<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. 18
TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
A. Exact Name of Trust: Sentry Variable Life Account I
B. Name of Depositor: Sentry Life Insurance Company
C. Complete Address of Depositor's Principal Executive Offices:
1800 North Point Drive, Stevens Point, WI 54481
D. Name and Address of Agent for Service:
William M. O'Reilly, Esq.
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 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
- ----------- ---------------------
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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., T. Rowe Price International Series, Inc., and Janus Aspen Series
Institutional Shares ("Janus Aspen Series"), each an open-end management
investment company. Through the Variable Life Account, you may invest in the
following Portfolios:
T. Rowe Price Fixed Income Series, Inc. Janus Aspen Series
- T. Rowe Price Prime Reserve Portfolio - Balanced Portfolio
- T. Rowe Price Limited-Term Bond Portfolio - Growth Portfolio
- Aggressive Growth Portfolio
T. Rowe Price Equity Series, Inc. - Capital Appreciation
- T. Rowe Price Personal Strategy Balanced Portfolio
Portfolio - Worldwide Growth Portfolio
- T. Rowe Price Equity Income Portfolio
T. Rowe Price International Series, Inc.
- T. Rowe Price International Stock Portfolio
As the owner of the Policy, you may choose one or more Portfolios in which to
invest; however, you will bear the complete investment risk for the amount you
allocate to the Variable Life Account. The Cash Value of your Policy, and under
certain circumstances, the death benefit, may increase or decrease depending on
the investment experience of the Variable Life Account.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectuses for T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc., T. Rowe Price International 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 May 1, 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.,
T. Rowe Price International Series, Inc., and Janus Aspen Series ......................................... 9
Substitution of Securities ................................................................................. 11
The Policy ................................................................................................... 11
General .................................................................................................... 11
How to Purchase a Policy ................................................................................... 11
Free Look .................................................................................................. 11
Medical Examination ........................................................................................ 11
Right to Exchange the Policy ............................................................................... 12
Illustrations .............................................................................................. 12
Premiums ..................................................................................................... 12
Maximum Premium Limitation ................................................................................. 13
Death Benefit Guarantee .................................................................................... 13
Grace Period ............................................................................................... 14
Reinstatement .............................................................................................. 14
Charges and Deductions ....................................................................................... 14
Deductions from Premiums ................................................................................... 14
Deductions from the Variable Life Account .................................................................. 14
Deductions from Cash Value ................................................................................. 15
Deductions from Surrendered Values ......................................................................... 15
Annual Expenses of Portfolios of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc.,
T. Rowe Price International Series, Inc., and Janus Aspen Series ......................................... 17
Group Arrangements ......................................................................................... 17
Policy Benefits and Rights ................................................................................... 18
Death Benefit .............................................................................................. 18
Death Benefit Options ...................................................................................... 18
Corridor Percentages ....................................................................................... 18
Changing Death Benefit Options ............................................................................. 19
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 ................................................................................................. 22
Allocation of Loans ........................................................................................ 22
Interest Charged ........................................................................................... 22
Interest Credited .......................................................................................... 22
Lapse Due to Loan .......................................................................................... 22
Loan Repayment ............................................................................................. 22
</TABLE>
2
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TABLE OF CONTENTS (CONTINUED)
<TABLE>
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PAGE
<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 ........................... 29
State Regulation ..................................... 29
Reports to Policy Owners ............................. 29
Legal Proceedings .................................... 30
Experts .............................................. 30
Legal Opinions ....................................... 30
Financial Statements ................................. 30
Appendix A - Illustration of Benefits ................ 58
</TABLE>
3
<PAGE> 6
DEFINITIONS
Following are definitions of certain terms used in this Prospectus.
Anniversary Date or The same day and month each year calculated from
Policy Anniversary Date the 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.
4
<PAGE> 7
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.
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. Janus Aspen Series
- T. Rowe Price Prime Reserve Portfolio - Balanced Portfolio
- T. Rowe Price Limited-Term Bond Portfolio - Growth Portfolio
T. Rowe Price Equity Series, Inc. - Aggressive Growth
- T. Rowe Price Personal Strategy Balanced Portfolio
Portfolio - Capital Appreciation
- T. Rowe Price Equity Income Portfolio Portfolio
T. Rowe Price International Series, Inc. - Worldwide Growth
- T. Rowe Price International Stock Portfolio 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 ten 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., T.
ROWE PRICE INTERNATIONAL 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
includable 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
As of May 1, 2000, 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., T. Rowe Price International 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 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.,
T. ROWE PRICE INTERNATIONAL SERIES, INC., AND JANUS ASPEN SERIES
Each Subaccount of the Variable Life Account invests in one Portfolio of T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe
Price International 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, distributors 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 Portfolios have the same investment advisers.
A Portfolio's performance may be affected by risks specific to certain types of
investments, such as foreign securities, derivative investments, non-investment
grade debt securities, initial public offerings (IPOs) or companies with
relatively small market capitalizations. IPOs and other investment techniques
may have a magnified performance impact on a Portfolio with a small asset base.
A Portfolio may not experience similar performance as its assets grow.
T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc., and
T. Rowe Price International Series, Inc., are diversified open-end management
investment companies of the series type. All are registered with the Securities
and Exchange Commission under the Investment Company Act of 1940.
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 for T. Rowe Price Fixed
Income Series, Inc. and T. Rowe Price Equity Series, Inc. 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.
9
<PAGE> 12
Rowe Price Fleming International, Inc., the investment adviser for T. Rowe Price
International Series, Inc., is an affiliate of T. Rowe Price Associates, Inc.
and Robert Fleming Holdings, Ltd. Its offices are located at 100 East Pratt
Street, Baltimore, Maryland 21202.
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 T.
Rowe Price 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
T. Rowe Price 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 T. Rowe Price Personal Strategy Balanced Portfolio is to seek the
highest total return over time consistent with an emphasis on both capital
appreciation and income.
T. Rowe Price Equity Income Portfolio. The investment objective of the T.
Rowe Price Equity Income Portfolio is to seek substantial dividend income as
well as long-term growth of capital by investing in stocks of large,
established companies with higher than average market dividend yields and
below average levels of valuation.
T. Rowe Price International Stock Portfolio. The investment objective of the
T. Rowe Price International Stock Portfolio is to seek long-term growth of
capital through investments primarily in common stocks of established
non-United States companies.
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 multiple
Portfolios, five of which are currently offered in connection with the Policy.
Janus Capital Corporation, 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 portfolios and other business affairs.
Janus Capital Corporation 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 objectives of the Janus Aspen Series Portfolios are
set forth below. There is no assurance that the Portfolios will achieve their
objectives. More detailed information is contained in the Portfolios'
prospectus, including the risks associated with the investments and the
investment techniques of the Portfolios.
Balanced Portfolio. The investment objective of the Balanced Portfolio is to
seek long-term growth of capital balanced by current income. The Portfolio
normally invests 40% to 60% of its assets in securities selected primarily
for their growth potential, and 40% to 60% of its assets in securities
selected primarily for their income potential. The Portfolio normally
invests at least 25% of its assets in fixed income securities.
Growth Portfolio. The investment objective of the Growth Portfolio is to
seek long-term growth of capital in a manner consistent with preservation of
capital. The Portfolio pursues its objectives by investing primarily in
common stocks selected for their growth potential. Although the Portfolio
can invest in companies of any size, it generally invests in larger, more
established companies.
Capital Appreciation Portfolio. The investment objective of the Capital
Appreciation Portfolio is to seek long-term growth of capital. The Portfolio
pursues its objective by investing primarily in common stocks selected for
their growth potential. The Portfolio may invest in companies of any size,
from larger, well-established companies to smaller, emerging growth
companies.
Aggressive Growth Portfolio. The investment objective of the Aggressive
Growth Portfolio is to seek long-term growth of capital through a
non-diversified Portfolio that invests primarily in common stocks of
domestic companies and some foreign companies selected for their growth
potential. As a non-diversified Portfolio, it may hold larger positions in a
smaller number of securities than a diversified Portfolio. The Portfolio
normally invests at least 50% of its equity assets in medium-sized
companies.
10
<PAGE> 13
Worldwide Growth Portfolio. The investment objective of the Worldwide Growth
Portfolio is to seek long-term growth of capital in a manner consistent with
preservation of capital. The Portfolio pursues its investment objective by
investing primarily in common stocks of companies of any size throughout the
world. The Portfolio normally invests in issuers from at least five
different countries, including the United States. The Portfolio may at times
invest in fewer than five countries or even a single country.
SUBSTITUTION OF SECURITIES
If a Subaccount is no longer available for investment by the Variable Life
Account, or if the Company's Board of Directors determines that further
investment in a Subaccount becomes inappropriate in view of the Variable Life
Account's purposes, the Company may substitute another Subaccount already
available or that will become available for investment by the Variable Life
Account. No substitution of securities in any Subaccount may take place without
the prior approval of and subject to the requirements of the Securities and
Exchange Commission.
THE POLICY
GENERAL
The Policy described in this Prospectus is an individual flexible premium
variable life insurance policy. The Policy is designed to provide you with
insurance protection and flexibility in determining your premium payments and
death benefit. As long as there is sufficient Cash Surrender Value to pay the
monthly charges, or as long as the guaranteed death benefit is in effect, the
Policy will not lapse.
HOW TO PURCHASE A POLICY
Complete an application form and give it to your sales representative or send it
to:
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
The first premium payment is due on or before the date the Policy is issued. You
should send your first premium payment with the application.
Restrictions:
- The Company will not accept your application for the Policy if you are
older than age 75.
- All applications are subject to the Company's
underwriting standards, and the Company may, in its sole
discretion, reject any application for any reason.
