory accounting principles include a variety of
publications of the National Association of Insurance Commissioners (NAIC),
as well as state laws, regulations, and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed. The Company does not employ any material permitted
practices in the preparation of its statutory-basis financial statements.
The accompanying statutory-basis financial statements have been
prepared in accordance with statutory accounting principles which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the
NAIC. Bonds which qualify for amortization are stated at amortized
cost; bonds not qualifying are carried at the lesser of amortized cost
or NAIC market values. Under GAAP, bonds would be classified as either
trading, available for sale, or held-to-maturity. Bonds classified as
trading or as available for sale would be carried at market with
unrealized gains and losses, net of applicable taxes, recognized as
net income (trading securities) or as a direct surplus adjustment
(available for sale). Common stock of the Company's unconsolidated
subsidiary is carried at its underlying statutory capital and surplus.
The change in the subsidiary's underlying equity between years is
reflected as a change in unrealized gains (losses). Under GAAP, this
entity's balance sheet and results of operations would be consolidated
with the Company. Mortgage loans on real estate are carried at their
aggregate unpaid principal balances. Policy loans are carried at the
aggregate of unpaid principal balances plus accrued interest and are
not in excess of cash surrender values of the related policies.
Short-term investments are carried at amortized cost, which
approximates market value. Investment income is recorded when earned.
Market value adjustments, on investments carried at market, are
reflected in earned surplus as unrealized gains (losses) on
investments. Realized gains and losses are determined on the specific
identification method and are recorded directly in the statements of
operations, net of federal income taxes and after transfers to the
Interest Maintenance Reserve, as prescribed by the NAIC.
Income on mortgage-backed securities is recognized using a
constant effective yield based on anticipated prepayments and the
estimated economic life of the securities. When actual prepayments
differ significantly from anticipated prepayments, the effective yield
is recalculated to reflect actual payments to date and anticipated
future payments. The net investment in the securities is adjusted to
the amount that would have existed had the new effective yield been
applied since the acquisition of the securities. This adjustment is
reflected in net investment income.
60
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The Company issues group annuity contracts both to affiliated
companies and others. The deposits received in connection with these
contracts are placed in deposit administration funds and in separate
accounts. The Company also issues variable annuity contracts and variable
universal life contracts. Deposits for those contracts are also placed in
separate accounts. A separate account is an accounting entity segregated as
a discrete operation within an insurance company. The stockholder of the
Company and its policyholders have no claim to assets held in the separate
accounts. The contract holders are the only persons having rights to any
assets in the separate accounts or to income arising from these assets. All
separate and variable accounts held by the Company are non-guaranteed and
represent funds where the benefit is determined by the performance of the
investments held in the separate account. Assets are carried at market
value and reserves are calculated using the cash value of the contract. All
reserves fall into the category allowing discretionary withdrawals at
market value. For the variable annuity contract, if it has been in effect
at least six years, there is no surrender charge. For the variable
universal life contract, there is a surrender charge through the ninth
year. The admitted asset value of separate accounts consists primarily of
common stock.
C. NON-ADMITTED ASSETS
For statutory accounting purposes, certain assets designated as
"non-admitted" (principally certain receivables) have been excluded from
the statutory-basis balance sheets and charged to earned surplus. Under
GAAP, such assets would be recognized at net realizable value.
Non-admitted assets totaled $4,752 and $322 at December 31, 1998 and
1997, respectively.
D. POLICY BENEFITS
Liabilities for traditional life and limited-payment life contracts
are computed using methods, mortality and morbidity tables and interest
rates which conform to the valuation laws of the State of Wisconsin. The
liabilities are primarily calculated on a modified reserve basis. The
effect of using a modified reserve basis partially offsets the effect of
immediately expensing acquisition costs by providing a policy benefit
reserve increase in the first policy year which is less than the reserve
increase in renewal years.
Future policy benefits for life policies and contracts were primarily
determined using the Commissioner's reserve valuation method with interest
rates ranging from 2.5% to 6%. Additional statutory policy deficiency
reserves have been provided where the valuation net premium exceeds the
gross premiums.
Future policy benefits for annuity contracts, primarily for individual
and group deferred annuities, were primarily determined using the
Commissioner's annuity reserve valuation method with interest rates ranging
from 3% to 11%. Group Health reserves consist predominantly of long-term
disability reserves representing present value of amounts not yet due
calculated using standard disability tables and various interest rates.
Reserves for universal life-type and investment contracts are based on
the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future
benefit payments when such payments are guaranteed.
GAAP reserves are computed using mortality, withdrawal and interest
rate assumptions that are based on Company experience.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized investment gains and losses on bonds attributable to interest
rate changes are deferred in the IMR account. The IMR is recorded as a
liability and amortized into investment income over the approximate
remaining maturities of the bonds sold. This policy for recognition of such
realized gains and losses is prescribed by the NAIC in order to smooth the
impact of such activity on the Company's earned surplus. For GAAP purposes,
there is no such reserve.
61
<PAGE> 63
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets
including bonds, stocks, mortgage loans, real estate and other invested
assets. Changes in the AVR are included in policyholders' surplus. For GAAP
purposes, a writedown, for other than temporary declines in value, is
recognized as a realized loss on an individual asset basis.
G. REVENUE AND EXPENSE RECOGNITION
Premiums for traditional life insurance policies and limited-payment
contracts are taken into income when due. For investment contracts without
mortality risk (such as deferred annuities and immediate annuities with
benefits paid for a period certain) and contracts that permit the insured
to make changes in the contract terms (such as universal life products),
deposits are recorded as revenue when received. Under GAAP, deposits are
recorded as increases to liabilities and revenue is recognized as mortality
and other assessments are charged to policyholders.
As the Company has no direct employees and does not own equipment, it
utilizes services provided by employees and equipment of SIAMCO and
occupies space in SIAMCO's office building. Accordingly, the Company
participates in an expense allocation system with certain affiliated
companies. Expenses of the Company consist of direct charges incurred and
an allocation of expenses (principally salaries, salary-related items,
rent, and data processing services) between certain affiliated companies.
The Company recognized expenses of $29,212,951 and $31,900,482 for 1998 and
1997, respectively, under this allocation agreement.
H. ACQUISITION COSTS
Costs directly related to the acquisition of insurance premiums, such
as commissions and premium taxes, are charged to operations as incurred.
Under GAAP, such acquisition costs would be capitalized and amortized over
the policy periods.
I. FEDERAL INCOME TAX
The Company is included in the consolidated federal income tax return
of SIAMCO. Income taxes payable or recoverable are determined on a separate
return basis by the Company in accordance with a written tax allocation
agreement. Deferred federal income taxes are not provided for temporary
differences between tax and financial reporting as they would be under
GAAP. Additionally, federal income taxes are not provided for unrealized
gains (losses) on investments.
J. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially all
of their employees. Generally, the companies' funding and accounting
policies are to make the maximum contribution required under applicable
regulations and to charge such contributions to expense in the year they
are deductible for tax purposes. GAAP periodic net pension expense is based
on the cost of incremental benefits for employee service during the period,
interest on the projected benefit obligation, actual return on plan assets
and amortization of actuarial gains and losses.
In addition to providing the pension benefits, the Company, with
SIAMCO and its affiliated subsidiaries, provides certain health care,
dental and life insurance benefits to retired employees and their
dependents. Substantially all of the employees may become eligible for
those benefits if they reach normal retirement age while working for the
Companies. The expected costs of providing those benefits to employees and
the employees' beneficiaries and covered dependents are accounted for on an
accrual basis during the years that employees render service in accordance
with NAIC policy. SIAMCO is amortizing its transition obligation, created
upon the initial valuation of postretirement benefits, over a period of
twenty years and a portion of the annual expense is allocated to the
Company.
62
<PAGE> 64
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1998 VALUE GAINS LOSSES VALUE
----------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 44,847,324 $ 3,875,945 0 $ 48,723,269
Obligations of states and
political subdivisions 441,814 92,159 0 533,973
Corporate securities 819,379,743 73,859,271 (3,201,476) 890,037,538
Mortgage-backed securities 253,522,988 14,734,376 (20,123) 268,237,241
-------------- ---------- --------- -----------
Total $1,118,191,869 $092,561,751 $(3,221,599) $1,207,532,021
============== ============ =========== ==============
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
AT DECEMBER 31, 1997 VALUE GAINS LOSSES VALUE
------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
US Treasury securities and
obligations of US Government
corporations and agencies $ 51,872,626 $ 3,446,572 $ (609) $ 55,318,589
Obligations of states and
political subdivisions 439,817 99,564 0 539,381
Corporate securities 757,760,027 60,329,883 (1,178,355) 816,911,555
Mortgage-backed securities 292,938,948 22,571,116 (553,953) 314,956,111
-------------- ------------ ----------- --------------
Total $1,103,011,418 $ 86,447,135 $(1,732,917) $1,187,725,636
============== ============ =========== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1998, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain issuers have the right to call or prepay
obligations with or without call or prepayment penalties. Because most
mortgage-backed securities provide for periodic payments throughout their lives,
they are listed below in a separate category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
--------------- -------------
<S> <C> <C>
Due in one year or less $ 18,650,144 $ 19,101,785
Due after one year through five years 66,661,672 69,833,730
Due after five years through ten years 157,206,519 169,106,006
Due after ten years 622,150,546 681,253,259
--------------- --------------
Subtotal 864,668,881 939,294,780
Mortgage-backed securities 253,522,988 268,237,241
--------------- --------------
Total $ 1,118,191,869 $1,207,532,021
=============== ==============
</TABLE>
63
<PAGE> 65
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The bond portfolio distribution by quality rating (primarily
Moody's) at December 31, 1998 is summarized as follows:
<TABLE>
<S> <C>
Aaa 28.04%
Aa 5.35%
A 42.06%
Baa 22.98%
Ba & below and not rated 1.57%
------
100.00%
======
</TABLE>
Generally, bonds with ratings Baa and above are considered to be
investment grade.
Proceeds from sales of bonds during 1998 and 1997, including
maturities and calls, were $147,260,947 and $101,049,805,
respectively. In 1998 and 1997, respectively, gross gains of
$3,633,126 and $1,525,602, and gross losses of $508,150 and $652,460
were realized on these sales before transfer to the IMR liability.
At December 31, 1998 and 1997, investments carried at $4,335,822
and $4,384,747, respectively, were on deposit with various
governmental agencies as required by law.
