<PAGE> 1
[SENTRY LOGO]
Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[SENTRY LOGO]
ANNUAL REPORT
DECEMBER 31, 1996
SENTRY LIFE INSURANCE COMPANY
<PAGE> 2
Dear Policy Owner: February 15, 1997
Thank you for selecting Sentry for your life insurance and investment needs by
your purchase of the Self-Directed Life policy. Your confidence in Sentry is
appreciated.
As an owner of the Patriot Variable Annuity, your contribution is invested in
the Advisers Management Trust (AMT), managed by the investment firm of
Neuberger & Berman Management Inc. The information below is provided by
Neuberger & Berman on the four respective investment options available in the
Patriot: the AMT Growth Portfolio, the AMT Balanced Portfolio, the AMT Limited
Bond Portfolio and the AMT Liquid Asset Portfolio.
In 1996, the stock market continued its record-breaking run while the bond
market raced up and down until settling on a positive note during the last
third of the year. Generally, AMT Portfolio shareholders benefited from this
wild ride.
During 1996, three of the best performing sectors of the AMT Growth Portfolio
and the stock portion of the AMT Balanced Portfolio were financial services,
restaurants and technology. The success of companies in the technology sector
can be partly attributed to continued demand by end-users in combination with
lower prices. Two lagging sectors during the year were Communications and
Healthcare. These two sectors comprised about 8%-10% of the Portfolios during
most of the year. Cable stocks went through their lowest valuations in 1996 due
to worries about competition from the satellite industry. As a result, the
Portfolios reduced positions in a few cable companies. The Portfolios increased
exposure to HMOs during the year. Overall, this industry did not contribute
positively to the Portfolios.
1996 ended on an upbeat note for the bond market and the AMT Limited Maturity
Bond ("Limited Bond") Portfolio and the fixed income portion of the AMT
Balanced Portfolio as yields across the curve fell during the last four months
of the year. Yields that we focus on, in the 1- to 5- year part of the curve,
ended the year higher than at the start of the year. In between, however, the
bond market was on a roller coaster ride with interest rates falling early in
the period, then rising extremely rapidly, and finally reversing its course
once again for the final rally. Our weighted average portfolio duration
("duration" is a measure of a portfolio's exposure to interest rate risk)
management during this period of volatility remained consistent with our
trend-following style, and the Portfolios' risk level remained low compared to
longer-duration bond funds. Corporate bonds remained the largest sector in the
Portfolios as we continued to find value through our bottom-up bond selection
process (looking at individual bonds rather than average sector prices) despite
a generally expensive corporate market. Investments in mortgage-backed and
asset-backed securities accounted for the majority of the remainder of the
Portfolios.
The AMT Liquid Asset Portfolio ("Liquid Asset") took advantage of positive
movement in the money markets and extended the weighted average maturity of the
Liquid Asset Portfolio to a high of 73 days during the last quarter of 1996.
When possible the Liquid Asset Portfolio selected issues from among those with
six-month maturities to lock in higher rates, and whose credit quality
continues to be exclusively first tier. There has not been any significant
change in the spreads between Treasury and Agency issues versus commercial
paper and bank issues. Therefore, the Liquid Asset Portfolio maintained the
highest concentration in the commercial paper and bank issue sector of the
short-term debt market at a spread of approximately 25 to 30 basis points over
comparable Treasuries.
Please let us know if you have any questions regarding your Policy or the
information contained in this report.
Sincerely,
Dale R. Schuh
Dale R. Schuh, President
Sentry Life Insurance Company
The composition and holdings of the Portfolios are subject to change. Shares
of the separate Portfolios of Neuberger & Berman Advisers Management Trust are
sold only through the currently effective prospectus and are not available to
the general public. Shares of the Government Income, Growth, Limited Maturity
Bond, Liquid Asset and Partners Portfolio may be purchased only by life
insurance companies to be used with their separate accounts which fund variable
annuity and variable life insurance policies. Shares of the Balanced
Portfolio are also available as a underlying investment fund for certain
qualified retirement plans.