- The initial Specified Amount of the death benefit is subject to the
Company's administrative rules. Currently, the initial Specified Amount
must be at least $50,000.
FREE LOOK
If you change your mind about purchasing the Policy, you can return it to the
Company at the address given on page 1, or to your sales representative. You
must return the Policy within 20 days (or longer in states where required) from
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 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
11
<PAGE> 14
RIGHT TO EXCHANGE POLICY
Within 24 months after the Policy Issue Date, you may exchange it for a
permanent fixed premium, fixed benefit life insurance policy issued by the
Company, subject to the following conditions:
(1) The person insured cannot be changed.
(2) Any outstanding Policy loans must be repaid and any other charges or fees
due must be paid.
(3) The new policy will have the same Policy Issue Date, issue age, and risk
classification as the original Policy.
(4) The Policy Owner and the Beneficiary of the new policy will be the same as
the Policy Owner and Beneficiary of the original Policy
(5) You may select the amount of the death benefit under the new policy, but it
must be equal to either:
a) the initial Specified Amount of the original Policy, OR
b) the net amount at risk under the original Policy on the date of
exchange.
"Net amount at risk" means the difference between the death benefit and
the Cash Value of the Policy.
In order to exchange the Policy, you must take the following action:
- send a written request for exchange to the Company,
- return the original Policy to the Company, and
- pay any outstanding loan amounts or other charges due under the
original Policy.
If the Policy's Specified Amount is increased from the initial Specified Amount,
and the increase is not due to a change in the death benefit option, the amount
of the increase can be exchanged for a permanent fixed premium, fixed benefit
life insurance policy issued by the Company. The death benefit payable under the
new policy will equal the Specified Amount increase. You may be able to transfer
the Cash Value attributable to the Specified Amount increase under the original
Policy to the new policy. The Cash Value attributable to the increase is the
amount by which total premiums paid exceed the maximum premium limitation (see
"Maximum Premium Limitation" on page 13) 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:
12
<PAGE> 15
<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 $50 at
Premiums any time prior to the Maturity Date of the Policy. The
Company reserves the right to limit the amount of additional
premium payments in order to meet the requirements and
restrictions of federal tax law and related regulations.
Premium limitations are set out on the specifications page of
the Policy.
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.
13
<PAGE> 16
GRACE PERIOD
If the death benefit guarantee is not in effect, and if the Cash Surrender Value
is not sufficient to cover the monthly deduction when due, a grace period of 61
days will be allowed for you to make a premium payment or a loan repayment which
is sufficient to cover the monthly deduction. The grace period begins on the
Monthly Processing Day during which there is insufficient Cash Surrender Value.
The Company will mail a notice to your last known address that the grace period
is in effect.
The Policy will not lapse during the grace period. During the grace period, the
death benefit will equal the amount of death benefit in effect immediately prior
to the grace period, less any outstanding Policy loans and unpaid charges.
Under certain circumstances, even if there is insufficient Cash Surrender Value
to cover the monthly deduction, the Policy will not lapse if the death benefit
guarantee is in effect.
REINSTATEMENT
After a lapse, you may request that the Policy be reinstated. Policy
reinstatement is subject to the following conditions:
- You must request reinstatement in writing and it must be received by the
Company's home office within three years from the date of lapse; AND
- The Company must receive proof that you, or if you were not the Insured,
the person whose life was insured under the Policy, is still insurable;
AND
- You must make a premium payment that is sufficient to cover the monthly
deductions for the first two Policy Months following reinstatement.
The Policy will be reinstated on the next Valuation Date following the date that
all of the above conditions have been met. If you surrender the Policy for its
full Cash Surrender Value, the Company will not reinstate the Policy.
CHARGES AND DEDUCTIONS
The following section describes the fees and expenses that you will pay when
purchasing, owning, and surrendering the Policy.
DEDUCTIONS FROM PREMIUMS
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 asset
Premium value of the Variable Life Account. This premium compensates
the Company for the mortality and expense risks it assumes
under the Policy. Mortality risk is the possibility that all
Insured persons, as a group, may not live as long as
expected. Expense risk is the possibility that the Company's
actual expenses may be greater than anticipated.
Death Benefit The Company deducts a death benefit guarantee risk charge
Guarantee Risk which is equal, on an annual basis, to 0.15% of the daily net
Charge asset value of the Variable Life Account. This charge
compensates the Company for assuming risks associated with
the death benefit guarantee.
Taxes The Company reserves the right to deduct any amount due for
income taxes resulting from the investment operation of any
Subaccount. The Company does not currently make a deduction
for income taxes.
14
<PAGE> 17
DEDUCTIONS FROM CASH VALUE
Monthly The Company makes a monthly deduction from the Cash Value of
Deduction the Policy at the beginning of each Policy Month totaling the
sum of:
(1) the cost of insurance for the Policy and any additional
benefits provided by rider to the Policy; PLUS
(2) a $5 monthly administrative fee to reimburse the Company
for administering the Policy and the Variable Life
Account. This includes issuing policies, underwriting,
maintaining policy records, policy service, billing and
collecting premium, preparing reports to Policy Owners,
accounting, calculating reserves, meeting regulatory
reporting requirements, and auditing the Variable Life
Account.
How Charge is Deducted: The Company deducts the monthly deduction by
canceling accumulation units from each applicable Subaccount in the ratio
that the Cash Value of the Subaccount bears to the total of Subaccount Cash
Values.
The cost of insurance for the Policy is determined on a Policy Month basis.
The amount will vary from month-to-month and depends on the death benefit
option in effect, the Cash Value, your age, sex and risk classification. The
cost of insurance is calculated by multiplying the difference between the
death benefit in effect divided by 1.0040741 and the Cash Value by the
monthly mortality charge. Because the investment performance of the Variable
Life Account or the level of premium payments will affect the death benefit
or the Cash Value, they will also affect the cost of insurance. The Company
calculates the cost of insurance for any rider separately.
The mortality charge is based on the Company's current mortality rates,
which in turn are based on the Insured person's age, sex and risk class. The
risk class will be determined separately for the initial Specified Amount
and for any subsequent increase in the Specified Amount that requires
evidence of insurability. The Company determines the current mortality rates
according to expectations of future mortality experience. These rates are
not guaranteed and may be changed from time to time, but will never exceed
the maximum rates shown in the "Table of Guaranteed Maximum Mortality Rates"
which is included in the Policy. Any change the Company makes in mortality
rates will apply to all Insured persons of the same sex, age and risk class.
The guaranteed rates for standard risks are based on the 1980 Commissioner's
Standard Ordinary Mortality Table, Age Last Birthday. The guaranteed rates
for Insured persons classified as smokers or medically substandard are based
on a multiple of the 1980 CSO Table. A multiple could be as high as five
times the 1980 CSO Table.
Transfer Fee At its option, the Company may deduct a fee, not to
exceed $25, for each transfer. The deduction will be made
from the amounts transferred.
DEDUCTIONS FROM SURRENDERED VALUES
Full Surrender If you totally surrender the Policy prior to the 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.
<TABLE>
<CAPTION>
Completed Policy Years Applicable Percentages
---------------------- ----------------------
<S> <C>
0-4 100
5 80
6 60
7 40
8 20
9+ 0
</TABLE>
15
<PAGE> 18
The four charges used to calculate the full surrender charge
are:
(1) Contingent Deferred Administrative Expense Charge. This
charge is calculated as $3.50 per $1,000 of the first
$100,000 of the Specified Amount, plus $1.50 per $1,000
of the excess above $100,000. The maximum contingent
deferred administrative charge is $750. This charge
covers the administrative expenses in connection with
issuing the Policy.
(2) Deferred Sales Charge. This charge is calculated as 25%
of the Target Surrender Premium, or 25% of the actual
premiums you paid in the first Policy Year, if less.
The amount of the Target Surrender Premium is shown on
the specifications page of your Policy and is
calculated to be less than or equal to the guideline
annual premium as defined in the applicable rules and
regulations under the Investment Company Act of 1940.
(3) Additional Contingent Deferred Administrative Expense
Charge. This charge may result from an increase in the
Specified Amount. The maximum charge is calculated as
$3.50 per $1,000 of the first $100,000 of the Specified
Amount increase, plus $1.50 per $1,000 above $100,000.
The maximum charge is $750 for each increase in the
Specified Amount.
(4) Additional Deferred Sales Charge. This charge may
result from an increase in the Specified Amount and is
25% of the lesser of:
a) the Target Surrender Premium for the increase in
the Specified Amount as shown on the Policy
amendment; or
b) the portion of the actual premiums paid in the
first 12 Policy Months following the effective
date of the increase in the Specified Amount that
exceeds the Target Surrender Premium for the
Policy that was in effect prior to the increase in
the Specified Amount.
Explanations:
The Target Surrender Premium is based on your age and sex on
the date an increase in the Specified Amount is effective.
The Company reserves the right to require a minimum premium
payment during the first 12 months following the effective
date of an increase in the Specified Amount.
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.
Examples: Age 35, male, non-smoker, $6.46 per $1,000 of
death benefit option 1 Specified Amount
Age 55, male, smoker, $14.22 per $1,000 of
death benefit option 2 Specified Amount
Age 75, male, smoker, $40.38 per $1,000 of
death benefit option 2 Specified Amount
A decrease in the Specified Amount will not change any
existing surrender charges.
Partial The Company may impose this charge when the Policy is
Surrender partially surrendered; that is, when you withdraw a portion
Charge 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.
16
<PAGE> 19
Partial The Company imposes this charge to compensate it for
Surrender processing the partial surrender. It is the lesser of 2% of
Administrative the amount surrendered or $25.
