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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
[LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1997
Sentry Life Insurance Company
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Dear Contract Owner: August 15, 1997
Thank you for selecting the Patriot for your long-term investment needs. Your
confidence in Sentry to provide this service is greatly appreciated.
The following are comments of the adviser, Neuberger & Berman Management
Incorporated for the following Advisers Management Trust Portfolios:
Liquid Assets - Bullish fundamentals for the fixed income markets became more
apparent in the second quarter of 1997. The budget deficit appears to have
shrunk dramatically, the Federal Reserve has remained friendly, and inflation
statistics are the lowest in a generation. With this backdrop, 91-Day Treasury
Bill rates dropped from their April high of 5.34% to 5.17% at the end of the
second quarter. During the second quarter we saw remarkable reductions in U.S.
Treasury debt issuance, a welcome circumstance for U.S. taxpayers, which aided
the reduction in rates. During the same period, major corporations continued
to finance their activities by borrowing in the short term commercial paper
market at a substantial discount to long term borrowing rates. This continued
supply of commercial debt kept rates in this sector significantly higher than
comparable maturity Treasury Bills, a beneficial circumstance for our money
market investors. In this environment, we have extended our target maturity to
the 65-70 day range adding incremental yields by selecting assets in the six
months maturity factor.
Balanced Portfolio - During the first quarter of 1997, the market was very
volatile and was led mostly by large-cap stocks. Our best performer during the
first quarter was the technology sector, specifically Micron Technology. The
top three holding for the first quarter were General Nutrition, CITICORP, and
GTECH. The health care group had a good rebound from a poor 1996, specifically
the HMO group. The lagging parts of the Portfolio during the first quarter
were the communications area and the entertainment industry.
We indicated in past reports that the fundamentals for fixed income securities
were positive and that we participated in the rally by maintaining a positive
viewpoint on the market. We have maintained a position of assets in the
mortgage area, while selectively purchasing a variety of corporate bonds in
different sectors and industries.
Limited Maturity Bond Portfolio - The first quarter of 1997 started out as a
very interesting one in the bond arena. In the opinion of the Federal Reserve
Board, the financial markets had become irrationally exuberant and at the end
of the quarter it raised interest rates. This brought about our decision to
stay defensive through most of the quarter in order to protect principal in
what could be described as a very difficult market.
The top three holdings included General Motors Acceptance Corp. Medium-Term
Notes, First USABank Medium-Term Deposit Notes and Nations Bank Credit Card
Master Trust Class A Serials. At the end of the period there were 177 holdings
in the portfolio.
As we focus on the final six months of 1997, it is still our opinion that
fixed income securities, in light of powerful fundamental forces, present good
investment opportunities. As usual, we will be vigilant in our sector and
security selection, and will attempt to find values that are not always
recognized by the general market.
Your account with us is appreciated.
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. This material is authorized for distribution only when
preceded or accompanied by a prospectus.
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SENTRY LIFE INSURANCE COMPANY
Sentry Variable Account II
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1997 (Unaudited)
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 2,251,630
shares (cost $2,251,630) $ 2,251,630
Growth Portfolio, 1,354,464
shares (cost $31,100,675) 37,572,838
Limited Maturity Bond Portfolio, 481,408
shares (cost $6,724,165) 6,556,778
Balanced Portfolio, 565,177
shares (cost $8,665,951) 9,370,633
------------
Total investments 55,751,879
Dividends receivable 8,792
------------
Total assets 55,760,671
LIABILITIES:
Accrued expenses 8,430
------------
CONTRACT OWNERS' EQUITY (NET ASSETS) $ 55,752,241
============
</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, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
-------------------------- ------------------------------
1997 1996 1997 1996
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Income:
Dividends 53,848 56,640 -- 113,015
Expenses:
Mortality and expense risk 14,300 15,502 212,422 212,101
---------- ---------- ----------- -----------
Net investment income (loss) 39,548 41,138 (212,422) (199,086)
---------- ---------- ----------- -----------
Realized net investment gain -- -- 578,573 696,477
