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[SENTRY LOGO]
Sentry Variable Account II
THE PATRIOT
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[ARTWORK]
SEMI-ANNUAL REPORT
JUNE 30, 1995
SENTRY LIFE INSURANCE COMPANY
<PAGE> 2
Dear Contract Owner: August 15, 1995
The following Separate Account performance is presented for your review:
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS* AS OF 6-30-95
PORTFOLIO 1 YEAR 5 YEARS 10 YEARS
- --------- ------ ------- --------
<S> <C> <C> <C>
Growth 22.0% 7.7% 10.3%
Balanced 14.1% 7.6% 8.6%
Limited Maturity Bond (0.5%) 3.9% 5.3%
Liquid Asset (1.9%) 2.5% 4.0%
</TABLE>
The comments below on the performance of the Sentry Separate Account investment
vehicle are provided by its investment advisor, Neuberger and Berman
Management, Incorporated.
With strong economic growth, and the threat of rising interest rates,
many people predicted 1995 would be a continuation of the weak 1994
bond market. Instead, the bond market rallied, with 2-year Treasury
note yields falling by 2% from January 1995, through June 30, 1995,
and 30-year Treasury bond yields declining by 1.35% during this same
time period. By the end of June, the bond market had anticipated the
latest cut in interest rates by the Fed. In 1995 bonds have had
generous total returns, year-to-date.
By the end of 1994, with the economy at full steam, corporate bond
spreads (the difference between the yield of a corporate bond and a
comparable maturity Treasury security) had narrowed to historically
tight levels. But with the change of sentiment to a slower economy,
corporate bond spreads actually widened. Neuberger & Berman AMT
Limited Maturity Bond Investments and the fixed income portion of
Neuberger & Berman AMT Balanced Investments took advantage of this
buying opportunity (one wants to buy corporate bonds when spreads are
wide), and purchased corporate bonds. For both, we entered 1995 at a
relatively short maturity of 2.2 years. Given the uncertainty of the
environment, we felt it prudent to stay close to neutral and kept the
weighted average maturity in the 1.9 to 2.4 year range. The net
result was to keep our returns generally in-line with the generous
returns of the Merrill Lynch 1-3 year Treasury Index.
The strategy for Neuberger & Berman AMT Liquid Asset Investments
during this time was to continue to take advantage of higher yields
and extend the portfolio maturity from 32 days in January, 1995 to 49
days in June. We had extended to 62 days in the first quarter as the
additional yield afforded by longer maturities added to our returns.
In the second quarter we were able to take advantage of the additional
yield available by purchasing assets with shorter maturities.
Fueled by lower interest rates, the first half of 1995, has been an
exciting one for Neuberger & Berman AMT Growth Investments and the
equity portion of Neuberger & Berman AMT Balanced Investments. The
short-term value of our securities was favorably affected by the
decline in interest rates. We are hopeful that the recent 1/4%
reduction in the Federal Funds rate in the beginning of the third
quarter will continue this positive trend.
Interest rates aside, the earnings growth of the companies we own
remains the most important factor influencing the appreciation of
securities. We continue to be committed to paying a reasonable price
for the stocks we believe have growth potential. Among the strongest
industry groups in the portfolio for the first half of the year were
Technology, Financial Services and Gaming.
Overall, we have been pleased with the quality and returns of our
holdings this year. Further, there is no shortage of buying
opportunities, even in this record-high equity market. By investing in
fast-growing companies with entrepreneurial managements and pristine
balance sheets, we hope to be able to continue to provide the
shareholder with excellent long-term returns.
Please feel free to contact us at any time should you have questions.
Sincerely,
Dale R. Schuh
Dale R. Schuh, President, Sentry Life Insurance Company
* Total return results are net of all expenses, management fees and
contingent deferred sales charges. Results represent past performance
and are not an indication of future results. The investment return and
principal value of an investment will fluctuate so that an investor's
shares, when redeemed, may be worth more or less than their original
cost. The Balanced Portfolio was established on March 1, 1989, but was
not offered to Sentry clients until September 14, 1990.