Charge
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., T. ROWE PRICE INTERNATIONAL 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 Portfolio 0.55% 0.00% 0.55%
- T. Rowe Price Limited-Term Bond Portfolio 0.70% 0.00% 0.70%
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Personal Strategy Balanced Portfolio 0.90% 0.00% 0.90%
- T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%
T. Rowe Price International Series, Inc.
- T. Rowe Price International Stock Portfolio 1.05% 0.00% 1.05%
Janus Aspen Series
- Balanced Portfolio 0.65% 0.02% 0.67%
- Growth Portfolio 0.65% 0.02% 0.67%
- Aggressive Growth Portfolio 0.65% 0.02% 0.67%
- Capital Appreciation Portfolio 0.65% 0.04% 0.69%
- Worldwide Growth Portfolio 0.65% 0.05% 0.70%
</TABLE>
Portfolios of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc. and T. Rowe Price International 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. Expenses for the Janus Aspen
Series Portfolios are based on expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee.
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.
17
<PAGE> 20
From time to time, the Company may modify both the amounts of reductions and the
criteria for qualification, but in no event will reduction or elimination of
these charges or of any other provision of the Policy be permitted if it will be
unfairly discriminatory to any person.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT
A death benefit will be payable as long as the Policy is in effect. The death
benefit will be reduced by any outstanding Policy loans and any unpaid charges
applicable to the Policy. If you are the Insured, when you die, the death
benefit will be paid to the named Beneficiary. All or part of the death benefit
may be paid in cash or applied under one or more the optional settlement plans.
DEATH BENEFIT OPTIONS
There are two death benefit options available, and the amount of the death
benefit will depend on the death benefit option in effect at the time of your
death. You may elect one of two options to determine the amount of the death
benefit.
Option 1 The death benefit equals the greater of the Specified Amount
or the Cash Value multiplied by the applicable corridor
percentage.
Option 2 The death benefit is the greater of
(a) the Specified Amount PLUS the Cash Value; or
(b) the Cash Value multiplied by a corridor percentage.
The Specified Amount and the Cash Value used to determine the death benefit will
be calculated at the end of the Valuation Period next following the date of your
death.
<TABLE>
<CAPTION>
CORRIDOR PERCENTAGES
AGE % AGE % AGE %
<S> <C> <C> <C> <C> <C>
40 or less 250 55 150 70 115
41 243 56 146 71 113
42 236 57 142 72 111
43 229 58 138 73 109
44 222 59 134 74 107
45 215 60 130 75 105
46 209 61 128 76 105
47 203 62 126 77 105
48 197 63 124 78 105
49 191 64 122 79-90 105
50 185 65 120 91 104
51 178 66 119 92 103
52 171 67 118 93 102
53 164 68 117 94 101
54 157 69 116 95+ 100
</TABLE>
Under both Option 1 and Option 2, premium payments and favorable investment
results will increase the Cash Value. However, increased Cash Value has a
different effect on each option.
Effect of Increased Cash Value on Death Benefit Options
<TABLE>
<CAPTION>
Option 1 Option 2
<S> <C>
Decreases amount of the monthly deductions and the Increases the Policy's death benefit
amount of premium necessary to keep the Policy
in effect.
Increases the amounts available for Policy loans and Increases the amounts available for
surrenders. Policy loans and surrenders.
</TABLE>
18
<PAGE> 21
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.
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 13). 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.
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<PAGE> 22
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.
<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
20
<PAGE> 23
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.
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.
21
<PAGE> 24
POLICY LOANS
As long as the Policy is in effect, you may obtain a loan from the Company using
the Policy as the only security, subject to the following restrictions:
- You cannot make a request before the first Anniversary Date of the
Policy.
- You must make the request in writing.
- The maximum loan amount is 90% of (a) MINUS (b), where:
(a) is the Policy's Cash Value, and
(b) is the full surrender charge at the end of the Valuation Period
during which the loan request is received.
- The maximum amount you can borrow at any one time is the maximum loan
amount, less any outstanding Policy indebtedness, including any other
outstanding Policy loans.
- If the loan is approved, the Company will send a check within seven
days after it receives the loan request.
- Payment of any loan proceeds may be suspended under certain
circumstances as detailed in the section entitled "Suspension of
Payments."
- Loan proceeds may be taxable if the Policy is a modified endowment
contract. See "Federal Tax Status."
ALLOCATION OF LOANS
At the end of the Valuation Period during which the loan is made, a portion of
the Cash Value equal to the loan amount will be transferred from the Subaccounts
of the Variable Life Account into the General Account of the Company. The amount
transferred to the General Account does not participate in the investment
experience of the Variable Life Account. The amount of any interest due on the
loan that remains unpaid is also transferred to the General Account. These
transfers result in the cancellation of accumulation units within the
Subaccounts of the Variable Life Account. Unless you specify otherwise,
accumulation units will be canceled from each applicable Subaccount in the ratio
that the Cash Value of each Subaccount bears to the total of all Subaccount Cash
Values.
INTEREST CHARGED
The Company will charge an annual effective interest rate of 8% on Policy loans.
Interest is due at the end of each Policy Year. Unpaid interest will be added to
the existing Policy loan and charged interest at 8%.
INTEREST CREDITED
Interest will accrue daily on the Cash Value held in the General Account at an
annual rate of 6% and will be credited at the end of each Policy Year. Credited
interest will be transferred to the Variable Life Account and allocated to the
Subaccounts in the same manner that premium payments are allocated to the
Subaccounts.
LAPSE DUE TO LOAN
Policy indebtedness is the sum of all outstanding Policy loans and accrued
interest. If Policy indebtedness causes the Cash Surrender Value of the Policy
to equal zero or become negative, and the death benefit guarantee is not in
effect, the Company will notify you, along with any collateral assignee of
record, that the Policy will lapse and terminate without value.
In order to prevent the Policy from lapsing and terminating without value, you
must make a payment to the Company within 61 days from the date the notice is
sent. The payment must at least equal the amount by which the Policy
indebtedness exceeds the Cash Value less any remaining surrender charges. Policy
indebtedness will affect the applicability of the death benefit guarantee.
LOAN REPAYMENT
You may repay Policy loans in full or in part at any time while the Policy is in
effect. Outstanding Policy 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 as
Lifetime long as the payee lives. A guaranteed number of payments
Payments may be chosen. If the payee dies before the guaranteed
with a number of payments has been made, the Company will continue
Guarantee 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 THE 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 that mortality and
other expense charges be reasonable. In establishing these charges, the Company
has relied on the interim guidance provided in IRS Notice 88-128 and proposed
regulations issued on July 5, 1991. Currently, there is even less guidance as to
a policy issued on a substandard risk basis and thus it is even less clear
whether a Policy issued on such basis would meet the requirements of Section
7702 of the Code.
While every attempt has been made by the Company to comply with Section 7702,
the law in this area is very complex and unclear. There is a risk, therefore,
that the IRS will not concur with the Company's interpretations of Section
7702 that were made in determining such compliance. In the event the Policy is
determined not to comply, it would not qualify for the favorable tax treatment
usually accorded life insurance policies. You should consult a tax adviser
regarding the tax consequences of purchasing the Policy.
26
<PAGE> 29
TAX TREATMENT OF SETTLEMENT OPTIONS
Under the Code, a portion of the settlement option payments which are in excess
of the death benefit proceeds are included in the beneficiary's taxable income.
Under a settlement option payable for the lifetime of the beneficiary, the death
benefit proceeds are divided by the beneficiary's life expectancy (or joint life
expectancy in the case of a joint and survivor option) and proceeds received in
excess of these prorated amounts are included in taxable income. The value of
the death benefit proceeds is reduced by the value of any period certain or
refund guarantee. Under a fixed payment or fixed period option, the death
benefit proceeds are prorated by dividing the proceeds over the payment period
under the option. Any payments in excess of the prorated amount will be included
in taxable income.
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 Portfolio shares. 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.
27
<PAGE> 30
If a Mutual Fund holds a shareholder meeting at which you are entitled to vote,
you will receive periodic reports, proxy material, and a form on which you can
give voting instructions.
The Company will determine the number of shares that you will have a right to
vote as of a date chosen by it, which will not be more than 60 days prior to the
shareholder meeting. The Company will send you proxy material and a form for
giving voting instructions at least 14 days prior to the shareholder meeting.
In accordance with its view of present law, the Company will vote the shares of
the applicable Mutual Fund held in the Variable Life Account in accordance with
instructions received from all persons having a voting interest in that
particular Mutual Fund. The Company will vote shares for which it has not
received instructions in the same proportion as it votes shares for which it has
received instructions. The Company will vote its own shares in the same
proportion as it votes shares for which it has received instructions.
If the applicable law with respect to voting rights is amended or if the
interpretation of the law changes, and it is determined that the Company has
authority to vote the shares of the Mutual Fund in its own right, it may elect
to do so.
VOTING INSTRUCTIONS DISREGARDED
The Company may, when required to do so by state insurance authorities, vote
shares of the applicable Mutual Fund without regard to instructions from persons
having a voting interest if the voting instructions would cause the Mutual Fund
to make (or refrain from making) investments that would result in changes in the
sub-classifications or investment objectives of the Mutual Fund. The Company may
also disapprove changes in the investment policy initiated by the persons having
a voting interest or by the directors or trustees of the Mutual Fund if the
Company's disapproval is reasonable and based on a good faith determination that
the change would violate state law or the change would not be consistent with
the investment objective of the Mutual Fund, or varies from the general quality
and nature of investments and investment techniques used by other Mutual Funds
with similar investment objectives underlying other separate accounts of the
Company or of an affiliated life insurance company.