(3) UNCONSOLIDATED SUBSIDIARIES
The Company wholly owed Sentry Life Insurance Company of New York
(SLONY) during 1998 and 1997. Condensed financial information
regarding SLONY is shown as follows:
<TABLE>
<CAPTION> SLONY
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Investments $33,868,989 $35,406,623
Total assets 38,308,361 38,955,256
Policy reserves and benefits 19,401,383 19,699,749
Total liabilities 28,775,421 29,137,609
Statutory capital and surplus 9,532,940 9,817,647
Premium income 7,151,770 8,331,937
Net investment income 2,627,438 2,783,625
Benefits and expenses 8,687,989 9,917,561
Net income 659,539 764,439
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Dividends received from affiliates $ 880,000 $ 750,000
Interest:
Bonds 89,112,233 87,232,271
Short-term investments 1,111,775 1,124,220
Other investments 1,676,371 1,763,787
Amortization of IMR 1,119,458 1,113,741
---------- ----------
Gross investment income 93,899,837 91,984,019
Investment expense 355,015 394,081
----------- -----------
Net investment income $93,544,822 $91,589,939
=========== ===========
</TABLE>
64
<PAGE> 66
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The components of net realized gains (losses) and changes in net
unrealized gains (losses) on investments which are reflected in the
accompanying statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
-------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Common stock of unconsolidated - - $ (284,707) $ 217,147
subsidiary
Bonds 3,124,975 873,142 - -
Capital gains tax (1,608,247) (577,663) - -
--------- ------- ------- ----------
Pre-IMR capital gains, net of tax 1,516,728 295,479 (284,707) 217,147
IMR capital gains transferred
into the reserve net of taxes (2,031,234) (567,542) - -
--------- ------- -------- ----------
$ (514,506) $ (272,063) $ (284,707) $ 217,147
========== ========== ========== ===========
</TABLE>
(5) INCOME TAXES
Federal income tax expense in the statutory-basis statements of
operations differs from that computed based on the federal statutory
corporate income tax rate of 35%. The reasons for these differences
are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 4,877,721 $ 8,905,800
Accrual of bond discount (937,906) (633,561)
Adjustment for deferred acquisition costs (33,295) 12,178
Dividends received from subsidiaries (308,000) (262,500)
Different basis used to compute future policy benefits 2,678,735 1,720,817
Amortization of interest maintenance reserve (391,810) (389,809)
Other, net) (200,692) (175,588)
----------- -----------
Total $ 5,684,753 $ 9,177,337
=========== ===========
</TABLE>
Under pre-1984 life insurance company income tax laws, a portion
of a life insurance company's "gain from operations" was not subject
to current income taxation but was accumulated, for tax purposes, in a
memorandum account designated as the "policyholders' surplus account."
The amounts included in this account are includable in taxable income
of later years at rates then in effect if the life insurance company
elects to distribute tax basis policyholders' surplus to stockholders
as dividends or takes certain other actions. Any distributions are
first made from another tax memorandum account known as the
"stockholders' surplus account." The accumulation in the tax
policyholders' surplus and stockholders' surplus accounts of the
Company were $5,605,476 and $84,735,704, respectively, at December 31,
1998. Federal income tax returns of SIAMCO have been examined through
1994 and the Company and the Internal Revenue Service have reached
agreement on all issues relating to 1994 and prior years. In the
opinion of management, the Company has adequately provided for the
possible effect of future assessments related to prior years.
(6) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of
Financial Accounting Standards No. 107 (SFAS 107), "Disclosures
about Fair Values of Financial Instruments," requires disclosure of
fair value information about financial instruments, whether or not
recognized in the balance sheets, for which it is practicable to
estimate those values. SFAS 107 defines fair value of a financial
instrument as the amount at which that instrument could be exchanged
in a current transaction between willing parties, other than in a
forced or liquidated sale.
The fair values presented on the next page represent management's
best estimates and may not be substantiated by comparisons to
independent markets and, in many cases, could not be realized in
immediate settlement of the instruments. Certain financial instruments
and all nonfinancial instruments are exempt from the disclosure
requirements of SFAS 107. Financial instruments which are exempt
include life policy benefits with mortality or morbidity risk.
Therefore, the aggregate fair value amounts presented do not represent
the underlying value of the Company.
65
<PAGE> 67
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
For cash and short-term investments and accrued investment
income, the carrying amount approximates fair value.
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is
practicable to estimate that value:
BONDS
Estimated fair value is generally based on quotes provided by
independent pricing services. If a quoted market price is not
available, fair value is estimated by management based on the quoted
market price of comparable instruments.
POLICY LOANS
Policy loans have no stated maturity dates; therefore, no
reasonable estimate of fair value can be made. Interest rates range
from 5 to 8 percent.
SEPARATE ACCOUNTS
The fair value of the assets held in separate accounts and
offsetting liabilities are estimated based on the fair value of the
underlying assets.
AGGREGATE RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of investment-type insurance contracts is estimated by
reducing the policyholder liability for applicable surrender charges.
STRUCTURED SETTLEMENTS
The fair value of the liability for structured settlements is
estimated by discounting future cash flows using the current rates
being offered for similar settlements.
LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The fair value for contracts with stated maturities is estimated by
discounting future cash flows using current rates being offered for
similar contracts. For those contracts with no stated maturity, the
fair value is estimated by calculating the surrender value.
The estimated fair values of the Company's financial instruments
are as follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1998 VALUE FAIR VALUE
--------- ----------
<S> <C> <C>
Assets:
Bonds $1,118,191,869 $1,207,532,021
Assets held in separate accounts 604,877,464 604,877,464
Liabilities:
Aggregate reserves for
investment-type contracts 75,976,747 75,638,874
Structured settlements 53,328,059 63,023,295
Liability for premium and
other deposit funds 624,627,002 624,347,222
Liabilities related to
separate accounts 603,897,819 603,897,819
</TABLE>
66
<PAGE> 68
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1997 VALUE FAIR VALUE
-------------- -----------
<S> <C> <C>
Assets:
Bonds $1,103,011,148 $1,187,725,636
Assets held in separate account 533,613,785 533,613,785
Liabilities:
Aggregate reserves for
investment-type contract s 80,815,675 80,386,603
Structured settlements 52,717,040 59,537,099
Liability for premium and
other deposit funds 604,285,476 603,300,638
Liabilities related to
separate accounts 528,643,523 528,643,523
</TABLE>
(7) PENSION AND 401K PLANS AND OTHER POSTRETIREMENT BENEFITS
The Company participates with SIAMCO and certain other affiliated
companies in a defined benefit pension plan which covers substantially
all of their employees. The benefits are based on years of service,
the average of the three highest of the last fifteen years of an
employee's compensation and primary social security benefits, as
defined in the plan. The Company is not a separately assignable entity
for purposes of allocation of accumulated plan benefits or assets. The
Company was allocated pension expense by SIAMCO of approximately $0
and $283,000 in 1998 and 1997, respectively.
The Company participates with SIAMCO and its affiliated
subsidiaries in a qualified 401k Plan. Employees who meet certain
eligibility requirements may elect to participate in the Plan.
Participants must contribute at least one percent but no more than 16
percent of base compensation. Highly compensated employees may
contribute a maximum of 10 percent on a pre-tax basis. For non-highly
compensated employees, the entire 16% may be deposited on a pre-tax
basis. The Company matches up to 25% of employee contributions up to
the first 6 percent of base salary deposited by an employee. The
Company may make additional annual contributions to the Plan based on
operating profit. The Company was allocated approximately $429,000 and
$260,000 by SIAMCO for 401k Plan benefits in 1998 and 1997,
respectively.
In addition to the above-mentioned benefits, the Company, with
SIAMCO and its affiliated subsidiaries, provides certain health care,
dental and life insurance benefits to retired employees and their
covered dependents. The retiree health care benefits allocated to the
Company by SIAMCO were approximately $470,000 for 1998 and $445,000
for 1997.
(8) REINSURANCE
The Company had entered into reinsurance contracts for
participation in reinsurance pools and surplus protection for its
wholly-owned subsidiaries. Assumed life in-force amounted to
approximately 31% and 30% of total in-force (before ceded reinsurance)
at December 31, 1998 and 1997, respectively.
The Company has entered into reinsurance ceded contracts to limit
the net loss potential arising from large risks. Generally, life
benefits in excess of $250,000 and all group health liabilities,
except for liabilities relating to SIAMCO's employee benefit plans,
are ceded to reinsurers. The group health liabilities are ceded to
SIAMCO.
67
<PAGE> 69
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
The Company cedes insurance to other insurers under various
contracts which cover individual risks or entire classes of business.
Although the ceding of insurance does not discharge the Company from
its primary liability to policyholders in the event any reinsurer
might be unable to meet the obligations assumed under the reinsurance
agreements, it is the practice of insurers to reduce their balances
for amounts ceded. The amounts included in the accompanying
statutory-basis financial statements for reinsurance were as follows:
<TABLE>
<CAPTION>
1998
(000's omitted)
---------------
AFFILIATED UNAFFILIATED
----------- --------------
ASSUMED CEDED ASSUMED CEDED
-------- ------- -------- -----
<S> <C> <C> <C> <C>
Premiums $ 306 $ 28,380 $6,459 $3,563
Benefits 372 43,926 6,539 1,634
Commissions 10 11,083 (3) 477
Future Policy Benefits:
Life & Annuities 34 - 18 1,213
Accident & Health - 226,031 175 73
Intercompany Receivable - 333 - -
</TABLE>
<TABLE>
<CAPTION>
1997
(000's omitted)
---------------
AFFILIATED UNAFFILIATED
----------- --------------
ASSUMED CEDED ASSUMED CEDED
-------- --------- -------- -----
<S> <C> <C> <C> <C>
Premiums $ 306 $ 55,101 $6,628 $7,891
Benefits 8 59,973 6,602 4,437
Commissions 5 17,718 (2) 1,195
Future Policy Benefits:
Life & Annuities 34 - 19 1,347
Accident & Health - 232,386 291 159
Intercompany Receivable - 8,650 - -
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, there are various legal actions
and proceedings pending against the Company. In the opinion of
management and legal counsel, the ultimate resolution of these matters
will not have a material adverse impact on the Company's
statutory-basis financial statements.
State guaranty funds can assess the Company for losses of
insolvent or rehabilitated companies. Mandatory assessments may be
partially recovered through a reduction in future premium taxes in
some states. The Company believes that its ultimate cost for these
assessments is not expected to have a material adverse effect on the
financial statements.
(10) OTHER RELATED PARTY TRANSACTIONS
The Company is the direct writer of certain employee benefit
plans for SIAMCO. Premiums included in the accompanying
statutory-basis statements of operations (net of ceded premiums) are
approximately $25,742,000 and $20,360,000 in 1998 and 1997,
respectively.
The Company has provided coverage in the form of annuity
contracts as structured settlements for SIAMCO workers' compensation
claims. Reserves for future policy benefits at December 31, 1998 and
1997 included $53,328,059 and $52,717,040, respectively, relating to
these contracts.