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
December 31, 1996
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
<TABLE>
<S> <C>
Liquid Asset Portfolio, 219,628
shares (cost $219,628) $ 219,628
Growth Portfolio, 115,547
shares (cost $2,667,400) 2,978,764
Limited Maturity Bond Portfolio, 10,809
shares (cost $150,972) 151,901
Balanced Portfolio, 52,983
shares (cost $816,413) 843,502
------------
Total investments 4,193,795
Dividends receivable 796
------------
Total assets 4,194,591
LIABILITIES:
Accrued expenses 2,539
------------
CONTRACT OWNERS' EQUITY (NET ASSETS) $ 4,192,052
============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION> SUB-ACCOUNTS INVESTING IN:
-------------------------
Liquid Asset Growth
Portfolio Portfolio
-------------------------------- --------------------------------------
1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 9,580 $ 9,124 $ 6,269 $ 997 $ 4,390 $ 8,224
Expenses:
Risk charges 2,288 1,940 1,979 29,155 23,650 17,946
-------- ------- ---------- --------- --------- ----------
Net investment income (loss) 7,292 7,184 4,290 (28,158) (19,260) (9,722)
-------- ------- ---------- --------- ---------- -----------
Realized net investment gain (loss) -- -- -- 48,754 46,745 44,083
Unrealized appreciation (depreciation), net -- -- -- (44,382) 473,452 (332,294)
Capital gain distributions received -- -- 210 233,304 58,834 192,558
-------- ------- ---------- --------- ---------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 210 237,676 579,031 (95,653)
-------- ------- ---------- --------- --------- ----------
Net increase (decrease) in contract owners'
equity from operations 7,292 7,184 4,500 209,518 559,771 (105,375)
-------- ------- ---------- --------- --------- ----------
Purchase payments 96,463 90,888 195,485 549,845 478,225 461,504
Transfers between subaccounts, net (59,472) (54,134) (155,730) 56,399 62,754 162,021
Withdrawals and surrenders (32,192) (1,034) (634) (184,653) (116,440) (159,695)
Monthly deductions (13,163) (12,109) (13,666) (217,320) (183,791) (158,175)
Policy loans (709) (31) (239) (10,421) (37,216) (55,443)
-------- ------- ---------- --------- ---------- ----------
Net increase (decrease) in contract owners'
equity derived from principal transactions (9,073) 23,580 25,216 193,850 203,532 250,212
-------- ------- ---------- --------- ---------- ----------
Total increase (decrease) in contract
owners' equity (1,781) 30,764 29,716 403,368 763,303 144,837
Contract owners' equity at beginning of year 221,447 190,683 160,967 2,574,908 1,811,605 1,666,768
-------- ------- ---------- --------- --------- ----------
Contract owners' equity at end of year $219,666 $221,447 $ 190,683 $2,978,276 $2,574,908 $1,811,605
======== ======== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
<TABLE>
<CAPTION>
Limited Maturity Balanced
Bond Portfolio Portfolio Total
- ----------------------------------------- ------------------------------------- ----------------------------------------
1996 1995 1994 1996 1995 1994 1996 1995 1994
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 15,386 $ 9,541 $ 7,291 $ 18,652 $ 11,714 $ 9,450 $ 44,615 $ 34,769 $ 31,234
1,797 1,908 1,906 8,680 7,621 6,379 41,920 35,119 28,210
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
13,589 7,633 5,385 9,972 4,093 3,071 2,695 (350) 3,024
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(2,558) 1,206 (227) 8,235 19,996 11,174 54,431 67,947 55,030
(6,306) 8,032 (8,658) (76,957) 114,203 (55,710) (127,645) 595,687 (396,662)
-- -- 1,080 103,719 3,765 15,613 337,023 62,599 209,461
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(8,864) 9,238 (7,805) 34,997 137,964 (28,923) 263,809 726,233 (132,171)
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
4,725 16,871 (2,420) 44,969 142,057 (25,852) 266,504 725,883 (129,147)
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
25,849 27,036 23,864 142,335 161,567 111,653 814,492 757,716 792,506
(9,331) (3,276) 4,506 12,404 (5,344) (10,797) -- -- --
(37,994) (12,119) (40,827) (59,749) (29,762) (22,365) (314,588) (159,355) (223,521)
(12,163) (13,030) (13,342) (83,683) (81,053) (67,614) (326,329) (289,983) (252,797)
(306) (3,029) (10) (6,732) (1,715) (14,764) (18,168) (41,991) (70,456)
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(33,945) (4,418) (25,809) 4,575 43,693 (3,887) 155,407 266,387 245,732
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
(29,220) 12,453 (28,229) 49,544 185,750 (29,739) 421,911 992,270 116,585
180,182 167,729 195,958 793,604 607,854 637,593 3,770,141 2,777,871 2,661,286
- ---------- ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------
$ 150,962 $ 180,182 $ 167,729 $ 843,148 $ 793,604 $ 607,854 $4,192,052 $3,770,141 $2,777,871
========== ========== ========== ========== =========== ========== ========== ========== ==========
</TABLE>
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life Account) is a
segregated investment account of the Sentry Life Insurance Company (the
Company) and is registered with the Securities and Exchange Commission as a
unit investment trust pursuant to the provisions of the Investment Company
Act of 1940. The Variable Life Account was established by the Company on
February 12, 1985 and commenced operations on January 13, 1987.