In the event the Company does disregard voting instructions, it will provide a
summary of its reasons for doing so in the next semi-annual report to Policy
Owners.
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
James J. Weishan Director Vice President, Investments of
Sentry Insurance a Mutual Company
</TABLE>
28
<PAGE> 31
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
Wallace D. Taylor President
Glen E. Scott Jr. Vice President
William M. O'Reilly Director and Secretary
William J. Lohr Director and Treasurer
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, 1999, for distributing the Policy was $115,642.
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.
29
<PAGE> 32
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
Semi-annually, you will receive a report for T. Rowe Price Fixed Income Series,
Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price International 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, 1999 and
1998, and for the years then ended, and the financial statements of the Variable
Life Account as of December 31, 1999, 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,
1999 and are included in this Prospectus.
30
<PAGE> 33
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
REPORT ON AUDITS OF FINANCIAL STATEMENTS
FOR THE YEARS ENDED 1999, 1998 AND 1997
31
<PAGE> 34
[PRICEWATERHOUSECOOPERS 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 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,
1999, and 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 accounting principles generally accepted in the United States. 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 auditing standards generally accepted in the
United States, 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, 1999, by
correspondence with the custodian, provide a reasonable basis for the opinion
expressed above.
/s/ PricewaterhouseCoopers L.L.P.
Chicago, Illinois
February 10, 2000
32
<PAGE> 35
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 208,539
shares (cost $208,539) $ 208,539
Growth Portfolio, 198,110
shares (cost $5,015,604) 7,383,501
Limited Maturity Bond Portfolio, 13,631
shares (cost $185,245) 180,508
Balanced Portfolio, 88,903
shares (cost $1,422,388) 1,857,191
----------
Total investments 9,629,739
Dividends receivable 923
----------
Total assets 9,630,662
LIABILITIES:
Accrued expenses 2,018
----------
NET ASSETS $9,628,644
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
33
<PAGE> 36
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS
For the Years ended December 31, 1999, 1998 and 1997
SUB-ACCOUNTS INVESTING IN:
<TABLE>
<CAPTION>
Liquid Asset Growth
Portfolio Portfolio
-------------------------------------- ----------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 7,204 $ 7,551 $ 10,121 $ -- $ -- $ --
Expenses:
Risk charges 1,794 1,740 2,305 55,295 45,238 37,804
--------- --------- --------- ----------- ----------- -----------
Net investment income (loss) 5,410 5,811 7,816 (55,295) (45,238) (37,804)
--------- --------- --------- ----------- ----------- -----------
Realized gains (losses) on investments:
Realized net investment gain (loss) -- -- -- 100,296 130,456 143,719
Capital gain distributions received -- -- -- 263,051 1,138,697 264,588
--------- --------- --------- ----------- ----------- -----------
Realized gain (loss) on investments and
capital gain distributions, net -- -- -- 363,347 1,269,153 408,307
Unrealized appreciation (depreciation), net -- -- -- 2,185,546 (607,832) 478,813
--------- --------- --------- ----------- ----------- -----------
Net increase in net assets from operations $ 5,410 $ 5,811 $ 7,816 $ 2,493,598 $ 616,083 $ 849,316
========= ========= ========= =========== =========== ===========
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31, 1999, 1998 and 1997
Net increase (decrease) in net assets
from operations:
Net investment income (loss) $ 5,410 $ 5,811 $ 7,816 $ (55,295) $ (45,238) $ (37,804)
Realized gains (losses) -- -- -- 363,347 1,269,153 408,307
Unrealized appreciation (depreciation) -- -- -- 2,185,546 (607,832) 478,813
--------- --------- --------- ----------- ----------- -----------
Net increase in net assets from operations 5,410 5,811 7,816 2,493,598 616,083 849,316
--------- --------- --------- ----------- ----------- -----------
Contract transactions:
Purchase payments 246,966 229,539 447,087 922,776 690,677 698,213
Transfers between subaccounts, net (183,953) (200,831) (427,134) 141,942 134,665 304,525
Withdrawals and surrenders (4,075) (2,093) (80,269) (400,076) (460,042) (375,499)
Monthly deductions (19,814) (18,659) (16,117) (347,478) (291,193) (250,870)
Policy loans (142) (282) (60) (232,500) (27,406) (32,746)
Death benefits -- -- -- (29,589) -- --
--------- --------- --------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from principal transactions 38,982 7,674 (76,493) 55,075 46,701 343,623
--------- --------- --------- ----------- ----------- -----------
Total increase (decrease) in net assets 44,392 13,485 (68,677) 2,548,673 662,784 1,192,939
Net assets at beginning of year 164,474 150,989 219,666 4,833,999 4,171,215 2,978,276
--------- --------- --------- ----------- ----------- -----------
Net assets at end of year $ 208,866 $ 164,474 $ 150,989 $ 7,382,672 $ 4,833,999 $ 4,171,215
========= ========= ========= =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
34
<PAGE> 37
<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 $ 8,980 $ 23,533 $ 28,603 $ 16,109 $ 40,016 $ 46,247 $ 35,210
1,826 1,731 1,647 15,401 13,274 10,422 74,316 61,983 52,178
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
7,453 8,362 7,333 8,132 15,329 5,687 (34,300) (15,736) (16,968)
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
(1,292) (290) (1,219) 9,272 14,003 15,467 108,276 144,169 157,967
-- -- -- 34,863 200,904 41,329 297,914 1,339,601 305,933
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
(1,292) (290) (1,219) 44,135 214,907 56,812 406,190 1,483,770 463,900
(5,431) (2,702) 2,465 394,033 (86,499) 100,185 2,574,148 (697,033) 581,463
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
$ 730 $ 5,370 $ 8,579 $ 446,300 $ 143,737 $ 162,684 $ 2,946,038 $ 771,001 $ 1,028,395
=========== ============ ============ ============ ============ =========== =========== =========== ===========
$ 7,453 $ 8,362 $ 7,333 $ 8,132 $ 15,329 $ 5,687 $ (34,300) $ (15,736) $ (16,968)
(1,292) (290) (1,219) 44,135 214,907 56,812 406,190 1,483,770 463,900
(5,431) (2,702) 2,465 394,033 (86,499) 100,185 2,574,148 (697,033) 581,463
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
730 5,370 8,579 446,300 143,737 162,684 2,946,038 771,001 1,028,395
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
28,494 24,332 20,154 275,290 222,905 176,611 1,473,526 1,167,453 1,342,065
1,011 (2,103) 793 41,000 68,269 121,816 -- -- --
(6,359) (10,939) (7,924) (204,024) (98,008) (19,038) (614,534) (571,082) (482,730)
(11,956) (11,050) (11,054) (112,051) (109,415) (93,257) (491,299) (430,317) (371,298)
(115) (551) 1,987 (3,742) (1,098) (219) (236,499) (29,337) (31,038)
-- -- -- (4,163) -- -- (33,752) -- --
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
11,075 (311) 3,956 (7,690) 82,653 185,913 97,442 136,717 456,999
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
11,805 5,059 12,535 438,610 226,390 348,597 3,043,490 7,718 1,485,394
168,556 163,497 150,962 1,418,135 1,191,745 843,148 6,585,164 5,677,446 4,192,052
- ----------- ------------ ------------ ------------ ------------ ----------- ----------- ----------- -----------
$ 180,361 $ 168,556 $ 163,497 $ 1,856,745 $ 1,418,135 $ 1,191,745 $ 9,628,644 $ 6,585,164 $ 5,677,446
=========== ============ ============ ============ ============ =========== =========== =========== ===========
</TABLE>
35
<PAGE> 38
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997
NOTES TO FINANCIAL STATEMENTS
December 31, 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 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 the
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 $2,018 at December 31, 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.
36
<PAGE> 39
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are imposed
by certain states.
4. NET ASSETS
At December 31, 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>
Liquid Asset Portfolio 12,542 $ 16.65 $ 208,866
Growth Portfolio 149,488 49.39 7,382,672
Limited Maturity Bond Portfolio 9,931 18.16 180,361
Balanced Portfolio 60,712 30.58 1,856,745
----------
Total net assets $9,628,644
==========
</TABLE>
At December 31, 1999 significant concentrations of ownership were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 3 44.4
Limited Maturity Bond Portfolio 1 29.2
</TABLE>
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, 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>
37
<PAGE> 40
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
In 1999, purchases and proceeds on sales of the Trust's shares aggregated
$2,187,782 and $1,826,660, 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 $318,521 $1,391,451 $40,920 $436,890 $2,187,782
Proceeds on sales 274,587 1,128,326 22,563 401,184 1,826,660
</TABLE>
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>
6. Subsequent Event
On January 7, 2000, the Variable Life Account transferred assets from
Neuberger Berman Advisers Management Trust to T. Rowe Price Fixed Income
Series, Inc., T. Rowe Price Equity Series, Inc., and Janus Aspen
Institutional Series. The transfer had no effect on the Variable Life Account
Portfolios' unit value or number of units.
38
<PAGE> 41
SENTRY LIFE INSURANCE COMPANY
REPORT ON AUDITS OF STATUTORY-BASIS FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
39
<PAGE> 42
[PRICEWATERHOUSECOOPERS 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, 1999 and 1998, 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 auditing standards generally accepted in the United States. 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 accounting principles generally accepted in the United States
(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, 1999 and 1998, 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,
1999 and 1998, 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 of Sentry Life Insurance Company
as of December 31, 1999, and for the year then ended, is presented for purposes
of additional analysis and is not a required pat of the statutory-basis
financial statements. Such information has been subjected to the auditing
procedures applied in our audit of the statutory basis financial statements and,
in our opinion, is fairly stated, in all material respects, in relation to the
statutory-basis financial statements taken as a whole.