Also, see Notes 7 and 8 for other related party transactions.
(11) WITHDRAWAL CHARACTERISTICS OF ANNUITY RESERVES AND DEPOSIT LIABILITIES
Annuity reserves and deposits of approximately $1,286.0 million
and $1,202.0 million in 1998 and 1997, respectively, are subject to
withdrawal at the discretion of the annuity contract holders.
Approximately 96% and 95%, respectively, carry surrender charges.
68
<PAGE> 70
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998
69
<PAGE> 71
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1998
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
Investment Income Earned:
<S> <C>
Government Bonds ............................................ $ 322,647
Other bonds (unaffiliated) .................................. 88,789,586
Common stocks of affiliates ................................. 880,000
Mortgage loans .............................................. 4,509
Premium notes, policy loans and liens ....................... 1,631,171
Short-term investments ...................................... 1,111,775
Aggregate write-ins for investment income ................... 40,691
--------------
Gross investment income ..................................... $ 92,780,379
==============
Mortgage Loans - Book Value:
Residential mortgages ....................................... $ 18,723
==============
Mortgage Loans By Standing - Book Value:
Good standing ............................................... $ 18,723
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks ............................................... $ 9,532,940
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less ................................. $ 39,078,263
Over 1 year through 5 years ................................. 164,828,536
Over 5 years through 10 years ............................... 263,873,963
Over 10 years through 20 years .............................. 310,147,916
Over 20 years ............................................... 340,263,191
--------------
Total by Maturity ........................................... $1,118,191,869
==============
</TABLE>
70
<PAGE> 72
<TABLE>
<CAPTION>
Bonds by Class - Statement Value
<S> <C>
Class 1 ............................................... $ 798,070,889
Class 2 ............................................... 304,364,338
Class 3 ............................................... 15,756,642
Class 4 ............................................... 0
Class 5 ............................................... 0
Class 6 ............................................... 0
---------------
Total by Class ........................................ $ 1,118,191,869
===============
Total Bonds Publicly Traded ........................... $ 1,111,613,198
===============
Total Bonds Privately Placed .......................... $ 6,578,671
===============
Short-Term Investments - Book Value ........................ $ 29,877,016
===============
Cash on Deposit ....................................... $ 0
===============
Life Insurance In Force (000's omitted):
Ordinary .......................................... $ 4,684,362
===============
Group Life ........................................ $ 3,189,201
===============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted) ................................... $ 116,889
===============
Life Insurance Policies with Disability Provisions In Force:
Ordinary .......................................... 21,189
===============
Group Life ........................................ 115
===============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit ............................... $ 0
===============
Income Payable .................................. $ 390,642
===============
Ordinary - Involving Life Contingencies
Income Payable .................................. $ 195,275
===============
</TABLE>
71
<PAGE> 73
<TABLE>
<CAPTION>
Annuities:
Ordinary
<S> <C>
Immediate - Amount of Income Payable .................. $ 1,707,764
==============
Deferred - Fully paid account balance ................. $ 20,071,365
==============
Deferred - Not fully paid account balance ............. $ 89,150,724
==============
Group
Amount of income payable .............................. $ 5,081,573
==============
Fully paid account balance ............................ $ 9,507,969
==============
Not fully paid account balance ........................ $1,166,706,277
==============
Accident and Health Insurance - Premiums In Force:
Ordinary ................................................ $ 157,622
==============
Group ................................................... $ 36,000,900
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance ................ $ 349,083
==============
Claim Payments 1998:
Group Accident and Health Year - Ended December 31, 199X
1998................................................... $ 2,665,883
==============
1997................................................... $ 1,954,794
==============
1996................................................... $ 1,606,833
==============
1995 & prior .......................................... $ 7,612,173
==============
Other Accident & Health
1998................................................... $ 16,632
==============
1997................................................... $ 33,798
==============
1996................................................... $ 15,336
==============
1995 & prior .......................................... $ 89,013
==============
</TABLE>
72
<PAGE> 74
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 fees are assumed to be equivalent to an annual rate of 0.72% of
the average daily net assets of T. Rowe Price Fixed Income Series, Inc., T. Rowe
Price Equity Series, Inc., and Janus Aspen Series. The values also assume that
T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., and
Janus Aspen Series will incur other expenses annually which are assumed to be
.01% of the average daily net assets. These assumptions are based on the fee
schedules in effect as of May, 1999, and are arithmetic averages of the fees and
expenses for all Portfolios.
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%, and 12% are equivalent to net rates of
(1.78%), 4.22% and 10.22%.
The hypothetical values shown in the tables do not reflect any charges for
federal income taxes against the Variable Life Account, since the Company is not
currently making such charges. However, such charges may be made in the future
and, in that event, the gross annual investment rate of return would have to
exceed 0%, 6% or 12% by an amount sufficient to cover the tax charge in order to
produce the values illustrated.
73
<PAGE> 75
SENTRY LIFE INSURANCE COMPANY TABLE 1
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
================================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 957 315 100000
37 2 2336 2514 2004 1362 100000
38 3 3504 3866 3149 2507 100000
39 4 4672 5286 4401 3759 100000
40 5 5840 6777 5770 5256 100000
41 6 7008 8342 7266 6881 100000
42 7 8176 9985 8902 8645 100000
43 8 9344 11711 10693 10564 100000
44 9 10512 13523 12653 12653 100000
45 10 11680 15426 14801 14801 100000
55 20 23360 40552 51808 51808 100000
65 30 35040 81481 148322 148322 180953
75 40 46720 148149 392009 392009 419450
95 60 70080 433635 2503051 2503051 2528082
</TABLE>
================================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 908 266 100000
37 2 2336 2514 1896 1254 100000
38 3 3504 3866 2970 2328 100000
39 4 4672 5286 4138 3496 100000
40 5 5840 6777 5407 4893 100000
41 6 7008 8342 6784 6399 100000
42 7 8176 9985 8281 8025 100000
43 8 9344 11711 9910 9781 100000
44 9 10512 13523 11681 11681 100000
45 10 11680 15426 13610 13610 100000
55 20 23360 40552 46269 46269 100000
65 30 35040 81481 132036 132036 161083
75 40 46720 148149 348198 348198 372572
95 60 70080 433635 2189749 2189749 2211647
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
74
<PAGE> 76
SENTRY LIFE INSURANCE COMPANY TABLE 2
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
================================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 899 257 100000
37 2 2336 2514 1829 1187 100000
38 3 3504 3866 2788 2146 100000
39 4 4672 5286 3778 3136 100000
40 5 5840 6777 4798 4284 100000
41 6 7008 8342 5848 5463 100000
42 7 8176 9985 6929 6672 100000
43 8 9344 11711 8041 7913 100000
44 9 10512 13523 9186 9186 100000
45 10 11680 15426 10364 10364 100000
55 20 23360 40552 23788 23788 100000
65 30 35040 81481 38743 38743 100000
75 40 46720 148149 49233 49233 100000
95 60 70080 433635 0 0 100000
</TABLE>
================================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 852 210 100000
37 2 2336 2514 1727 1085 100000
38 3 3504 3866 2623 1981 100000
39 4 4672 5286 3542 2900 100000
40 5 5840 6777 4480 3967 100000
41 6 7008 8342 5437 5052 100000
42 7 8176 9985 6411 6154 100000
43 8 9344 11711 7403 7275 100000
44 9 10512 13523 8410 8410 100000
45 10 11680 15426 9433 9433 100000
55 20 23360 40552 20172 20172 100000
65 30 35040 81481 28594 28594 100000
75 40 46720 148149 20282 20282 100000
95 60 70080 433635 0 0 100000
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
75
<PAGE> 77
SENTRY LIFE INSURANCE COMPANY TABLE 3
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 1
Annual Premium: 1168.
State: WI
================================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 842 200 100000
37 2 2336 2514 1660 1018 100000
38 3 3504 3866 2455 1813 100000
39 4 4672 5286 3226 2584 100000
40 5 5840 6777 3972 3458 100000
41 6 7008 8342 4691 4305 100000
42 7 8176 9985 5383 5126 100000
43 8 9344 11711 6048 5920 100000
44 9 10512 13523 6686 6686 100000
45 10 11680 15426 7296 7296 100000
55 20 23360 40552 11404 11404 100000
65 30 35040 81481 9125 9125 100000
75 40 46720 148149 0 0 100000
95 60 70080 433635 0 0 100000
</TABLE>
================================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 1168 1226 796 154 100000
37 2 2336 2514 1564 922 100000
38 3 3504 3866 2305 1663 100000
39 4 4672 5286 3015 2373 100000
40 5 5840 6777 3694 3181 100000
41 6 7008 8342 4340 3955 100000
42 7 8176 9985 4951 4694 100000
43 8 9344 11711 5525 5397 100000
44 9 10512 13523 6062 6062 100000
45 10 11680 15426 6561 6561 100000
55 20 23360 40552 8919 8919 100000
65 30 35040 81481 2363 2363 100000
75 40 46720 148149 0 0 100000
95 60 70080 433635 0 0 100000
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
76
<PAGE> 78
SENTRY LIFE INSURANCE COMPANY TABLE 4
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
================================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 2096 1450 102096
37 2 4562 4910 4397 3751 104397
38 3 6843 7550 6922 6276 106922
39 4 9124 10323 9693 9047 109693
40 5 11405 13234 12732 12215 112732
41 6 13686 16291 16066 15679 116066
42 7 15967 19501 19725 19466 119725
43 8 18248 22871 23739 23609 123739
44 9 20529 26409 28144 28144 128144
45 10 22810 30125 32979 32979 132979
55 20 45620 79195 116403 116403 216403
65 30 68430 159124 326548 326548 426548
75 40 91240 289321 854882 854882 954882
95 60 136860 846851 5460781 5460781 5560781
</TABLE>
================================================================================
Summary of end of year values assuming a 12.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- -------- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 2047 1401 102047
37 2 4562 4910 4287 3641 104287
38 3 6843 7550 6739 6093 106739
39 4 9124 10323 9421 8775 109421
40 5 11405 13234 12354 11838 112354
41 6 13686 16291 15561 15174 115561
42 7 15967 19501 19067 18809 119067
43 8 18248 22871 22902 22773 122902
44 9 20529 26409 27094 27094 127094
45 10 22810 30125 31680 31680 131680
55 20 45620 79195 109424 109424 209424
65 30 68430 159124 299982 299982 399982
75 40 91240 289321 766538 766538 866538
95 60 136860 846851 4667411 4667411 4767411
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
77
<PAGE> 79
SENTRY LIFE INSURANCE COMPANY TABLE 5
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
================================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1976 1330 101976
37 2 4562 4910 4027 3381 104027
38 3 6843 7550 6153 5507 106153
39 4 9124 10323 8357 7711 108357
40 5 11405 13234 10640 10123 110640
41 6 13686 16291 13004 12616 113004
42 7 15967 19501 15451 15192 115451
43 8 18248 22871 17984 17855 117984
44 9 20529 26409 20605 20605 120605
45 10 22810 30125 23318 23318 123318
55 20 45620 79195 55629 55629 155629
65 30 68430 159124 96326 96326 196326
75 40 91240 289321 136221 136221 236221
95 60 136860 846851 27109 27109 127109
</TABLE>
================================================================================
Summary of end of year values assuming a 6.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1928 1282 101928
37 2 4562 4910 3923 3277 103923
38 3 6843 7550 5985 5339 105985
39 4 9124 10323 8114 7468 108114
40 5 11405 13234 10310 9793 110310
41 6 13686 16291 12574 12187 112574
42 7 15967 19501 14906 14648 114906
43 8 18248 22871 17307 17178 117307
44 9 20529 26409 19777 19777 119777
45 10 22810 30125 22316 22316 122316
55 20 45620 79195 51424 51424 151424
65 30 68430 159124 83794 83794 183794
75 40 91240 289321 103281 103281 203281
95 60 136860 846851 0 0 100000
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
78
<PAGE> 80
SENTRY LIFE INSURANCE COMPANY TABLE 6
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: SUE AGENT
Issue Age: 35 MALE Initial Specified Amount: 100000.