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1995 (Unaudited)
<TABLE>
<S> <C>
Assets:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 2,980,583
shares (cost $2,980,583) $2,980,583
Growth Portfolio, 1,402,004
shares (cost $29,726,214) 33,521,919
Limited Maturity Bond Portfolio, 642,546
shares (cost $8,882,082) 9,059,892
Balanced Portfolio, 534,170
shares (cost $7,750,844) 8,765,736
-----------
Total investments 54,328,130
Dividends receivable 12,331
-----------
Total assets 54,340,461
LIABILITIES:
Accrued expenses 6,432
-----------
CONTRACT OWNERS' EQUITY (NET ASSETS) $54,334,029
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the six months ended June 30, 1995 and 1994 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
----------------------- ----------------------
1995 1994 1995 1994
--------- -------- -------- ----------
<S> <C> <C> <C> <C>
Income:
Dividends 78,457 51,631 71,275 170,811
Expenses:
Mortality and expense risk 18,884 23,562 187,573 196,953
--------- --------- ----------- ----------
Net investment income (loss) 59,573 28,069 (116,298) (26,142)
--------- --------- ----------- ----------
Realized net investment gain -- -- 730,328 643,776
Unrealized appreciation (depreciation), net -- -- 4,447,830 (8,101,062)
Capital gain distributions received -- 4,577 955,092 3,999,827
--------- --------- ----------- ----------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- 4,577 6,133,250 (3,457,459)
--------- --------- ----------- ----------
Net increase (decrease) in contract owners'
equity from operations 59,573 32,646 6,016,952 (3,483,601)
--------- --------- ----------- ----------
Purchase payments 95,323 82,475 704,777 742,655
Transfers between subaccounts, net 60,382 418,615 142,509 (302,250)
Withdrawals (617,079) (841,432) (2,945,476) (2,324,885)
Contract maintenance fees (3,060) (3,579) (32,744) (35,029)
Surrender charges (2,915) (2,192) (15,852) (19,908)
--------- --------- ----------- ----------
Net decrease in contract owners'
equity derived from principal transactions (467,349) (346,113) (2,146,786) (1,939,417)
--------- --------- ----------- ----------
Total increase (decrease) in contract
owners' equity (407,776) (313,467) 3,870,166 (5,423,018)
Contract owners' equity at beginning of year 3,399,935 4,149,145 29,648,763 34,795,339
--------- --------- ----------- ----------
Contract owners' equity at end of year 2,992,159 3,835,678 33,518,929 29,372,321
========= ========= =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
---------------------------- ---------------------------- -------------------------
1995 1994 1995 1994 1995 1994
------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
501,148 394,727 157,249 131,376 808,129 748,545
55,047 60,788 51,139 52,285 312,643 333,588
--------- ---------- --------- ----------- ---------- -----------
446,101 333,939 106,110 79,091 495,486 414,957
--------- ---------- --------- ----------- ---------- -----------
45,826 121,303 92,919 170,030 869,073 935,109
19,464 (695,297) 967,776 (1,117,502) 5,435,070 (9,913,861)
-- 58,478 50,544 217,057 1,005,636 4,279,939
--------- ---------- --------- ----------- ---------- -----------
65,290 (515,516) 1,111,239 (730,415) 7,309,779 (4,698,813)
--------- ---------- --------- ----------- ---------- -----------
511,391 (181,577) 1,217,349 (651,324) 7,805,265 (4,283,856)
--------- ---------- --------- ----------- ---------- -----------
79,023 96,831 214,862 394,323 1,093,985 1,316,284
22,470 (293,041) (225,361) 176,676 -- --
(917,669) (926,934) (706,041) (977,510) (5,186,265) (5,070,761)
(7,528) (8,757) (7,087) (7,355) (50,419) (54,720)
(5,005) (4,493) (6,758) (10,421) (30,530) (37,014)
--------- ---------- --------- ----------- ---------- -----------
(828,709) (1,136,394) (730,385) (424,287) (4,173,229) (3,846,211)
--------- ---------- --------- ----------- ---------- -----------
(317,318) (1,317,971) 486,964 (1,075,611) 3,632,036 (8,130,067)
9,375,663 10,900,085 8,277,632 9,176,179 50,701,993 59,020,748
--------- ---------- --------- ----------- ---------- -----------
9,058,345 9,582,114 8,764,596 8,100,568 54,334,029 50,890,681
========= ========== ========= =========== ========== ===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1995 and 1994
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Account II (the Variable 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 Account was established by the Company on August 2,
1983 and commenced operations on May 3, 1984. Accordingly, it is an
accounting entity wherein all segregated account transactions are
reflected.
The assets of the Variable Account are invested in one or more of the
portfolios of Neuberger & Berman Advisers Management Trust (the Trust) at
the portfolio's net asset value in accordance with the selection made by
the contract owners.