/s/ PricewaterhouseCoopers L.L.P.
Chicago, Illinois
February 18, 2000
40
<PAGE> 43
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
--------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ---- ----
<S> <C> <C>
Investments:
Bonds .................................... $1,145,721,207 $1,118,191,869
Investments in subsidiaries .............. 9,869,910 9,532,940
Mortgage loans ........................... -- 18,723
Policy loans ............................. 23,284,247 24,036,498
Cash and short-term investments........... 20,833,999 29,877,016
-------------- --------------
Total investments ................. 1,199,709,363 1,181,657,046
Accrued investment income .................. 19,954,174 18,681,577
Premiums deferred and uncollected .......... 5,060,644 4,474,663
Other assets ............................... 717,462 1,177,498
Assets held in separate accounts ........... 645,899,120 604,877,464
-------------- --------------
Total admitted assets.............. $1,871,340,763 $1,810,868,248
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
41
<PAGE> 44
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1999 AND 1998
--------------------
<TABLE>
<CAPTION>
LIABILITIES 1999 1998
- ----------- ---- ----
<S> <C> <C>
Future policy benefits:
Life ........................................................ $ 257,989,084 $ 255,692,269
Accident and health ......................................... 15,254,702 15,440,434
Annuity ..................................................... 131,069,441 134,582,450
Policy and contract claims .................................... 4,472,194 4,140,344
Premium and other deposit funds ............................... 650,107,483 624,627,002
Other policyholder funds ...................................... 3,495,677 10,445,827
Accounts payable and other liabilities ........................ 5,047,521 11,177,061
Federal income taxes accrued .................................. 9,689,197 9,417,827
Asset valuation reserve ....................................... 5,725,552 5,706,987
Interest maintenance reserve .................................. 5,970,750 7,087,699
Liabilities related to separate accounts....................... 645,025,463 603,897,819
-------------- --------------
Total liabilities ........................................... $1,733,847,064 $1,682,215,719
============== ==============
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 ................................ 90,612,838 81,771,668
-------------- --------------
Total capital stock and surplus ............................... 137,493,699 128,652,529
-------------- --------------
Total liabilities, capital stock and surplus .................. $1,871,340,763 $1,810,868,248
============== ==============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
42
<PAGE> 45
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premiums and other income:
Premiums and annuity considerations .................... $ 78,163,778 $ 76,847,662
Other fund deposits .................................... 84,714,318 62,791,049
Commissions and expense allowances on
reinsurance ceded .................................... 10,490,120 11,560,785
Net investment income .................................. 92,047,182 93,544,822
Other income ........................................... 7,975,913 8,931,046
------------- -------------
Total premiums and other income .................... 273,391,311 253,675,364
------------- -------------
Benefits and expenses:
Policyholder benefits and fund withdrawals ............. 183,564,804 199,613,380
Increase in future life policy benefits
and other reserves ................................... 17,245,042 21,803,214
Commissions ............................................ 7,641,402 7,358,122
Other expenses ......................................... 28,531,247 27,780,333
Transfers to (from) separate accounts, net ............... 10,947,327 (16,816,030)
------------- -------------
Total benefits and expenses ........................ 247,929,822 239,739,019
------------- -------------
Income before Federal income tax expense
and net realized losses on investments ................. 25,461,489 13,936,345
Federal income tax expense, less tax on net realized
losses and transfers to the IMR .................. 8,599,925 5,684,753
------------- -------------
Income before net realized losses on investments ......... 16,861,564 8,251,592
Net realized losses on investments ................. (835,531) (514,506)
------------- -------------
Net income ............................................... $ 16,026,033 $ 7,737,086
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
43
<PAGE> 46
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL STOCK AND SURPLUS
FOR THE YEARS ENDED DECEMBER 31, 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 82,275,476
Net income .................................... 16,026,033 7,737,086
Change in non-admitted assets ................. (5,597) (4,430)
Change in liability for reinsurance ........... -- (9,348)
Change in asset valuation reserve ............. (18,565) (442,409)
Dividend to stockholder ....................... (7,500,000) (7,500,000)
Change in net unrealized gains on investments.. 339,299 (284,707)
------------- -------------
Balance at end of year ........................ 90,612,838 81,771,668
------------- -------------
Total capital stock and surplus ........... $ 137,493,699 $ 128,652,529
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
44
<PAGE> 47
SENTRY LIFE INSURANCE COMPANY
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
----------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Premiums and annuity considerations .................................... $ 77,982.959 $ 76,630,869
Other fund deposits .................................................... 84,714,318 62,791,049
Other premiums, considerations and deposits ............................ 158,698 165,851
Allowances and reserve adjustments received on
reinsurance ceded ................................................. 10,531,483 11,507,443
Investment income received (excluding realized gains
and losses and net of investment expenses) ........................ 89,005,861 90,358,325
Other income received .................................................. 7,812,904 13,079,807
Life and accident and health claims paid ............................... (26,702,540) (35,698,918)
Surrender benefits ..................................................... (105,735,114) (132,575,939)
Other benefits to policyholders paid ................................... (50,813,480) (48,180,669)
Commissions, other expenses, and taxes paid
(excluding federal income taxes) .................................. (35,554,121) (34,763,025)
Net transfers (to) from separate accounts .............................. (10,834,702) 16,492,034
Cash in receivable status from separate accounts ....................... -- --
Changes in asset charges receivable .................................... -- --
Dividends to policyholders paid ....................................... (318,735) (317,700)
Federal income taxes paid .............................................. (6,615,383) (8,853,213)
Net decrease in policy loans ........................................... 752,251 984,139
------------ ------------
Net cash from operations .......................................... 34,384,399 11,620,053
------------ ------------
Proceeds from investments sold, matured, or repaid:
Bonds .................................................................. 137,065,217 147,260,947
Mortgage loans ......................................................... 18,723 49,934
Tax on net capital gains ............................................... (1,608,247) (577,663)
------------ ------------
Total investment proceeds ......................................... 135,475,693 146,733,218
------------ ------------
Other cash provided .................................................... 2,492,931 17,175,517
------------ ------------
Total cash provided ............................................... 172,353,023 175,528,788
------------ ------------
Cost of investments acquired ........................................... 164,883,237 157,699,531
Other cash applied:
Dividend to stockholder ........................................... 7,500,000 7,500,000
Other applications, net .......................................... 9,012,803 1,088,365
------------ ------------
Total cash applied ........................................... 181,396,040 166,287,896
------------ ------------
Net change in cash and short-term investments ................ (9,043,017) 9,240,892
Cash and short-term investments:
Beginning of year ................................................. 29,877,016 20,636,124
------------ ------------
End of year ....................................................... $ 20,833,999 $ 29,877,016
============= =============
</TABLE>
The accompanying notes are an integral part of these statutory-basis
financial statements.
45
<PAGE> 48
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
----------
(1) BASIS OF PRESENTATION AND SIGNIFICANT STATUTORY-BASIS ACCOUNTING POLICIES
BASIS OF PRESENTATION
Sentry Life Insurance Company (the Company) is a wholly-owned subsidiary of
Sentry Insurance a Mutual Company (SIAMCO). The Company writes insurance
products in all states except New York primarily through direct writers who
market the Company's individual life insurance, annuities and group health and
pension products. The Company also uses direct mail and third party
administrators for the marketing of its group life and health products.
The accompanying statutory-basis financial statements of the Company have been
prepared in conformity with the accounting practices prescribed or permitted by
the insurance department of the State of Wisconsin. Prescribed statutory
accounting principles include a variety of publications of the National
Association of Insurance Commissioners (NAIC), as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company does
not employ any material permitted practices in the preparation of its
statutory-basis financial statements.
The accompanying statutory-basis financial statements have been prepared in
accordance with statutory accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
SIGNIFICANT STATUTORY ACCOUNTING POLICIES
A. INVESTMENT SECURITIES
Investments are valued in accordance with the requirements of the NAIC.
Bonds which qualify for amortization are stated at amortized cost; bonds
not qualifying are carried at the lesser of amortized cost or NAIC market
values. Under GAAP, bonds would be classified as either trading, available
for sale, or held-to-maturity. Bonds classified as trading or as available
for sale would be carried at market with unrealized gains and losses, net
of applicable taxes, recognized as net income (trading securities) or as a
direct surplus adjustment (available for sale). Common stock of the
Company's unconsolidated subsidiary is carried at its underlying statutory
capital and surplus. The change in the subsidiary's underlying equity
between years is reflected as a change in unrealized gains (losses). Under
GAAP, this entity's balance sheet and results of operations would be
consolidated with the Company. Mortgage loans on real estate are carried at
their aggregate unpaid principal balances. Policy loans are carried at the
aggregate of unpaid principal balances plus accrued interest and are not in
excess of cash surrender values of the related policies. Short-term
investments are carried at amortized cost, which approximates market value.
Investment income is recorded when earned. Market value adjustments, on
investments carried at market, are reflected in earned surplus as
unrealized gains (losses) on investments. Realized gains and losses are
determined on the specific identification method and are recorded directly
in the statements of operations, net of federal income taxes and after
transfers to the Interest Maintenance Reserve, as prescribed by the NAIC.
Income on mortgage-backed securities is recognized using a constant
effective yield based on anticipated prepayments and the estimated economic
life of the securities. When actual prepayments differ significantly from
anticipated prepayments, the effective yield is recalculated to reflect
actual payments to date and anticipated future payments. The net investment
in the securities is adjusted to the amount that would have existed had the
new effective yield been applied since the acquisition of the securities.
This adjustment is reflected in net investment income.