Rating Class: STD. NON SMOKER Death Benefit Option 2
Annual Premium: 2281.
State: WI
================================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on CURRENT mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1857 1211 101857
37 2 4562 4910 3671 3025 103671
38 3 6843 7550 5443 4797 105443
39 4 9124 10323 7171 6525 107171
40 5 11405 13234 8856 8339 108856
41 6 13686 16291 10495 10108 110495
42 7 15967 19501 12090 11831 112090
43 8 18248 22871 13639 13510 113639
44 9 20529 26409 15142 15142 115142
45 10 22810 30125 16600 16600 116600
55 20 45620 79195 28191 28191 128191
65 30 68430 159124 31561 31561 131561
75 40 91240 289321 17576 17576 117576
95 60 136860 846851 0 0 100000
</TABLE>
================================================================================
Summary of end of year values assuming a 0.00% gross rate of return
This illustration is based on GUARANTEED mortality costs
<TABLE>
<CAPTION>
PREMIUMS
SUM OF ACCUM.
AGE YEAR PREMIUMS PAID @ 5% CASH VALUE SURRENDER VALUE DEATH BENEFIT
- --- ---- ------------- ---- ---------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
36 1 2281 2395 1810 1164 101810
37 2 4562 4910 3574 2928 103574
38 3 6843 7550 5829 4643 105289
39 4 9124 10323 6955 6309 106955
40 5 11405 13234 8569 8052 108569
41 6 13686 16291 10130 9743 110130
42 7 15967 19501 11637 11379 111637
43 8 18248 22871 13088 12959 113088
44 9 20529 26409 14482 14482 114482
45 10 22810 30125 15818 15818 115818
55 20 45620 79195 25470 25470 125470
65 30 68430 159124 24544 24544 124544
75 40 91240 289321 923 923 100923
95 60 136860 846851 0 0 100000
</TABLE>
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
79
<PAGE> 81
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 Section 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> 82
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 79 pages.
The undertaking to file reports.
The signatures.
Written consents of the following persons:
Dean A. Klingenberg, FSA, MAAA
PricewaterhouseCoopers LLP, Independent Accountant
Blazzard, Grodd & Hasenauer, P.C.
The following exhibits:
A. Copies of all exhibits required by paragraph A of instructions for
exhibits in Form N-8B-2.
1. Resolutions of the Board of Directors of Sentry Life
Insurance Company*
2. None
3a. Principal Underwriter's Agreement*
3b. Registered Representatives Agreement*
3c. General Agent Agreement*
4. Not Applicable
5. Flexible Premium Variable Life Insurance Policy*
Amendatory Riders for Various States*
6a. Articles of Incorporation of the Company*
6b. Bylaws of the Company*
7. Not Applicable
8. Not Applicable
9a. Fund Participation Agreement with T. Rowe Price Fixed Income
Series, Inc. and T. Rowe Price Equity Series, Inc.
9b. Fund Participation Agreement with Janus Aspen Series
10. Application Form
11. Memorandum of Exchange Right*
27. Not Applicable
B. Opinion and Consent of Counsel
C. Consent of Independent Accountant
D. Consent of Actuary
* Incorporated herein by reference to Registrant's Post Effective
Amendment No. 13 filed electronically on or about April 30, 1997.
<PAGE> 83
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 27th day
of December, 1999. The Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this Registration Statement.
Sentry Variable Life Account I, Registrant
BY: Sentry Life Insurance Company
BY: s/Dale R. Schuh
-------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
Sentry Life Insurance Company, Depositor
BY: s/Dale R. Schuh
-------------------------------------
Dale R. Schuh, Chairman of the Board,
President and Director
<PAGE> 84
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 December 27, 1999
- ----------------------------------
Dale R. Schuh, Chairman of the
Board, President and Director
s/Wallace D. Taylor December 27, 1999
- ----------------------------------
Wallace D. Taylor, Vice President
s/William M. O'Reilly December 27, 1999
- ----------------------------------
William M. O'Reilly, Secretary and
Director
s/William J. Lohr December 27, 1999
- ----------------------------------
William J. Lohr, Treasurer and
Director
s/Janet L. Fagan December 27, 1999
- ----------------------------------
Janet L. Fagan, Director
s/James J. Weishan December 27, 1999
- ----------------------------------
James J. Weishan, Director
<PAGE> 85
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 17
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
Exhibit A(10) Application Form
Exhibit A(9)(a) Fund Participation Agreement with T. Rowe Price Fixed Income
Series, Inc. and T. Rowe Price Equity Series, Inc.
Exhibit A(9)(b) Fund Participation Agreement with Janus Aspen Series
Exhibit B Written Consent of Counsel
Blazzard, Grodd & Hasenauer, P.C.
Exhibit C Written Consent of Independent Accountant
PricewaterhouseCoopers LLP
Exhibit D Written Consent of Actuary
Dean A. Klingenberg, FSA, MAAA
<PAGE> 1
EXHIBIT A(10)
<PAGE> 2
[SENTRY LIFE INSURANCE COMPANY LETTERHEAD]
SUPPLEMENTARY APPLICATION
Proposed Insured(s):
---------------------------------------------------
The Policy Applied For Is: Flexible Premium Variable Life Insurance with
[ ] Death Benefit Option 1 [ ] Death Benefit Option 2
The Person(s) Who Sign(s) Below:
1) UNDERSTANDS THAT IF DEATH BENEFIT OPTION 1 IS SELECTED, THE
DEATH BENEFIT (EXCEPT ANY SUPPLEMENTARY BENEFITS) WILL GO UP
OR DOWN DEPENDING ON THE POLICY'S INVESTMENT EXPERIENCE WHEN
THE DEATH BENEFIT IS EQUAL TO THE CASH VALUE MULTIPLIED BY A
CORRIDOR PERCENTAGE, AND ALSO, UNDERSTANDS THAT IF DEATH
BENEFIT OPTION 2 IS SELECTED, THE DEATH BENEFIT (EXCEPT ANY
SUPPLEMENTARY BENEFITS) WILL ALSO GO UP OR DOWN DEPENDING ON
THE POLICY'S INVESTMENT EXPERIENCE. HOWEVER, THE DEATH
BENEFIT WILL NEVER BE LESS THAN THE GUARANTEED MINIMUM WHILE
THE POLICY IS IN EFFECT AND THERE IS NO POLICY DEBT.
2) UNDERSTANDS THAT THE CASH VALUES MAY GO UP OR GO DOWN DEPEND-
ING ON THE POLICY'S INVESTMENT EXPERIENCE, AND THAT THERE IS
NO GUARANTEED MINIMUM CASH VALUE.
3) UNDERSTANDS THAT THE CASH VALUE WILL BE INVESTED IN THE T.
ROWE PRICE FIXED INCOME SERIES, INC. PRIME RESERVE PORTFOLIO
UNTIL 25 DAYS AFTER THE POLICY EFFECTIVE DATE.
The net premiums (as described in the prospectus) are to be allocated to the
appropriate subaccount of Sentry Variable Life Account I as follows:
T. Rowe Price Fixed Income Series, Inc.
--------------------------------------
PRIME RESERVE PORTFOLIO............
-------------%
LIMITED-TERM BOND PORTFOLIO........
-------------%
T. Rowe Price Equity Series, Inc.
--------------------------------------
PERSONAL STRATEGY BALANCED PORTFOLIO
-------------%
Janus Aspen Series
---------------------------------------
AGGRESSIVE GROWTH PORTFOLIO..........
------------%
Total Allocation must equal 100 %
If any portion of a net premium is allocated to a particular subaccount, that
portion must be at least 10% on the date the allocation takes effect. All
percentage allocations must be in whole numbers
(e.g. 33% can be selected, but 33 1/3% cannot).
YES NO
DID THE POLICYOWNER RECEIVE THE CURRENT PROSPECTUS FOR THE POLICY? [ ] [ ]
DOES THE POLICYOWNER BELIEVE THAT THIS POLICY WILL MEET INSURANCE
NEEDS AND FINANCIAL OBJECTIVES? [ ] [ ]
DOES THE POLICYOWNER REQUEST AND HEREBY AGREE TO THE TERMS AND
CONDITIONS OF THE TELEPHONE EXCHANGE PRIVILEGE AS STATED ON THE
REVERSE SIDE? [ ] [ ]
<TABLE>
<S> <C> <C> <C>
- ---------- ---------------------------------------- --------- ----------------------------
Date Signature of Proposed Insured Date Signature of Policyowner
- --------- ----------------------------------------- --------- ----------------------------
Date Signature of Spouse (if to be insured) Date Signature of Policyowner
- --------- -----------------------------------------------------------------------------------
Date Signature(s) of Legal Aged Children (if to be insured)
380-931(RPT4) 1-00
</TABLE>
<PAGE> 3
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
TELEPHONE EXCHANGE PRIVILEGE
The policyowner hereby authorizes Sentry Insurance Company to honor any
telephone exchange instructions from any person to effect a transfer of
all or part of the Policy Values between Eligible Mutual Fund(s) or
Portfolio(s) subject to the minimums stated in the policy provisions.
The Company will employ reasonable procedures to confirm that telephone
transfer requests are legitimate. The Company will not be liable for
complying with telephone requests it believes to be legitimate and for which it
followed reasonable procedures to ensure legitimacy. Sentry Life Insurance
Company reserves the right to reject any telephone exchange instructions. The
policyowner understands and agrees that this exchange privilege is for the
convenience of the policyowner and may be suspended or revoked for any reason
at any time without prior notice.