Unrealized appreciation (depreciation), net -- -- 2,156,783 (1,789,160)
Capital gain distributions received -- -- 2,948,192 3,045,396
---------- ---------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- -- 5,683,548 1,952,713
---------- ---------- ----------- -----------
Net increase (decrease) in contract owners'
equity from operations 39,548 41,138 5,471,126 1,753,627
---------- ---------- ----------- -----------
Purchase payments 67,413 52,523 615,216 666,835
Transfers between subaccounts, net 19,938 (8,106) 150,023 36,966
Withdrawals (302,458) (188,428) (2,229,561) (2,215,788)
Contract maintenance fees (2,212) (2,405) (27,842) (30,302)
Surrender charges (2,233) (1,097) (13,150) (9,018)
---------- ---------- ----------- -----------
Net decrease in contract owners'
equity derived from principal transactions (219,552) (147,513) (1,505,314) (1,551,307)
---------- ---------- ----------- -----------
Total increase (decrease) in contract
owners' equity (180,004) (106,375) 3,965,812 202,320
Contract owners' equity at beginning of year 2,439,448 2,634,700 33,602,559 34,535,970
---------- ---------- ----------- -----------
Contract owners' equity at end of year 2,259,444 2,528,325 37,568,371 34,738,290
========== ========== =========== ===========
</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, 1997 and 1996 (Unaudited)
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
------------------------ ---------------------- -------------------------------
1997 1996 1997 1996 1997 1996
----------- ---------- ---------- --------- -------------- ------------
<S> <C> <C> <C> <C> <C>
414,044 703,238 164,098 208,712 631,990 981,605
41,343 48,765 54,333 54,534 322,398 330,902
- ---------- ---------- ---------- ---------- ----------- -----------
372,701 654,473 109,765 154,178 309,592 650,703
- ---------- ---------- ---------- ---------- ----------- -----------
2,563 47,818 108,987 128,918 690,123 873,213
(215,078) (727,946) 287,689 (1,232,442) 2,229,394 (3,749,548)
- - 421,183 1,160,642 3,369,375 4,206,038
- ---------- ---------- ---------- ---------- ----------- -----------
(212,515) (680,128) 817,859 57,118 6,288,892 1,329,703
- ---------- ---------- ---------- ---------- ----------- -----------
160,186 (25,655) 927,624 211,296 6,598,484 1,980,406
- ---------- ---------- ---------- ---------- ----------- -----------
124,466 60,875 210,148 284,667 1,017,243 1,064,900
(148,734) (173,144) (21,227) 144,284 - -
(892,857) (588,982) (711,721) (583,439) (4,136,597) (3,576,637)
(4,903) (6,025) (6,074) (6,546) (41,031) (45,278)
(1,782) (1,382) (4,695) (4,229) (21,860) (15,726)
- ---------- ---------- ---------- ---------- ----------- -----------
(923,810) (708,658) (533,569) (165,263) (3,182,245) (2,572,741)
- ---------- ---------- ---------- ---------- ----------- -----------
(763,624) (734,313) 394,055 46,033 3,416,239 (592,335)
7,318,730 8,595,913 8,975,265 9,005,010 52,336,002 54,771,593
- ---------- ---------- ---------- ---------- ----------- -----------
6,555,106 7,861,600 9,369,320 9,051,043 55,752,241 54,179,258
========== ========== ========== ========== =========== ===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1997 and 1996
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, 1997 and 1996
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 $8,430 at June 30, 1997.
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.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
June 30, 1997 and 1996
4. Contract Owners' Equity
Contract owners' equity is represented by accumulation units in the related
Variable Account. At June 30, 1997 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 132,463 $17.06 $ 2,259,444
Growth Portfolio 813,153 46.20 37,568,371
Limited Maturity Bond Portfolio 278,166 23.57 6,555,106
Balanced Portfolio 490,115 19.12 9,369,320
-----------
Total contract owners' equity $55,752,241
===========
</TABLE>
At June 30, 1996 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 153,168 $16.51 $ 2,528,325
Growth Portfolio 898,364 $38.67 $34,738,290
Limited Maturity Bond Portfolio 352,946 $22.27 $ 7,861,600
Balanced Portfolio 539,828 $16.77 $ 9,051,043
-----------
Total contract owners' equity $54,179,258
===========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
June 30, 1997 and 1996
5. PURCHASES AND SALES OF SECURITIES
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$6,492,099 and $5,993,513, 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 $ 682,387 $4,325,400 $ 543,258 $ 941,054 $6,492,099
Proceeds on sales $ 861,625 $3,094,522 $1,094,023 $ 943,343 $5,993,513
</TABLE>
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$7,337,524 and $5,051,070, 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 $ 384,162 $4,104,770 $ 835,622 $2,012,970 $7,337,524
Proceeds on sales $ 489,483 2,808,667 890,042 862,878 5,051,070
</TABLE>
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[Sentry Life Insurance Company Logo]
1800 North Point Drive
Stevens Point, WI 54481
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