46
<PAGE> 49
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
B. SEPARATE ACCOUNT BUSINESS AND LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The Company issues group annuity contracts both to affiliated companies and
others. The deposits received in connection with these contracts are placed
in deposit administration funds and in separate accounts. The Company also
issues variable annuity contracts and variable universal life contracts.
Deposits for those contracts are also placed in separate accounts. A
separate account is an accounting entity segregated as a discrete operation
within an insurance company. The stockholder of the Company and its
policyholders have no claim to assets held in the separate accounts. The
contractholders 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 $10,348 and $4,752 at December 31, 1999 and
1998, 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, and include a provision
for adverse deviation.
E. INTEREST MAINTENANCE RESERVE (IMR)
Realized investment gains and losses on bonds attributable to interest rate
changes are deferred in the IMR account. The IMR is recorded as a liability
and amortized into investment income over the approximate remaining
maturities of the bonds sold. This policy for recognition of such realized
gains and losses is prescribed by the NAIC in order to smooth the impact of
such activity on the Company's earned surplus. For GAAP purposes, there is
no such reserve.
F. ASSET VALUATION RESERVE (AVR)
The AVR mitigates fluctuations in the values of invested assets including
bonds, 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.
47
<PAGE> 50
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
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.
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 $30,266,743 and $29,212,951 for 1999 and 1998,
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.
K. CODIFICATION
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance, which will replace the current Accounting Practices
and Procedures manual as the NAIC's primary guidance on statutory
accounting. The NAIC is not considering amendments to the Codification
guidance that would also be effective upon implementation. The Codification
provides guidance for areas where statutory accounting has been silent and
changes current statutory accounting in some areas, e.g., deferred income
taxes are recorded.
The Wisconsin Insurance Department has adopted the Codification guidance,
effective January 1, 2001. The effect on the Codification on the Company's
financial statements has not yet been estimated.
48
<PAGE> 51
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
(2) INVESTMENTS
The book value and estimated market value of bonds are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
US Treasury securities and
obligations of US Government
corporations and agencies $ 44,861,293 $ 999,252 $ (772,215) $ 45,088,330
Obligations of states and
political subdivisions 443,994 27,721 0 471,715
Corporate securities 876,015,612 10,437,319 (40,424,102) 846,028,829
Mortgage-backed securities 224,400,308 4,532,599 (2,314,104) 226,618,803
-------------- -------------- -------------- --------------
Total $1,145,721,207 $ 15,996,891 $ (43,510,421) $1,118,207,677
============== ============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
BOOK UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
----- ----- ------ -----
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1998
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 $ 92,561,751 $ (3,221,599) $1,207,532,021
============== ============== ============== ==============
</TABLE>
Book value and estimated market value of bonds at December 31, 1999, by
contractual maturity, are shown below. Actual maturities may differ from
contractual maturities because certain issuers have the right to call or prepay
obligations with or without call or prepayment penalties. Because most
mortgage-backed securities provide for periodic payments throughout their lives,
they are listed below in a separate category.
<TABLE>
<CAPTION>
ESTIMATED
BOOK MARKET
VALUE VALUE
----- -----
<S> <C> <C>
Due in one year or less $ 7,339,697 $ 7,424,129
Due after one year through five years 71,644,578 71,916,890
Due after five years through ten years 174,799,974 171,372,748
Due after ten years 667,536,650 640,875,107
-------------- --------------
Subtotal 921,320,899 891,588,874
Mortgage-backed securities 224,400,308 226,618,803
-------------- --------------
Total $1,145,721,207 $1,118,207,677
============== ==============
</TABLE>
49
<PAGE> 52
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
The bond portfolio distribution by quality rating (primarily Moody's) at
December 31, 1999 is summarized as follows:
<TABLE>
<S> <C>
Aaa 25.29%
Aa 7.98%
A 41.73%
Baa 24.25%
Ba & below and not rated 0.75%
-------
100.00%
=======
</TABLE>
Generally, bonds with ratings Baa and above are considered to be investment
grade.
Proceeds from sales of bonds during 1999 and 1998, including maturities and
calls, were $137,065,217 and $147,260,947, respectively. In 1999 and 1998,
respectively, gross gains of $1,424,706 and $3,633,126 and gross losses of
$2,344,106 and $508,150 were realized on these sales before transfer to the
IMR liability.
At December 31, 1999 and 1998, investments carried at $4,283,967 and
$4,335,822, 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 1999 and 1998. Condensed financial information regarding SLONY is
shown as follows:
<TABLE>
<CAPTION>
SLONY
-----------------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Investments $31,349,369 $33,868,989
Total assets 37,511,889 38,308,361
Policy reserves and benefits 18,263,957 19,401,383
Total liabilities 27,641,979 28,775,421
Statutory capital and surplus 9,869,910 9,532,940
Premium income 6,164,053 7,151,770
Net investment income 2,436,476 2,627,438
Benefits and expenses 7,044,649 8,687,989
Net income 1,019,134 659,539
</TABLE>
(4) NET INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS (LOSSES)
Sources of net investment income for 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Dividends received from affiliates $ 850,000 $ 880,000
Interest:
Bonds 87,460,887 89,112,233
Short-term investments 1,140,773 1,111,775
Other investments 1,815,616 1,676,371
Amortization of IMR 1,138,005 1,119,458
----------- -----------
Gross investment income 92,405,281 93,899,837
Investment expense 358,099 355,015
----------- -----------
Net investment income $92,047,182 $93,544,822
=========== ===========
</TABLE>
50
<PAGE> 53
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
The components of net realized gains (losses) and changes in net unrealized
gains (losses) on investments which are reflected in the accompanying
statutory-basis financial statements are as follows:
<TABLE>
<CAPTION>
REALIZED UNREALIZED
------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Common stock of unconsolidated -- -- $ 336,970 $ (284,707)
subsidiary
Bonds (919,400) 3,124,975 -- --
Stocks -- -- 2,329 --
Capital gains tax 104,925 (1,608,247) -- --
---------- ---------- ---------- -----------
Pre-IMR capital gains (losses),
net of tax (814,475) 1,516,728 339,299 (284,707)
IMR capital gains transferred
into the reserve, net of taxes (21,056) (2,031,234) -- --
---------- ---------- ---------- -----------
$ (835,531) $ (514,506) $ 339,299 $ (284,707)
========== ========== ========== ===========
</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>
1999 1998
---- ----
<S> <C> <C>
Federal income tax calculated at statutory rate
of 35% of income before federal income taxes and
net realized gains on investments $ 8,911,521 $ 4,877,721
Accrual of bond discount (566,045) (937,906)
Adjustment for deferred acquisition costs (59,256) (33,295)
Dividends received from subsidiaries (297,500) (308,000)
Different basis used to compute future policy benefits 506,516 2,678,735
Amortization of interest maintenance reserve (398,302) (391,810)
Other, net 502,991 (200,692)
----------- -----------
Total $ 8,599,925 $ 5,684,753
=========== ===========
</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 $93,757,427, respectively, at December 31,
1999.
Federal income tax returns of SIAMCO have been examined through 1996, and
the Company and the Internal Revenue Service have reached agreement on all
issues relating to 1996 and prior years. In the opinion of management, the
Company has adequately provided for the possible effect of future
assessments related to prior years.
(6) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 (SFAS 107),
"Disclosures about Fair Values of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether
or not recognized in the balance sheets, for which it is practicable to
estimate those values. SFAS 107 defines fair value of a financial
instrument as the amount at which that instrument could be exchanged in a
current transaction between willing parties, other than in a forced or
liquidated sale.
The fair values presented on the next page represent management's best
estimates and may not be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement
of the instruments. Certain financial instruments and all nonfinancial
instruments are exempt from the disclosure requirements of SFAS 107.
Financial instruments which are exempt include life policy benefits with
mortality or morbidity risk. Therefore, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
51
<PAGE> 54
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
For cash and short-term investments and accrued investment income, the carrying
amount approximates fair value.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
BONDS
Estimated fair value is generally based on quotes provided by independent
pricing services. If a quoted market price is not available, fair value is
estimated by management based on the quoted market price of comparable
instruments.
POLICY LOANS
Policy loans have no stated maturity dates; therefore, no reasonable estimate of
fair value can be made. Interest rates range from 5 to 8 percent.
SEPARATE ACCOUNTS
The fair value of the assets held in separate accounts and offsetting
liabilities are estimated based on the fair value of the underlying assets.
AGGREGATE RESERVES FOR INVESTMENT-TYPE CONTRACTS
The fair value of investment-type insurance contracts is estimated by reducing
the policyholder liability for applicable surrender charges.
STRUCTURED SETTLEMENTS
The fair value of the liability for structured settlements is estimated by
discounting future cash flows using the current rates being offered for similar
settlements.
LIABILITY FOR PREMIUM AND OTHER DEPOSIT FUNDS
The fair value for contracts with stated maturities is estimated by discounting
future cash flows using current rates being offered for similar contracts. For
those contracts with no stated maturity, the fair value is estimated by
calculating the surrender value.
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
STATEMENT ESTIMATED
AT DECEMBER 31, 1999 VALUE FAIR VALUE
-------------- --------------
<S> <C> <C>
Assets:
Bonds $1,145,721,207 $1,118,207,677
Assets held in separate accounts 645,899,120 645,899,120
Liabilities:
Aggregate reserves for
investment-type contracts 71,802,052 71,619,440
Structured settlements 54,073,885 64,055,048
Liability for premium and
other deposit funds 650,107,483 641,978,933
Liabilities related to separate accounts 645,025,463 645,025,463
</TABLE>
52
<PAGE> 55
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
<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>
(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 not allocated pension
expense by SIAMCO in 1999 and 1998.