INSTRUCTIONS FOR TELEPHONE EXCHANGES
1. The authorization, on the reverse side, must be completed by the policyowner
before any telephone exchange instructions will be honored.
2. When you wish to effect an exchange in your account, telephone the Variable
Life Department at 1-800-533-7827. Be prepared to state the name of the
account, your account number and your social security number.
3. If your telephone call is received on any business day BEFORE 3:00 P.M.
CENTRAL TIME, the exchange of accumulation units will be made on the basis
of the Valuation Period as of the close of that same day. If your telephone
call is received AFTER 3:00 P.M. CENTRAL TIME, the exchange of accumulation
units will be made on the basis of the Valuation Period next following the
day your telephone call was received.
<PAGE> 1
EXHIBIT A(9)(a)
<PAGE> 2
PARTICIPATION AGREEMENT
AMONG
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
SENTRY LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of June, 1999 by
and among Sentry Life Insurance Company (hereinafter, the "Company"), a
Wisconsin insurance company, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each account hereinafter referred to as the "Account"), and
the undersigned funds, each, a corporation organized under the laws of Maryland
(each hereinafter referred to as the "Fund") and T. Rowe Price Investment
Services, Inc. (hereinafter the "Underwriter"), a Maryland corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life, insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
<PAGE> 3
2
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered certain variable life insurance or
variable annuity contracts supported wholly or partially by the Account (the
"Contracts") under the 1933 Act, and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account; established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered the Account as a unit investment trust
under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, said Accounts presently utilize as their investment vehicle another
investment company (the "Predecessor Investment Company"), but the Company has
indicated its intention to secure necessary regulatory approvals to terminate
the agreement with the Predecessor Investment Company; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts upon completion of the termination of the present agreement
with the Predecessor Investment Company, and the Underwriter is authorized to
sell such shares to unit investment trusts such as the Account at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows upon completion of the termination of
the present agreement with the Predecessor Investment Company:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value
<PAGE> 4
3
next computed after receipt by the Fund or its designee of the order for the
shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Designated Portfolios will be sold to the general public. The Fund and
the Underwriter will not sell Fund shares to any insurance company or separate
account unless an agreement containing provisions substantially the same as
Articles I, III and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the designee
of the Fund for receipt of purchase and redemption orders from the Account,
and receipt by such designee shall constitute receipt by the Fund; provided that
the Company receives the order by 4:00 p.m. Baltimore time and the Fund receives
notice of such order by 9:30 a.m. Baltimore time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value pursuant
to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each Designated
Portfolio offered by the then current prospectus of the Fund and in accordance
with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares one Business Day after receipt of
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.5 hereof. Payment shall be in federal funds transmitted by wire by
3:00 p.m. Baltimore time. If payment in Federal Funds for any purchase is not
received or is received by the Fund after 3:00 p.m. Baltimore time on such
Business Day, the Company shall promptly, upon the Funds request,
<PAGE> 5
4
reimburse the Fund for any charges, costs, fees, interest or other expenses
incurred by the Fund in connection with any advances to, or borrowings or
overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of
the federal funds so wired, such funds shall cease to be the responsibility of
the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Funds shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to receive
all such income dividends and capital gain distributions in cash. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time. If the net asset value is
materially incorrect through no fault of the Company, the Company on behalf of
each Account, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value in accordance with
Fund procedures. Any material error in the net asset value shall be reported to
the Company promptly upon discovery. Any administrative or other costs or losses
incurred for correcting underlying Contract owner accounts shall be at Company's
expense.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws,
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Wisconsin insurance laws and has registered or, prior to any issuance or sale
of the Contracts, will register the Account as a
<PAGE> 6
5
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with the laws of the state of Wisconsin and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have
the Board, a majority of whom are not interested persons of the Fund, formulate
and approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Wisconsin to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Wisconsin and any applicable state
and federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Wisconsin and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule l7g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
<PAGE> 7
6
2.9 The Company represents and warrants that all of its directors, officers,
employees, and other individuals/entities employed or controlled by the Company
dealing with the money and/or securities of the Fund are covered by a blanket
fidelity bond or similar coverage in an amount not less than $5 million. The
aforesaid bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company. The Company agrees that any amounts received under
such bond in connection with claims that arise from the arrangements described
in this Agreement will be held by the Company for the benefit of the Fund. The
Company agrees to make all reasonable efforts to see that this bond or another
bond containing these provisions is always in effect, and agrees to notify the
Fund and the Underwriter in the event that such coverage no longer applies. The
Company agrees to exercise its best efforts to ensure that other
individuals/entities not employed or controlled by the Company and dealing with
the money and/or securities of the Fund maintain a similar bond or coverage in a
reasonable amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
or on a diskette, at the Fund's expense) and other assistance as is reasonably
necessary in order for the Company (at the Company's expense) once each year (or
more frequently if the prospectus for the Fund is amended) to have the
prospectus for the Contracts and the Fund's prospectus printed together in one
document (such printing to be at the Company's expense).
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide sufficient copies
of such SAI free of charge to the Company for itself; and for any owner of a
Contract who requests such SAI. The Company shall send an SAI to any such
Contract owner within 3 business days of the receipt of a request.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners in the Fund. The Underwriter (at the Company's
expense) shall provide the Company with copies of the Fund's annual and
semi-annual reports to shareholders in such quantity as the Company shall
reasonably request for use in connection with offering the Variable Contracts
issued by the Company. If requested by the Company in lieu thereof, the
Underwriter shall provide such documentation (which may include a final copy of
the Fund's annual and semi-annual reports as set in type or on diskette) and
other assistance as is reasonably necessary in order for the Company (at the
Company's expense) to print such shareholder communications for distribution to
Contract owners. The Company shall send a copy of the Fund's annual or
semi-annual report within 3 business days of the receipt of a request by a
Contract owner.
<PAGE> 8
7
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received from
Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Designated Portfolio
for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least ten calendar days prior to
its use. No such material shall be used if the Fund or its designee reasonably
object to such use within ten calendar days after receipt of such material. The
Fund or its designee reserves the right to reasonably object to the continued
use of such material, and no such material shall be used if the Fund or its
designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
<PAGE> 9
8
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
ten calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within ten calendar days after receipt of
such material. The Company reserves the right to reasonably object to the
continued use of such material and no such material shall be used if the Company
so objects.
4.4. The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus, or SAI for the Contracts, as such
registration statement, prospectus or SAI may be amended or supplemented from
time to time, or in published reports for the Account which are in the public
domain or approved by the Company for distribution to Contract owners, or in
sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, within a reasonable time after the filing of
such document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, within a reasonable time
after the filing of such document(s) with the SEC or other regulatory
authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements
<PAGE> 10
9
a plan pursuant to Rule 12b-1 to finance distribution expenses, then the
Underwriter may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing, and such
payments will be made out of existing fees otherwise payable to the Underwriter,
past profits of the Underwriter, or other resources available to the
Underwriter. No such payments shall be made directly by the Fund. Currently, no
such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear, the expenses for the cost of registration and
qualification of the Funds shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 The Fund will invest the assets of each Designated Portfolio in such a
manner as to ensure that the Contracts will be treated as annuity, endowment, or
life insurance contracts, whichever is appropriate, under the Internal Revenue
Code of 1986, as amended (the "Code") and the regulations issued thereunder (or
any successor provisions). Without limiting the scope of the foregoing, each
Designated Portfolio of the Fund will comply with Section 817(h) of the Code and
Treasury Regulation ss. 1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications or successor
provisions to such Section or Regulations. In the event of a breach of this
Article VI by the Fund, it will take all reasonable steps (a) to notify the
Company of such breach and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 817.5.
6.2 The Fund represents that each Designated Portfolio is or will be
qualified as a Regulated Investment Company under Subchapter M of the Code, and
that it will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that it has ceased to
so qualify or that it might not so qualify in the future.
6.3 The Company represents that the Contracts are currently, and at the time
of issuance shall be, treated as life insurance, endowment contracts, or annuity
insurance contracts, under applicable provisions of the Code, and that it will
make every effort to maintain such treatment, and that it will notify the Fund
and the Underwriter immediately upon having a reasonable basis for believing the
Contracts have ceased to be so treated or that they might not
<PAGE> 11
10
be so treated in the futures. The Company agrees that any prospectus offering a
contract that is a "modified endowment contract" as that term is defined in
Section 7702A of the Code (or any successor or similar provision), shall
identify such contract as a modified endowment contract.
ARTICLE VII. Potential Conflicts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a
<PAGE> 12
11
majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then
the Company will withdraw the Account's investment in the Fund and terminate
this Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination; provided, however, that such withdrawal
and termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
the Underwriter and each of their officers and directors and each person, if
any, who controls the
<PAGE> 13
12
Fund or the Underwriter within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of the Fund's shares or
the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement prospectus, or statement of additional
information ("SAI") for the Contracts or contained in the
Contracts or sales literature or other promotional material for
the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Company by or on
behalf of the Fund for use in the Registration Statement,
prospectus or SAI for the Contracts or in the Contracts or sales
literature or other promotional material (or any amendment or
supplement) or otherwise for use in connection with the sale of
the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature or other
promotional material of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company or
persons under its authorization or control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the Fund
or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
<PAGE> 14
13
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons Or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the, claim at its own expense, provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties
or their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company each of it directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts;
and
<PAGE> 15
14
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or SAI or sales literature or
other promotional material of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Underwriter or Fund by or on behalf
of the Company for use in the Registration Statement or prospectus
for the Fund or in sales literature or other promotional material
(or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in
Registration Statement, prospectus or sales literature or other
promotional material for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of
the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus,
SAI, or sales literature or other promotional material of the
Contracts, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information famished the
Company by or on behalf of the Fund; or
(iv) arise as a result of any material failure by the Fund to provide
the services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
in faith or otherwise, to comply with the diversification and
other qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter;
<PAGE> 16
15
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
<PAGE> 17
16
(i) arise as a result of any material failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the expense thereof, with counsel satisfactory to the party named in
the action and to settle the claim at its own expense; provided, however, that
no such settlement shall, without the Indemnified Parties' written consent,
include any factual stipulation referring to the Indemnified Parties or their
conduct. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
<PAGE> 18
17
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1 This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by six (6) months' advance written
notice delivered to the other parties; however, this agreement
shall remain in effect for such time after the six-month period
has expired as is necessary for the Company to obtain regulatory
approval for substitution of the Designated Portfolios; or
(b) termination by the Company by written notice to the Fund and the
underwriter with respect to any Designated Portfolio based upon
the Company's determination that shares of the Fund are not
reasonably available to meet the requirements of the Contracts;
provided that such termination shall apply only to the Designated
Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's shares
are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Fund shares; provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
<PAGE> 19
18
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund or Underwriter by the
NASD, the SEC, or any state securities or insurance department or
any other regulatory body; provided, however, that the Company
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event
that such Designated Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified in Article
VI hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the
qualifications specified in Section 6.3 hereof; or if the Fund or
Underwriter reasonably believes that such Contracts may fail to so
qualify; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
<PAGE> 20
19
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) pursuant
to the terms of a substitution order issued by the SEC pursuant to Section 26(b)
of the 1940 Act. Upon request, the Company will promptly furnish to the Fund and
the Underwriter the opinion of counsel for the Company (which counsel shall be
reasonably satisfactory to the Fund and the Underwriter) to the effect that any
redemption pursuant to clause (ii) above is a Legally Required Redemption.