Accordingly, it is an accounting entity wherein all segregated account
transactions are reflected.
The assets of the Variable Life Account are invested in one or more of the
portfolios of Neuberger & Berman Advisers Management Trust (the Trust) at
the portfolio's net asset value in accordance with the selection made by
the contract owners.
A copy of the Neuberger & Berman Advisers Management Trust Annual Report
is included in the Variable Account's Annual Report.
2. SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS
Investments in the Trust are valued by using net asset values which are
based on the daily closing prices of the underlying securities in the
Trust's portfolios.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME
Securities transactions are recorded on the trade date (the date the order
to buy and sell is executed). Dividend income is recorded on the
ex-dividend date. The cost of investments sold and the corresponding
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
contract owners' equity are not taxed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
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 $2,539 at December 31,
1996.
At the beginning of each policy month, the company makes a deduction, per
contract holder, from the cash value of the policy by canceling
accumulation units. This deduction consists of the cost of insurance for
the policy and any additional benefits provided by rider, if any, for the
policy month and a $5 monthly administrative fee. The administrative fee
reimburses the Company for administrative expenses relating to the
issuance and maintenance of the contract.
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in connection
with issuing a policy. The full surrender charge will be reduced during
the first nine contract years until it reaches zero in the tenth contract
year.
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are
imposed by certain states.
4. INITIAL CAPITALIZATION
Initial capital of $500 was provided by the Company for the establishment
of the Variable Life Account. The Company removed the investment during
1996. The value at the disposal date was $742.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in
the related Variable Life Account.
At December 31, 1996 ownership of the Variable Life Account was represented by
the following accumulation units and accumulaton unit values:
<TABLE>
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
----------- ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 14,611 $15.03 $ 219,666
Growth Portfolio 131,013 22.73 2,978,276
Limited Maturity Bond Portfolio 9,110 16.57 150,962
Balanced Portfolio 47,830 17.63 843,148
Total contract owners' equity ------------
$ 4,192,052
============
</TABLE>
At December 31, 1996 significant concentrations of ownership were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 3 47.6
Limited Maturity Bond Portfolio 1 25.6
</TABLE>
At December 31, 1995 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 15,235 $14.54 $ 221,447
Growth Portfolio 122,318 21.05 2,574,908
Limited Maturity Bond Portfolio 11,223 16.05 180,182
Balanced Portfolio 47,615 16.67 793,604
----------
Total contract owners' equity $3,770,141
==========
</TABLE>
At December 31, 1994 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 13,639 $13.98 $ 190,683
Growth Portfolio 112,195 16.15 1,811,605
Limited Maturity Bond Portfolio 11,473 14.62 167,729
Balanced Portfolio 44,673 13.61 607,854
----------
Total contract owners' equity $2,777,871
==========
</TABLE>
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996, 1995 and 1994
6. PURCHASES AND SALES OF SECURITIES
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$1,368,190 and $872,040, respectively, and were as follows:
<TABLE>
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $153,780 $889,149 $044,216 $281,045 $1,368,190
Proceeds on sales 155,168 489,998 63,774 163,100 872,040
</TABLE>
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$1,062,251 and $733,637, 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 $141,210 $663,423 $ 48,185 $209,433 $1,062,251
Proceeds on sales 110,647 420,666 45,063 157,261 733,637
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$1,340,961 and $883,968, 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 $256,685 $879,777 $ 44,442 $160,057 $1,340,961
Proceeds on sales 227,423 446,780 63,883 145,882 883,968
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE LIFE ACCOUNT I:
We have audited the accompanying statement of assets, liabilities and contract
owners' equity of the Liquid Asset Portfolio, Growth Portfolio, Limited
Maturity Bond Portfolio and Balanced Portfolio of the Sentry Variable Life
Account I as of December 31, 1995, and the related statements of operations and
changes in contract owners' equity for each of the three years in the period
then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1995 by
correspondence with the custodian. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Liquid Asset Portfolio,
Growth Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio of the
Sentry Variable Life Account I as of December 31, 1995, and the results of
their operations and the changes in their contract owners' equity for each of
the three years in the period then ended in conformity with generally accepted
accounting principles.
Coopers & Lybrand LLP.
Chicago, Illinois
February 10, 1997