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 $373,000
and $429,000 by SIAMCO for 401k Plan benefits in 1999 and 1998,
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 $516,000 for 1999 and $470,000 for 1998.
(8) REINSURANCE
The Company had entered into reinsurance contracts for participation in
reinsurance pools and surplus protection for its wholly-owned subsidiary.
Assumed life in-force amounted to approximately 32% and 31% of total
in-force (before ceded reinsurance) at December 31, 1999 and 1998,
respectively.
The Company has entered into reinsurance ceded contracts to limit the net
loss potential arising from large risks. Generally, life benefits in excess
of $250,000 and all group health liabilities, except for liabilities
relating to SIAMCO's employee benefit plans, are ceded to reinsurers. The
group health liabilities are ceded to SIAMCO.
53
<PAGE> 56
SENTRY LIFE INSURANCE COMPANY
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS (CONTINUED)
----------
The Company cedes insurance to other insurers under various contracts which
cover individual risks or entire classes of business. Although the ceding
of insurance does not discharge the Company from its primary liability to
policyholders in the event any reinsurer might be unable to meet the
obligations assumed under the reinsurance agreements, it is the practice of
insurers to reduce their balances for amounts ceded. The amounts included
in the accompanying statutory-basis financial statements for reinsurance
were as follows:
<TABLE>
<CAPTION>
1999
(000'S OMITTED)
---------------
AFFILIATED UNAFFILIATED
---------- ------------
ASSUMED CEDED ASSUMED CEDED
------- ----- ------- -----
<S> <C> <C> <C> <C>
Premiums $ 295 $ 24,993 $ 7,399 $ 3,488
Benefits 138 54,854 7,236 1,854
Commissions 8 10,050 (3) 440
Future Policy Benefits:
Life & Annuities 31 -- 13 1,303
Accident & Health -- 213,850 165 70
Intercompany Receivable -- 3,620 -- --
</TABLE>
<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>
(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 $33,022,000 and
$25,742,000 in 1999 and 1998, 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, 1999 and 1998 included
$54,073,885 and $53,328,059, 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 $1,342.0 million and
$1,286.0 million in 1999 and 1998, respectively, are subject to withdrawal
at the discretion of the annuity contract holders. Approximately 96% and
95%, respectively, carry surrender charges.
54
<PAGE> 57
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1999
55
<PAGE> 58
SENTRY LIFE INSURANCE COMPANY
SUPPLEMENTAL SCHEDULE OF ASSETS AND LIABILITIES
FOR THE YEAR ENDED DECEMBER 31, 1999
SCHEDULE 1 - SELECTED FINANCIAL DATA
The following is a summary of certain financial data included in other exhibits
and schedules subjected to audit procedures by independent auditors and utilized
by actuaries in the determination of reserves.
<TABLE>
<S> <C>
Investment Income Earned:
Government Bonds.................................................... $ 321,403
Other bonds (unaffiliated).......................................... 87,139,484
Common stocks of affiliates......................................... 850,000
Mortgage loans...................................................... 999
Premium notes, policy loans and liens............................... 1,583,866
Short-term investments.............................................. 1,140,773
Aggregate write-ins for investment income........................... 230,751
--------------
Gross investment income............................................. $ 91,267,276
==============
Mortgage Loans - Book Value:
Residential mortgages............................................... $ 0
==============
Mortgage Loans By Standing - Book Value:
Good standing....................................................... $ 0
==============
Bonds and Stocks of Parents, Subsidiaries and Affiliates - Book Value:
Common stocks....................................................... $ 9,869,910
==============
Bonds and Short-Term Investments by Class and Maturity:
Bonds by Maturity - Statement Value
Due within one year or less....................................... $ 19,858,194
Over 1 year through 5 years....................................... 157,866,910
Over 5 years through 10 years..................................... 275,602,276
Over 10 years through 20 years.................................... 312,091,609
Over 20 years..................................................... 380,302,218
--------------
Total by Maturity................................................. $1,145,721,207
==============
Bonds by Class - Statement Value
Class 1........................................................... $ 833,324,129
Class 2........................................................... 292,171,799
Class 3........................................................... 17,342,925
Class 4........................................................... 2,882,354
Class 5........................................................... 0
Class 6........................................................... 0
--------------
Total by Class.................................................... $1,145,721,207
==============
Total Bonds Publicly Traded....................................... $1,124,872,697
==============
Total Bonds Privately Placed...................................... $ 20,848,510
==============
Short-Term Investments - Book Value................................... $ 20,833,999
==============
Cash on Deposit....................................................... $ 0
==============
</TABLE>
56
<PAGE> 59
<TABLE>
<S> <C>
Life Insurance In Force (000's omitted):
Ordinary.......................................................... $ 4,538,256
==============
Group Life........................................................ $ 3,188,254
==============
Amount of Accidental Death Insurance In Force Under Ordinary
Policies (000's omitted)............................................. $ 110,819
==============
Life Insurance Policies with Disability Provisions In Force:
Ordinary.......................................................... 20,124
==============
Group Life........................................................ 106
==============
Supplementary Contracts In Force:
Ordinary - Not Involving Life Contingencies
Amount on Deposit.............................................. $ 340,063
==============
Income Payable................................................. $ 216,400
==============
Ordinary - Involving Life Contingencies
Income Payable................................................... $ 78,816
==============
Annuities:
Ordinary
Immediate - Amount of Income Payable........................... $ 1,749,809
==============
Deferred - Fully paid account balance.......................... $ 18,765,099
==============
Deferred - Not fully paid account balance...................... $ 108,234,625
==============
Group
Amount of income payable....................................... $ 4,841,658
==============
Fully paid account balance..................................... $ 26,503,191
==============
Not fully paid account balance................................. $1,208,929,671
==============
Accident and Health Insurance - Premiums In Force:
Ordinary.......................................................... $ 115,852
==============
Group............................................................. $ 26,714,977
==============
Deposit Funds and Dividend Accumulations:
Dividend Accumulations - Account Balance........................... $ 360,313
==============
Claim Payments 1999:
Group Accident and Health Year - Ended December 31, 199X
1999............................................................ $ 2,582,449
==============
1998............................................................ $ 419,317
==============
1997............................................................ $ 85,332
==============
1996 & prior.................................................... $ 1,047,898
Other Accident & Health ==============
1999............................................................ $ 5,320
==============
1998............................................................ $ 21,591
==============
1997............................................................ $ 19,197
==============
1996 & prior.................................................... $ 56,701
==============
</TABLE>
57
<PAGE> 60
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 0.73% of
the average daily net assets of T. Rowe Price Fixed Income Series, Inc., T. Rowe
Price Equity Series, Inc., T. Rowe Price International Series, Inc., and Janus
Aspen Series. The values also assume that T. Rowe Price Fixed Income Series,
Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price International Series,
Inc., and Janus Aspen Series will incur other expenses annually which are
assumed to be .02% of the average daily net assets. These assumptions are based
on the fee schedules in effect as of May 1, 2000, 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
(1.80%), 4.20% and 10.20%.
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.
58
<PAGE> 61
SENTRY LIFE INSURANCE COMPANY TABLE 1
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 2003 1361 100000
38 3 3504 3866 3147 2505 100000
39 4 4672 5286 4397 3755 100000
40 5 5840 6777 5764 5250 100000
41 6 7008 8342 7257 6872 100000
42 7 8176 9985 8990 8633 100000
43 8 9344 11711 10677 10549 100000
44 9 10512 13523 12632 12632 100000
45 10 11680 15426 14774 14774 100000
55 20 23360 40552 51594 51594 100000
65 30 35040 81481 147498 147498 179948
75 40 46720 148149 389229 389229 416475
95 60 70080 433635 2474961 2474961 2499710
</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 2969 2327 100000
39 4 4672 5286 4136 3494 100000
40 5 5840 6777 5403 4889 100000
41 6 7008 8342 6779 6394 100000
42 7 8176 9985 8274 8017 100000
43 8 9344 11711 9900 9772 100000
44 9 10512 13523 11668 11668 100000
45 10 11680 15426 13593 13593 100000
55 20 23360 40552 46138 46138 100000
65 30 35040 81481 131449 131449 160368
75 40 46720 148149 346116 346116 370344
95 60 70080 433635 2169247 2169247 2190939
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
59
<PAGE> 62
SENTRY LIFE INSURANCE COMPANY TABLE 2
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 1827 1185 100000
38 3 3504 3866 2786 2144 100000
39 4 4672 5286 3774 3132 100000
40 5 5840 6777 4793 4279 100000
41 6 7008 8342 5841 5456 100000
42 7 8176 9985 6920 6663 100000
43 8 9344 11711 8030 7902 100000
44 9 10512 13523 9171 9171 100000
45 10 11680 15426 10345 10345 100000
55 20 23360 40552 23701 23701 100000
65 30 35040 81481 38465 38465 100000
75 40 46720 148149 48425 48425 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 1726 1084 100000
38 3 3504 3866 2622 1980 100000
39 4 4672 5286 3540 2898 100000
40 5 5840 6777 4477 3963 100000
41 6 7008 8342 5432 5047 100000
42 7 8176 9985 6405 6148 100000
43 8 9344 11711 7395 7267 100000
44 9 10512 13523 8400 8400 100000
45 10 11680 15426 9420 9420 100000
55 20 23360 40552 20114 20114 100000
65 30 35040 81481 28427 28427 100000
75 40 46720 148149 19811 19811 100000
95 60 70080 433635 0 0 100000
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
60
<PAGE> 63
SENTRY LIFE INSURANCE COMPANY TABLE 3
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 841 199 100000
37 2 2336 2514 1659 1017 100000
38 3 3504 3866 2453 1811 100000
39 4 4672 5286 3223 2581 100000
40 5 5840 6777 3967 3454 100000
41 6 7008 8342 4685 4299 100000
42 7 8176 9985 5375 5118 100000
43 8 9344 11711 6039 5911 100000
44 9 10512 13523 6675 6675 100000
45 10 11680 15426 7283 7283 100000
55 20 23360 40552 11365 11365 100000
65 30 35040 81481 9057 9057 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 795 153 100000
37 2 2336 2514 1563 921 100000
38 3 3504 3866 2303 1661 100000
39 4 4672 5286 3013 2371 100000
40 5 5840 6777 3691 3177 100000
41 6 7008 8342 4335 3950 100000
42 7 8176 9985 4945 4688 100000
43 8 9344 11711 5519 5391 100000
44 9 10512 13523 6055 6055 100000
45 10 11680 15426 6552 6552 100000
55 20 23360 40552 8994 8993 100000
65 30 35040 81481 2323 2323 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.