Furthermore, except in cases where permitted under the terms of the Contracts,
the Company shall not prevent Contract owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, Wisconsin 54481
Attention: Jerry Stanford
With a copy to:
Legal Department
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, Wisconsin 54481
Attention: Ken Erler
<PAGE> 21
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If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All references herein to the Fund are to each of the undersigned Funds
as if this agreement were between such individual Fund and the Underwriter and
the Company. All references herein to the Adviser relate solely to the Adviser
of such individual Fund, as appropriate. All persons dealing with a Fund must
look solely to the property of such Fund, and in the case of a series company,
the respective Designated Portfolio listed on Schedule A hereto as though such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Wisconsin Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with
Wisconsin variable annuity laws and regulations and any other applicable law or
regulations.
<PAGE> 22
21
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
12.9 The Company shall furnish or cause to be furnished, to the Fund or its
designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year
(b) the Company's quarterly statements (statutory) (and GAAP, if any), as
soon as practical and in any event within 45 days after the end of each
quarterly period.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: SENTRY LIFE INSURANCE COMPANY
By its authorized officer
By: /s/ W. O'Reilly
-------------------------------------
William M. O'Reilly
Title: Secretary
----------------------------------
Date: June 1, 1999
-----------------------------------
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:
-------------------------------------
(signature not readable)
Title: Vice President
----------------------------------
Date: June 1, 1999
-----------------------------------
<PAGE> 23
22
FUND: T. ROWE PRICE FIXED INCOME SERIES, INC.
By its authorized officer
By:
-------------------------------------
(signature not readable)
Title: Vice President
----------------------------------
Date: June 1, 1999
-----------------------------------
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By:
-------------------------------------
(signature not readable)
Title: Vice President
----------------------------------
Date: June 1, 1999
-----------------------------------
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:
-------------------------------------
(signature not readable)
Title: Vice President
----------------------------------
Date: June 1, 1999
-----------------------------------
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT
AND DATE ESTABLISHED BY CONTRACTS FUNDED BY
BOARD OF DIRECTORS SEPARATE ACCOUNT DESIGNATED PORTFOLIOS
- ------------------------ ------------------- ---------------------
<S> <C> <C>
Sentry Variable Account II Individual Flexible T. Rowe Price Equity Series, Inc.
Established August 2, 1983 Purchase Payment ---------------------------------
Deferred Variable Annuity - T. Rowe Price Equity Income Portfolio
- T. Rowe Price Personal Strategy Balanced
Portfolio
T. Rowe Price Fixed Income Series, Inc.
---------------------------------------
- T. Rowe Price Limited-Term Bond
Portfolio
- T. Rowe Price Prime Reserve Portfolio
T. Rowe Price International Series, Inc.
----------------------------------------
- T. Rowe Price International Stock
Portfolio
Sentry Variable Life Account I Flexible Premium Variable T. Rowe Price Equity Series, Inc.
Established February 12, 1985 Life Insurance ---------------------------------
- T. Rowe Price Equity Income Portfolio
- T. Rowe Price Personal Strategy Balanced
Portfolio
T. Rowe Price Fixed Income Series, Inc.
---------------------------------------
- T. Rowe Price Limited-Term Bond
Portfolio
- T. Rowe Price Prime Reserve Portfolio
T. Rowe Price International Series, Inc.
----------------------------------------
- T. Rowe Price International Stock
Portfolio
</TABLE>
<PAGE> 1
EXHIBIT A(9)(b)
<PAGE> 2
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this 1st day of June, 1999, between JANUS ASPEN
SERIES, an open-end management investment company organized as a Delaware
business trust (the "Trust"), and Sentry Life Insurance Company, a life
insurance company organized under the laws of the State of Wisconsin (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Trust has registered with the Securities and Exchange
Commission as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"), and has registered the offer
and sale of its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS the Trust desires to act as an investment vehicle for separate
accounts established for variable life insurance policies and variable annuity
contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Trust is divided into several series
of shares, each series representing an interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the Securities and Exchange
Commission granting Participating Insurance Companies and their separate
accounts exemptions from the provisions of Section 9(a), 13(a), 15(a) and 15(b)
of the 1940 Act, and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the
extent necessary to permit shares of the Trust to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Exemptive Order"); and
WHEREAS, the Company has registered certain variable life insurance policies
and/or variable annuity contracts under the 1933 Act (the "Contracts"); and
WHEREAS, the Company has registered each Account as a unit investment trust
under the 1940 Act; and
WHEREAS, said Accounts presently utilize as their investment vehicle another
investment company (the "Predecessor Investment Company"), but Company has
indicated its intention to secure necessary regulatory approvals to terminate
the agreements with the Predecessor Investment Company, and
WHEREAS, the Company desires to utilize shares of one or more Portfolios as
an investment vehicle of the Accounts upon completion of the termination of the
present arrangement with the Predecessor Investment Company.
1
<PAGE> 3
NOW, THEREFORE, in consideration of their mutual promises, the parties agree
as follows upon the termination of the arrangements with the Predecessor
Investment Company;
ARTICLE I
Sale of Trust Shares
1.1 The Trust shall make shares of its Portfolios available to the Accounts
at the net asset value next computed after receipt of such purchase order by the
Trust (or its agent), as established in accordance with the provisions of the
then current prospectus of the Trust. Shares of a particular Portfolio of the
Trust shall be ordered in such quantities and at such times as determined by the
Company to be necessary to meet the requirements of the Contracts. The Trustees
of the Trust (the "Trustees") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.2 The Trust will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset value
next computed after receipt of the Trust (or its agent) of the request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Trust. The Trust shall make payment for such shares in
the manner established from time to time by the Trust, but in no event shall
payment be delayed for a greater period than is permitted by the 1940 Act.
1.3 For the purposes of Sections 1.1 and 1.2, the Trust hereby appoints the
Company: as its agent for the limited purpose of receiving and accepting
purchase and redemption orders resulting from investment in and payments under
the Contracts. Receipt by the Company shall constitute receipt by the Trust
provided that i) such orders are received by the Company in good order prior to
the time the net asset value of each Portfolio is priced in accordance with its
prospectus and ii) the Trust receives notice of such orders by 10:00 a.m. New
York time on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Purchase orders that are transmitted to the Trust in accordance with
Section 1.3 shall be paid for no later than 12:00 noon New York time on the same
Business Day that the Trust receives notice of the order. Payments shall be made
in federal funds transmitted by wire.
1.5 Issuance and transfer of the Trust's shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from the Trust will be recorded in the appropriate title for each
Account or the appropriate subaccount of each Account.
1.6 The Trust shall furnish prompt notice to the Company of any income
dividends or capital gain distributions payable on the Trust's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
2
<PAGE> 4
1.7 The Trust shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6 p.m. New York time.
1.8 The Trust agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified pension
and retirement plans to the extent permitted by the Exemptive Order. No shares
of any Portfolio will be sold directly to the general public. The Company agrees
that Trust shares will be used only for the purposes of funding the Contracts
and Accounts listed in Schedule A, as amended from time to time.
1.9 The Trust agrees that all Participating Insurance Companies shall have
the obligations and responsibilities regarding pass-through voting and conflicts
of interest corresponding to those contained in Section 2.8 and Article IV of
this Agreement.
ARTICLE II
Obligations of the Parties
2.1 The Trust shall prepare and be responsible for filing with the
Securities and Exchange Commission and any state regulators requiring such
filing all shareholder reports, notices, proxy materials (or similar materials
such as voting instruction solicitation materials), prospectuses and statements
of additional information of the Trust. The Trust shall bear the costs of
registration and qualification of its shares, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is
subject on the issuance and transfer of its shares.
2.2 At the option of the Company, the Trust shall either (a) provide the
Company (at the Company's expense) with as many copies of the Trust's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any amendments or supplements to any of the foregoing,
as the Company shall reasonably request; or (b) provide the Company with a
camera ready copy of such documents in a form suitable for printing. The Trust
shall provide the Company with a copy of its statement of additional information
in a form suitable for duplication by the Company. The Trust (at its expense)
shall provide the Company with copies of any Trust-sponsored proxy materials in
such quantity as the Company shall reasonably require for distribution to
Contract owners.
2.3 (a) The Company shall bear the costs of printing and distributing the
Trust's prospectus, statement of additional information, shareholder reports and
other shareholder communications to owners of and applicants for policies for
which the Trust is serving or is to serve as an investment vehicle. The Company
shall bear the costs of distributing proxy materials (or similar materials such
as voting solicitation instructions) to Contract owners. The Company assumes
sole responsibility for ensuring that such materials are delivered to Contract
owners in accordance with applicable federal and state securities laws.
(b) If the Company elects to include any materials provided by the
Trust, specifically prospectuses, SAIs, shareholder reports and proxy
materials, on its web site or in any other computer or electronic format, the
Company assumes sole responsibility for maintaining such materials in the form
provided by the Trust and for promptly replacing such materials with all updates
provided by the Trust.
3
<PAGE> 5
2.4 The Company agrees and acknowledges that the Trust's adviser, Janus
Capital Corporation ("Janus Capital"), is the sole owner of the name and mark
"Janus" and that all use of any designation comprised in whole or part of Janus
(a "Janus Mark") under this Agreement shall inure to the benefit of Janus
Capital. Except as provided in Section 2.5, the Company shall not use any Janus
Mark on its own behalf or on behalf of the Accounts or Contracts in any
registration statement, advertisement, sales literature or other materials
relating to the Accounts or Contracts without the prior written consent of Janus
Capital. Upon termination of this Agreement for any reason, the Company shall
cease all use of any Janus Mark(s) as soon as reasonably practicable.