A copy of the Neuberger & Berman Advisers Management Trust Annual Report
is included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are
based on the daily closing prices of the underlying securities in the
Trust's portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the
ex-dividend date. The cost of investments sold and the corresponding
capital gains and losses are determined on a specific identification
basis.
FEDERAL INCOME TAXES
The Company is taxed as a life insurance company under the provisions of
the Internal Revenue Code. The operations of the Variable Account are part
of the total operations of the Company and are not taxed as a separate
entity.
Under Federal income tax law, net investment income and net realized
capital gains of the Variable Account which are applied to increase
contract owners' equity are not taxed.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED--CONTINUED)
June 30, 1995 and 1994
3. EXPENSES
A mortality and expense risk premium is deducted by the Company from the
Variable Account on a daily basis which is equal, on an annual basis, to
1.20% (.80% mortality and .40% expense risk) of the daily net asset value
of the Variable Account. This mortality and expense risk premium
compensates the Company for assuming these risks under the variable
annuity contract. The liability for accrued mortality and expense risk
premium amounted to $6,432 at June 30, 1995.
The Company deducts, on the contract anniversary date, an annual contract
maintenance charge of $30, per contract holder, from the contract value by
canceling accumulation units. If the contract is surrendered for its full
surrender value, on other than the contract anniversary, the contract
maintenance charge will be deducted at the time of such surrender. This
charge reimburses the Company for administrative expenses relating to
maintenance of the contract.
There are no deductions made from purchase payments for sales charges at
the time of purchase. However, a contingent deferred sales charge may be
deducted in the event of a surrender to reimburse the Company for expenses
incurred which are related to contract sales. Contingent deferred sales
charges apply to each purchase payment and are graded from 6% during the
first contract year to 0% in the seventh contract year.
Any premium tax payable to a governmental entity as a result of the
existence of the contracts or the Variable Account will be charged against
the contract value. Premium taxes up to 4% are currently imposed by
certain states. Some states assess their premium taxes at the time
purchase payments are made; others assess their premium taxes at the time
of annuitization. In the event contracts would be issued in states
assessing their premium taxes at the time purchase payments are made, the
Company currently intends to advance such premium taxes and deduct the
premium taxes from a contract owner's contract value at the time of
annuitization or surrender.
4. INITIAL CAPITALIZATION
Initial capital of $100,000 was provided by the Company for the
establishment of the Variable Account. As an investor in the Variable
Account, the Company shares pro rata in the investment performance of the
Variable Account and is subject to the same valuation procedures and the
same periodic charges as are other contract owners in the Variable
Account. The Company's investment, at market value, was $256,389 at June
30, 1995.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED--CONTINUED)
June 30, 1995 and 1994
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the
related Variable Account.
At June 30, 1995 ownership of the Variable Account was represented by the
following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Neuberger & Berman
Advisers Management Trust:
Liquid Asset Portfolio 187,589 $15.95 $2,992,159
Growth Portfolio 979,736 34.21 33,518,929
Limited Maturity Bond Portfolio 420,472 21.54 9,058,345
Balanced Portfolio 568,349 15.42 8,764,596
-----------
Total contract owners' equity $54,334,029
===========
</TABLE>
At June 30, 1994 ownership of the Variable Account was represented by the
following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------- -----
<S> <C> <C> <C>
Neuberger & Berman
Advisers Management Trust:
Liquid Asset Portfolio 248,442 $15.44 $3,835,678
Growth Portfolio 1,090,161 26.94 29,372,321
Limited Maturity Bond Portfolio 472,197 20.29 9,582,114
Balanced Portfolio 625,072 12.96 8,100,568
-----------
Total contract owners' equity $50,890,681
===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED--CONTINUED)
June 30, 1995 and 1994
6. PURCHASES AND SALES OF SECURITIES
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$4,428,472 and $7,096,195, 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 $ 650,874 $2,452,441 $ 798,395 $ 526,762 $4,428,472
Proceeds on sales 1,056,026 3,759,860 1,179,956 1,100,353 7,096,195
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$8,980,081 and $8,134,446, 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 $1,335,407 $5,799,105 $ 656,386 $1,189,183 $8,980,081
Proceeds on sales 1,651,953 3,764,881 1,400,575 1,317,037 8,134,446
</TABLE>
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[SENTRY LIFE INSURANCE COMPANY LOGO]