61
<PAGE> 64
SENTRY LIFE INSURANCE COMPANY TABLE 4
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 4396 3750 104396
38 3 6843 7550 6920 6274 106920
39 4 9124 10323 9689 9043 109689
40 5 11405 13234 12726 12209 112726
41 6 13686 16291 16056 15668 116056
42 7 15967 19501 19709 19451 119709
43 8 18248 22871 23718 23589 123718
44 9 20529 26409 28116 28116 128116
45 10 22810 30125 32942 32942 132942
55 20 45620 79195 116114 116114 216114
65 30 68430 159124 325202 325202 425202
75 40 91240 289321 849745 849745 949745
95 60 136860 846851 5403587 5403587 5503587
</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 6737 6091 106737
39 4 9124 10323 9417 8771 109417
40 5 11405 13234 12348 11831 112348
41 6 13686 16291 15551 15163 115551
42 7 15967 19501 19053 18795 119053
43 8 18248 22871 22882 22753 122882
44 9 20529 26409 27068 27068 127068
45 10 22810 30125 31645 31645 131645
55 20 45620 79195 109150 109150 209150
65 30 68430 159124 298716 298716 398716
75 40 91240 289321 761764 761764 861764
95 60 136860 846851 4619150 4619150 4719150
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
62
<PAGE> 65
SENTRY LIFE INSURANCE COMPANY TABLE 5
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 4025 3379 104025
38 3 6843 7550 6150 5504 106150
39 4 9124 10323 8352 7706 108352
40 5 11405 13234 10633 10116 110633
41 6 13686 16291 12994 12606 112994
42 7 15967 19501 15438 15180 115438
43 8 18248 22871 17968 17839 117968
44 9 20529 26409 20584 20584 120584
45 10 22810 30125 23290 23290 123290
55 20 45620 79195 55495 55495 155495
65 30 68430 159124 95945 95945 195945
75 40 91240 289321 135366 135366 235366
95 60 136860 846851 24391 24391 124391
</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 3922 3276 103922
38 3 6843 7550 5982 5336 105985
39 4 9124 10323 8109 7463 108109
40 5 11405 13234 10303 9786 110303
41 6 13686 16291 12564 12176 112564
42 7 15967 19501 14893 14635 114893
43 8 18248 22871 17290 17161 117290
44 9 20529 26409 19755 19755 119755
45 10 22810 30125 22289 22289 122289
55 20 45620 79195 51297 51297 151297
65 30 68430 159124 83444 83444 183444
75 40 91240 289321 102525 102525 202525
95 60 136860 846851 0 0 100000
</TABLE>
================================================================================
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN. ACTUAL INVESTMENT RETURNS MAY BE MORE OR LESS THAN THOSE SHOWN.
63
<PAGE> 66
SENTRY LIFE INSURANCE COMPANY TABLE 6
SELF-DIRECTED LIFE A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Designed for: MARK SENTRY Prepared By: ANN 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 1856 1210 101856
37 2 4562 4910 3670 3024 103670
38 3 6843 7550 5440 4794 105440
39 4 9124 10323 7167 6521 107167
40 5 11405 13234 8850 8334 108850
41 6 13686 16291 10487 10100 110487
42 7 15967 19501 12079 11820 112079
43 8 18248 22871 13626 13497 113626
44 9 20529 26409 15126 15126 115126
45 10 22810 30125 16580 16580 116580
55 20 45620 79195 28129 28129 128129
65 30 68430 159124 31448 31448 131448
75 40 91240 289321 17429 17429 117429
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 3572 2926 103572
38 3 6843 7550 5286 4640 105286
39 4 9124 10323 6950 6304 106950
40 5 11405 13234 8563 8046 108563
41 6 13686 16291 10122 9734 110122
42 7 15967 19501 11626 11368 111626
43 8 18248 22871 13075 12946 113075
44 9 20529 26409 14466 14466 114466
45 10 22810 30125 15799 15799 115799
55 20 45620 79195 25412 25412 125412
65 30 68430 159124 24443 24443 124443
75 40 91240 289321 807 923 100807
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.
64
<PAGE> 67
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> 68
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The Prospectus consisting of 64 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., T. Rowe Price Equity Series, Inc.,
and T. Rowe Price International 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.
** Incorporated herein by reference to Registrant's Post-Effective
Amendment No. 18 filed electronically on or about January 7, 2000.
<PAGE> 69
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
SENTRY VARIABLE LIFE ACCOUNT I and SENTRY LIFE INSURANCE COMPANY have duly
caused this Registration Statement to be signed on their behalf by the
undersigned, thereunto duly authorized, and its seal to be hereunto affixed and
attested, all in the City of Stevens Point, State of Wisconsin, on the 24th day
of April, 2000. 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> 70
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the date indicated.
/s/ Dale R. Schuh April 24, 2000
- --------------------------------------------
Dale R. Schuh, Chairman of the
Board, President and Director
/s/ Wallace D. Taylor April 24, 2000
- --------------------------------------------
Wallace D. Taylor, Vice President
/s/ William M. O'Reilly April 24, 2000
- --------------------------------------------
William M. O'Reilly, Secretary and
Director
/s/ William J. Lohr April 24, 2000
- --------------------------------------------
William J. Lohr, Treasurer and
Director
/s/ Janet L. Fagan April 24, 2000
- --------------------------------------------
Janet L. Fagan, Director
/s/ James J. Weishan April 24, 2000
- --------------------------------------------
James J. Weishan, Director
<PAGE> 71
EXHIBITS TO
POST-EFFECTIVE AMENDMENT NO. 18
TO
FORM S-6
FOR
SENTRY VARIABLE LIFE ACCOUNT I
Exhibit A(10) Application Form
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)
[SENTRY LIFE INSURANCE COMPANY LETTERHEAD]
SUPPLEMENTARY APPLICATION
Proposed Insured(s):
-------------------------------------------------
The Policy Applied For Is: Flexible Premium Variable Life Insurance with
<TABLE>
<S> <C>
[ ] Death Benefit Option 1 [ ] Death Benefit Option 2
</TABLE>
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 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 DEPENDING 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:
<TABLE>
<S> <C>
T. Rowe Price Fixed Income Series, Inc. Janus Aspen Series Institutional Shares
--------------------------------------- ---------------------------------------
T. ROWE PRICE PRIME RESERVE PORTFOLIO...... BALANCED PORTFOLIO.................
-------% --------%
T. ROWE PRICE LIMITED TERM BOND PORTFOLIO.. GROWTH PORTFOLIO...................
-------% --------%
T. Rowe Price Equity Series, Inc. CAPITAL APPRECIATION PORTFOLIO.....
--------------------------------------- --------%
T. ROWE PRICE AGGRESSIVE GROWTH PORTFOLIO........
--------%
PERSONAL STRATEGY BALANCED PORTFOLIO..... WORLDWIDE GROWTH PORTFOLIO.........
-------% --------%
T. ROWE PRICE EQUITY INCOME PORTFOLIO....... Total Allocation must equal 100%
-------%
T. Rowe Price International Series, Inc.
----------------------------------------
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO..
-------%
</TABLE>
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).
<TABLE>
<CAPTION>
YES NO
<S> <C> <C>
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>
<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)
</TABLE>
<PAGE> 2
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
TELEPHONE EXCHANGE PRIVILEGE
The policyowner hereby authorizes Sentry Life 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 B
[BLAZZARD, GRODD & HASENAUER, P.C. LETTERHEAD]
April 12, 2000
Board of Directors
Sentry Life Insurance Company
1800 North Point Drive
Stevens Point, WI 54481
Re: Opinion of Counsel - Sentry Variable Life Account I
Gentlemen:
You have requested our Opinion of counsel in connection with the filing with the
Securities and Exchange Commission of a Post-Effective Amendment to a
Registration Statement on form S-6 for the Flexible Premium Variable Life
Insurance Policies to be issued by Sentry Life Insurance Company and its
separate account, Sentry Variable Life Account I.
We have made such examination of the law and have examined such records and
documents as in our judgment are necessary or appropriate to enable us to render
the opinions expressed below.
We are of the following opinions:
1. Sentry Variable Life Account I is a Unit Investment Trust as that term is
defined in Section 4(2) of the Investment Company Act of 1940 (the "Act"),
and is currently registered with the Securities and Exchange Commission,
pursuant to Section 8(a) of the Act.
2. Upon the acceptance of 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 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
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 10, 2000, on our audits of the financial
statements of the Account; and
(2) Our report dated February 18, 2000, on our audits of the
statutory-basis financial statements of Sentry Life Insurance
Company.
We also consent to the reference to our Firm under the caption "Experts."
s/ PricewaterhouseCoopers LLP
April 20, 2000
<PAGE> 1
EXHIBIT D
April 20, 2000
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