2.5 The Company shall furnish, or cause to be furnished, to the Trust or its
designee, a copy of each Contract prospectus or statement of additional
information in which the Trust or its investment adviser is named prior to the
filing of such document with the Securities and Exchange Commission. The Company
shall furnish, or shall cause to be furnished, to the Trust or its designee,
each piece of sales literature or other promotional material in which the Trust
or its investment adviser is named, at least fifteen Business Days prior to its
use. No such material shall be used if the Trust or its designee reasonably
objects to such use within fifteen Business Days after receipt of such material.
2.6 The Company shall not give any information or make any representations
or statements on behalf of the Trust or concerning the Trust or its investment
adviser in connection with the sale of the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Trust shares (as such registration statement and
prospectus may be amended or supplemented from time to time), reports of the
Trust, Trust-sponsored proxy statements, or in sales literature or other
promotional material approved by the Trust or its designee, except as required
by legal process or regulatory authorities or with the written permission of the
Trust or its designee,
2.7 The Trust shall not give any information or make any representations or
statements on behalf of the Company or concerning the Company, the Accounts or
the Contracts other than information or representations contained in and
accurately derived from the registration statement or prospectus for the
Contracts (as such registration statement and prospectus may be amended or
supplemented from time to time), or in materials approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company.
2.8 So long as, and to the extent that the Securities and Exchange
Commission interprets the 1940 Act to require pass-through voting privileges for
variable policyowners, the Company will provide pass-through voting privileges
to owners of policies whose cash values are invested, through the Accounts, in
shares of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each Account, the
Company will vote shares of the Trust held by the Account and for which no
timely voting instructions from policyowners are received as well as shares it
owns that are held by that Account, in the same proportion as those shares for
which voting instructions are received. The Company and its agents will in no
way recommend or oppose or interfere with the solicitation of proxies for Trust
shares held by Contract owners without the prior written consent of the Trust,
which consent may be withheld in the Trust's sole discretion.
4
<PAGE> 6
2.9 The Company shall notify the Trust of any applicable state insurance
laws that restrict the Portfolios' investments or otherwise affect the operation
of the Trust and shall notify the Trust of any changes in such laws.
ARTICLE III
Representations and Warranties
3.1 The Company represents and warrants that it is an insurance company duly
organized and in good standing under the laws of the State of Wisconsin and that
it has legally and validly established each Account as a segregated asset
account under such law on the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account has been
registered or, prior to any issuance or sale of the Contracts, will be
registered as a unit investment trust in accordance with the provisions of the
1940 Act.
3.3 The Company represents and warrants that the Contracts or interests in
the Accounts (1) are or, prior to issuance, will be registered as securities
under the 1933 Act or, alternatively (2) are not registered because they are
properly exempt from registration under the 1933 Act or will be offered
exclusively in transactions that are properly exempt from registration under the
1933 Act. The Company further represents and warrants that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws; and the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements.
3.4 The Company represents and warrants that any of Company's trading
systems that interact with the Trust via any form of automated feed prior to,
during and after the calendar year 2000 will recognize accurate century data,
and user interfaces and operation environments will comply with Year 2000
application standards.
3.5 The Trust represents and warrants that it is duly organized and validly
existing under the laws of the State of Delaware.
3.6 The Trust represents and warrants that the Trust shares offered and sold
pursuant to this Agreement will be registered under the 1933 Act and the Trust
shall be registered under the 1940 Act prior to any issuance or sale of such
shares. The Trust shall amend its registration statement under the 1933 Act and
the 1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Trust shall register and qualify its shares for sale
in accordance with the laws of the various states only if and to the extent
deemed advisable by the Trust.
3.7 The Trust represents and warrants that the investments of each Portfolio
will comply with the diversification requirements set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder.
5
<PAGE> 7
ARTICLE IV
Potential Conflicts
4.1 The parties acknowledge that the Trust's shares may be made available
for investment to other Participating Insurance Companies. In such event, the
Trustees will monitor the Trust for the existence of any material irreconcilable
conflict between the interests of the contract owners of all Participating
Insurance Companies. An irreconcilable material conflict may arise for a variety
of reasons, including: (a) an action by any state insurance regulatory
authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3 If it is determined by a majority of the Trustees, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists that
affects the interests of Contract owners, the Company shall, in cooperation with
other Participating Insurance Companies whose contract owners are also affected,
at its expense and to the extent reasonably practicable (as determined by the
Trustees) take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing the
assets allocable to some or all of the Accounts from the Trust or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting the
question of whether or not such segregation should be implemented to a vote of
all affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Trust's election, to withdraw the affected Account's
investment in the Trust and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested Trustees. Any such withdrawal
and termination must take place within six (6) months after the Trust gives
written notice that this provision is being implemented. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
6
<PAGE> 8
4.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a majority
of the disinterested Trustees shall determine whether any proposed action
adequately remedies any irreconcilable material conflict, but in no event will
the Company be required to establish a new funding medium for the Contracts if
an offer to do so has been declined by vote of a majority of Contract owners
materially adversely affected by the irreconcilable material conflict. In the
even that the Trustees determine that any proposed action does not adequately
remedy any irreconcilable material conflict, then the Company will withdraw the
Account's investment in the Trust and terminate this Agreement within six (6)
months after the Trustees inform the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination shall be
limited to the extent required by any such material irreconcilable conflict as
determined by a majority of the disinterested Trustees.
4.7 The Company shall at least annually submit to the Trustees such reports,
materials or data as the Trustees may reasonably request so that the Trustees
may fully carry out the duties imposed upon them by the Exemptive Order, and
said reports, materials and data shall be submitted more frequently if deemed
appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as may
be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3,
as adopted, to the extent such rules are applicable.
ARTICLE V
INDEMNIFICATION
5.1 Indemnification By the Company. The Company agrees to indemnify and hold
harmless the Trust and each of its Trustees, officers, employees and agents and
each person, if any, who controls the Trust within the meaning of Section 15 of
the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Article V) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending the alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the Indemnified
Parties may become subject under any statute or regulation, or at common law or
otherwise, insofar as such Losses:
7
<PAGE> 9
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in a registration statement
or prospectus for the Contracts or in the Contracts themselves or in sales
literature generated or approved by the Company on behalf of the Contracts
or Accounts (or any amendment or supplement to any of the foregoing)
(collectively, "Company Documents" for the purposes of this Article V), or
arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, provided that this indemnity shall
not apply as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and was accurately
derived from written information furnished to the Company by or on behalf of
the Trust for use in Company Documents or otherwise for use in connection
with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
acquisition of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or omission was made in
reliance upon and accurately derived from written information furnished to
the Trust by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to provide
the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company.
5.2 Indemnification By the Trust. The Trust agrees to indemnify and hold
harmless the Company and each of its directors, officers, employees and agents
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of
this Article V) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Trust) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively,"losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Trust (or any amendment or supplement
thereto), (collectively, "Trust Documents" for the purposes of this Article
V), or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided that this indemnity
shall not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and was
accurately derived from written information furnished to the Trust by or on
behalf of the Company for use in Trust Documents or otherwise for use in
connection with the sale of the Contracts or Trust shares; or
8
<PAGE> 10
(b) arise out of or result from statements or representations (other
than statements or representations contained in and accurately derived from
Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged untrue
statement of a material fact contained in Company Documents or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon and accurately derived from
written information furnished to the Company by or on behalf of the Trust;
or
(d) arise out of or result from any failure by the Trust to provide the
services or furnish the materials required under the terms of this
Agreement, or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Trust.
5.3 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4 Neither the Company nor the Trust shall be liable under the
indemnification provisions of Section 5.1 or 5.2, as applicable, with respect to
any claim made against an Indemnified Party unless such Indemnified Party shall
have notified the other party in writing within a reasonable time after the
summons, or other first written notification, giving information of the nature
of the claim shall have been served upon or otherwise received by such
Indemnified Party (or after such Indemnified Party shall have received notice of
service upon or other notification to any designated agent), but failure to
notify the party against whom indemnification is sought of any such claim shall
not relieve that party from any liability which it may have to the Indemnified
Party in the absence of Section 5.1 and 5.2.
5.5 In case any such action is brought against the Indemnified Parties, the
indemnifying party shall be entitled to participate, as its own expense, in the
defense of such action. The indemnifying party also shall be entitled to assume
the defense thereof, with counsel reasonably satisfactory to the party named in
the action. After notice from the indemnifying party to the Indemnified Party of
an election to assume such defense, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and the indemnifying
party will not be liable to the Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
9
<PAGE> 11
ARTICLE VI
TERMINATION
6.1 This Agreement may be terminated by either party for any reason by
ninety (90) days advance written notice delivered to the other party. However,
this agreement shall remain in effect for such time after the 90 day period has
expired as is necessary for the Company to obtain regulatory approval for
substitution of the Trust Separate Accounts as listed in Schedule A, (provided
the Company takes reasonably prompt action to obtain the approval.)
6.2 Notwithstanding any termination of this Agreement, the Trust shall, at
the option of the Company, continue to make available additional shares of the
Trust (or any Portfolio) pursuant to the terms and conditions of this Agreement
for all Contracts in effect on the effective date of termination of this
Agreement, provided that the Company continues to pay the costs set forth in
Section 2.3
6.3 The provisions of Article V shall survive the termination of this
Agreement, and the provisions of Article IV and Section 2.8 shall survive the
termination of this Agreement as long as shares of the Trust are held on behalf
of Contract owners in accordance with Section 6.2.
10
<PAGE> 12
ARTICLE VII
NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
Janus Aspen Series
100 Fillmore Street
Denver, Colorado 80206
Attention: General Counsel
If to the Company:
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, Wisconsin 54481
Attention: Jerry E. Stanford
With a copy to:
Legal Department
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, Wisconsin 54481
Attention: Ken Erler
ARTICLE VIII
MISCELLANEOUS
8.1 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of State of Colorado.
11
<PAGE> 13
8.5 The parties to this Agreement acknowledge and agree that all liabilities
of the Trust arising, directly or indirectly, under this Agreement, of any and
every nature whatsoever, shall be satisfied solely out of the assets of the
Trust and that no Trustee, officer, agent or holder of shares of beneficial
interest of the Trust shall be personally liable for any such liabilities.
8.6 Each party shall cooperate with each other party and all appropriate
governmental authorities (including without limitation the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc., and
state insurance regulators) and shall permit such authorities reasonable access
to its book and records in connection with any investigation or inquiry relating
to this Agreement or the transactions contemplated hereby.
8.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
8.8 The parties to this Agreement acknowledge and agree that this Agreement
shall not be exclusive in any respect.
8.9 Neither this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written approval of the other party.
8.10 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized officers
to execute this Participation Agreement as of the date and year first above
written.
JANUS ASPEN SERIES
By: /s/ Bonnie Howe
------------------------------------
Name: Bonnie Howe
----------------------------------
Title: Assistant V.P.
---------------------------------
SENTRY LIFE INSURANCE COMPANY
By: /s/ W. O'Reilly
------------------------------------
Name: William M. O'Reilly
----------------------------------
Title: Secretary
---------------------------------
12
<PAGE> 14
Schedule A
Separate Accounts and Associated Contracts
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT
DATE ESTABLISHED BY CONTRACTS FUNDED
BOARD OF DIRECTORS BY SEPARATE ACCOUNT DESIGNATED PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sentry Variable Life Account II Individual Flexible Janus Aspen Series
Established August 2, 1983 Purchase Payment ------------------
Deferred Variable Annuity Growth
Aggressive Growth
Capital Appreciation
Worldwide Growth
Balanced
Sentry Variable Life Account Flexible Premium Janus Aspen Series
Established February 12, 1985 Variable Life Insurance ------------------
Growth
Aggressive Growth
Capital Appreciation
Worldwide Growth
Balanced
</TABLE>
13
<PAGE> 15
June 1, 1999
SENTRY LIFE INSURANCE COMPANY
1800 NORTH POINT DR
STEVENS POINT WI 54481
Dear Jerry,
This letter sets forth the agreement between Sentry Life Insurance Company
(the "Company"), and Janus Capital Corporation (the "Adviser"), concerning
certain administrative services.
1. Administrative Services and Expenses. Administrative services for the
separate accounts of the Company (the "Accounts") which invests in one or
more portfolios (collectively, the "Portfolios") of Janus Aspen Series (the
"Trust") pursuant to the Participation Agreement between the Company and the
Trust dated June 1, 1999, (the "Participation Agreement"), and for
purchasers of variable annuity or life insurance contracts (the "Contracts")
issued through the Accounts are the responsibility of the Company.
Administrative services for the Portfolios, in which the Accounts invest,
and for purchasers of shares of the Portfolios, are the responsibility of
the Trust. The administrative services the Company intends to provide to the
Trust and its Portfolios are set forth in Schedule A attached to this letter
agreement, which may be amended from time to time.
2. Service Fee. In consideration of the anticipated administrative expense
savings resulting to the Trust from the Company's services, the Adviser
agrees to pay the Company a fee ("Service Fee"), computed daily and paid
monthly in arrears, at an annual rate equal to fifteen (15) basis points
(0.15%) of the average monthly value of the shares of the Portfolios held
in the Accounts, such payments to commence following the month in which the
average monthly value of investments by the Accounts reaches $50 million.
The Service Fee will be correspondingly suspended if the average monthly
value of such investments drops below $50 million in any month.
For purposes of this Paragraph 2, the average monthly value of the shares of
the Portfolios will be based on the sum of the daily net asset values of the
Portfolios (as calculated by the Portfolios) on each calendar day in a month
divided by the number of calendar days in the month.
3. Nature of Payments. The parties to this letter agreement recognize and agree
that the Adviser's payments to the Company relate to administrative services
to the Trust only and do not constitute payment in any manner for
administrative services provided by the Company to the Account or to the
Contracts, for investment advisory services or for costs of distribution of
Contracts or of shares of the Portfolios, and that these payments are not
otherwise related to investment advisory or distribution services or
expenses.
14
<PAGE> 16
4. Representations and Warranties.
a. The Adviser represents and warrants that in the event the Trustees of
the Trust approve the payment of all or any portion of the Service Fee
by the Trust, the Trust will calculate in the same manner the Service
Fee to all insurance companies that have entered into Service Fee
arrangements with the Adviser and/or the Trust (the "Participating
Insurance Companies").
b. The Company represents and warrants that: (1) it and its employees and
agents meet the requirements of applicable law, including but not
limited to federal and state securities law and state insurance law,
for the performance of services contemplated herein; and (2) it will
not purchase Trust shares of the Portfolios with Account assets derived
from tax-qualified retirement plans except indirectly, through
Contracts purchased in connection with such plans and that the Service
Fee does not include any payment to the Company that is prohibited
under the Employee Retirement Income Securities Act of 1974 ("ERISA")
with respect to any assets of a Contract owner invested in a Contract
using the Portfolios as investment vehicles.
c. The Company represents, warrants and agrees that: (1) the payment of
the Service Fee by the Adviser is designed to reimburse the Company for
providing administrative services to the Trust that the Trust would
customarily pay and does not represent reimbursement to the Company for
providing administrative services to the Contract or Account as
described in Section 26 of the Investment Company Act of 1940 (the
"1940 Act") and the rules and regulations thereunder; (2) no portion of
the Service Fee will be rebated by the Company to any Contract owner;
and (3) if required by applicable law, the Company will disclose to
each Contract owner the existence of the Service Fee received by the
Company pursuant to this letter agreement in a form consistent with the
requirements of applicable law and will disclose the amount of the
Service Fee, if any, that is paid by the Trust.
5. Indemnification
a. The Company agrees to indemnify and hold harmless the Adviser and its
directors, officers, and employees from any and all loss, liability and
expense resulting from any gross negligence or willful wrongful act of
the Company in performing its services under this letter agreement,
from the inaccuracy or breach of any representation made in this letter
agreement, or from a breach of a material provision of this letter
agreement, except to the extent such loss, liability or expense is the
result of the Adviser's willful misfeasance, bad faith or gross
negligence in the performance of its duties.
b. The Advisor agrees to indemnify and hold harmless the Company and its
directors, officers, agents and employees from any and all loss,
liability and expense resulting from any gross negligence or willful
wrongful act of the Adviser in performing its services under this
letter agreement, from the inaccuracy or breach of any representation
made in this letter agreement, or from a breach of a material provision
of this letter agreement, except to the extent such loss, liability or
expense is the result of the Company's willful misfeasance, bad faith
or gross negligence in the performance of its duties.
15
<PAGE> 17
6. Termination.
a. Either party may terminate this letter agreement, without penalty, on
sixty (60) days' written notice to the other party.
b. This letter agreement will terminate at the option of either party in
the event of the termination of the Participation Agreement.
c. This letter agreement will terminate immediately upon the determination
of either party, with the advice of counsel, that the payment of the
Service Fee is in conflict with applicable law.
7. Amendment. This letter agreement may be amended only upon mutual agreement
of the parties hereto in writing.
8. Confidentiality. The terms of this letter agreement will be treated as
confidential and will not be disclosed to the public or any outside party
except with each party's prior written consent, as required by law or
judicial process or as provided in paragraph 4c herein.
9. Assignment. This letter agreement may not be assigned (as that term is
defined in the 1940 Act) by either party without the prior written approval
of the other party, which approval will not be unreasonably withheld, except
that the Adviser may assign its obligations under this letter agreement,
including the payment of all or any portion of the Service Fee, to the Trust
upon thirty (30) days' written notice to the Company.
10. Governing Law. This letter agreement will be construed and the provisions
hereof interpreted under and in accordance with the laws of the State of
Colorado.
11. Counterparts. This letter agreement may be executed in counterparts, each of
which will be deemed an original but all of which will together constitute
one and the same instrument.
If this letter agreement is consistent with your understanding of the matters we
discussed concerning administrative expense payments, kindly sign below and
return a signed copy to us.
Very truly yours,
JANUS CAPITAL CORPORATION
By: /s/ David W. Agostine
--------------------------------------
Name: David W. Agostine
------------------------------------
Title: Vice President
-----------------------------------
SENTRY LIFE INSURANCE COMPANY
By: /s/ William M. O'Reilly
--------------------------------------
Name: William M. O'Reilly
------------------------------------
Title: Secretary
-----------------------------------
Attachment: Schedule A
16
<PAGE> 18
SCHEDULE A
Pursuant to the letter agreement to which this Schedule is attached, the Company
will perform administrative services including, but not limited to, the
following:
1. Print and mail to Contract owners copies of the Portfolios' prospectuses,
proxy materials, periodic fund reports to shareholders and other materials that
the Trust is required by law or otherwise to provide to its shareholders.
2. Provide Contract owner services including, but not limited to, financial
consultants' advice with respect to inquiries related to the Portfolios (not
including information about performance or related to sales) and communicating
with Contract owners about Portfolio (and subaccount) performance.
3. Provide other administrative support for the Trust as mutually agreed to
by the Company and the Adviser and relieve the Trust of other usual or
incidental administrative services provided to individual Contract owners.
17
<PAGE> 1
EXHIBIT B
<PAGE> 2
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
December 30, 1999
Board of Directors
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
Re: Opinion of Counsel - Sentry Variable Life Account I
---------------------------------------------------
Gentlemen:
You have requested our Opinion of counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on form N-4 for the Individual Deferred Variable Annuity
Contracts (the "Contracts") to be issued by Sentry Life Insurance Company and
its separate account, Sentry Variable Life Account I.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Sentry Variable Life Account I is a Unit Investment Trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of purchase payments made by an Owner pursuant to a
Policy issued in accordance with the Prospectus contained in the
Registration Statement and upon compliance with applicable law, such an
Owner will have a legally-issued, fully paid, non-assessable contractual
interest under such Policy.
You may use this opinion letter, or a copy thereof, as an exhibit to
Post-Effective Amendment No. 16 to the Registration Statement.
We consent to the reference to our Firm under the caption "Legal Opinions"
contained in the Prospectus which forms a part of the Registration Statement.
Sincerely,
BLAZZARD, GRODD & HASENAUER, P.C.
By: s/Lynn Korman Stone
-------------------
Lynn Korman Stone
<PAGE> 1
EXHIBIT C
<PAGE> 2
PRICEWATERHOUSECOOPERS
- --------------------------------------------------------------------------------
PRICEWATERHOUSECOOPERS LLP
203 North LaSalle Street
Chicago, IL 60601-1210
Telephone (312) 701 5500
Facsimile (312) 701 6533
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Post-Effective Amendment No. 17 to the
Registration Statement of Sentry Variable Life Account I (the "Account") on Form
S-6 (File No. 2-98441) of:
(1) Our report dated February 11, 1999, on our audits of the
financial statements of the Account; and
(2) Our report dated February 12, 1999, on our audits of the
statutory-basis financial statements of Sentry Life Insurance
Company.
We also consent to the reference to our Firm under the caption "Experts."
s/ PricewaterhouseCoopers LLP
December 30, 1999
<PAGE> 1
EXHIBIT D
<PAGE> 2
December 22, 1999
To the Board of Directors of
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
CONSENT OF ACTUARY
I hereby consent to the inclusion of the Illustration of Benefits contained in
Appendix A in a registration statement, Form S-6, for the Variable Life
Insurance Policies. The Illustrations have been prepared in accordance with
standard actuarial principles and reflect the operation of the Policy by taking
into account all charges under the Policy and in the underlying funds.
S/ Dean A. Klingenberg
-------------------------------------
Dean A. Klingenberg, FSA, MAAA
Actuary-Life & Health Product Pricing
