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[Sentry Logo]
VOLUME 1 OF 2
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, 1998
SENTRY LIFE INSURANCE COMPANY
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Dear Contract Owner: August 14, 1998
We are pleased to present you with the following comments of Neuberger & Berman
Management Incorporated, the investment advisers for the Adviser Management
Trust Portfolios:
Jennifer Silver and Brooke Cobb took over management of Neuberger & Berman
Advisers Management Trust (AMT) Growth Portfolio and the equity portion of AMT
Balanced Portfolio in July 1997.
Neuberger & Berman AMT Growth Portfolio and the equity portion of the AMT
Balanced Portfolio out performed their benchmark, the Russell Mid-Cap Growth
Index, during the second quarter, even though large-caps outperformed mid-caps
overall. Portfolio Co-Managers Jennifer Silver and Brooke Cobb believe over the
long term, medium-sized companies have better long-term growth potential.
Jennifer and Brooke believe the portfolio's strong performance relative to its
benchmark was the result of maintaining a highly diversified portfolio by
industry group and stock selection. Technology holdings contributed greatly to
the portfolio's overall performance. Jennifer and Brooke believe the portfolio's
success in technology was largely the result of focusing on productivity
enhancing tech companies serving niche markets and avoiding commodity-oriented
tech stocks whose earnings might be vulnerable to Asian economic weakness.
Jennifer and Brooke are optimistic on the mid-cap asset class and will continue
to invest in fast growing companies trading at reasonable multiples relative to
annual earnings growth rates. They believe the Portfolio is well positioned for
the potential to reward shareholders over the long-term.
Neuberger & Berman AMT Limited Maturity Bond Portfolio and the fixed income
portion of the AMT Balanced Portfolio co-managers Ted Giuliano and Tom Wolfe
believe favorable fundamentals such as low inflation and historically high real
rates of return have helped spawn this year's bond rally. Ted and Tom believe
they were able to enhance returns in the corporate sector through selectively
buying "split-rated" bonds (securities rated investment grade by one, but not
all the major rating services) and "crossover" bonds (securities with the
potential to move from a below investment grade or a split-grade rating to a
full investment grade rating). The co-managers emphasize that they have been
steadfast in their faith in fixed income, praising the virtues of income and
relative safety of principal. They will continue to invest in securities and
sectors they believe can add the best value. Ted and Tom have a positive outlook
on the fixed income market and will continue their same value investment
selection process.
THE INVESTMENTS FOR THE PORTFOLIOS ARE MANAGED BY THE SAME PORTFOLIO
MANAGER(S) WHO MANAGE ONE OR MORE OTHER MUTUAL FUNDS THAT HAVE SIMILAR NAMES,
INVESTMENT OBJECTIVES AND INVESTMENT STYLES AS THE PORTFOLIO. YOU SHOULD BE
AWARE THAT THE PORTFOLIOS ARE LIKELY TO DIFFER FROM THE OTHER MUTUAL FUNDS IN
SIZE, CASH FLOW PATTERN AND TAX MATTERS. ACCORDINGLY, THE HOLDINGS AND
PERFORMANCE OF THE PORTFOLIOS CAN BE EXPECTED TO VARY FROM THOSE OF THE OTHER
MUTUAL FUNDS.
Thank you for choosing Sentry to help meet your long-term investment needs. We
value your business and appreciate your confidence in Sentry to provide this
service.
Sincerely,
/s/ 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 Advisers Management Trust Portfolios 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 an 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 AND LIABILITIES
June 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
<S> <C>
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 2,403,203
shares (cost $2,403,203) $ 2,403,203
Growth Portfolio, 1,683,869
shares (cost $40,105,123) 44,319,443
Limited Maturity Bond Portfolio, 460,983
shares (cost $6,413,100) 6,255,536
Balanced Portfolio, 691,698
shares (cost $10,755,165) 11,143,250
------------
Total investments 64,121,432
Dividends receivable 8,841
------------
Total assets 64,130,273
LIABILITIES:
Accrued expenses 10,543
------------
NET ASSETS $ 64,119,730
============
</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 NET ASSETS
For the six months ended June 30, 1998 and 1997 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
----------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------- ---------------------------
1998 1997 1998 1997
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Dividends 48,723 53,848 -- --
Expenses:
Mortality and expense risk 12,668 14,300 246,403 212,422
--------- --------- ---------- ----------
Net investment income (loss) 36,055 39,548 (246,403) (212,422)
--------- --------- ---------- ----------
Realized net investment gain -- -- 611,285 578,573
Unrealized appreciation (depreciation), net -- -- (5,039,018) 2,156,783
Capital gain distributions received -- -- 10,487,400 2,948,192
--------- --------- ---------- ----------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- -- 6,059,667 5,683,548
--------- --------- ---------- ----------
Net increase in net assets
from operations 36,055 39,548 5,813,264 5,471,126
--------- --------- ---------- ----------
Purchase payments 92,701 67,413 1,596,567 615,216
Transfers between subaccounts, net 614,606 19,938 (464,200) 150,023
Withdrawals (331,154) (302,458) (2,040,507) (2,229,561)
Contract maintenance fees (1,647) (2,212) (26,453) (27,842)
Surrender charges (5,292) (2,233) (7,330) (13,150)
--------- --------- ---------- ----------
Net increase (decrease) in net assets
derived from principal transactions 369,214 (219,552) (941,923) (1,505,314)
--------- --------- ---------- ----------
Total increase (decrease) in net assets 405,269 (180,004) 4,871,341 3,965,812
Net assets at beginning of year 2,006,216 2,439,448 39,441,707 33,602,559
--------- --------- ---------- ----------
Net assets at end of year 2,411,485 2,259,444 44,313,048 37,568,371
========= ========= ========== ==========
</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
---------------------------- ----------------------------- -----------------------------
1998 1997 1998 1997 1998 1997
--------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
397,135 414,044 230,506 164,098 676,364 631,990
37,747 41,343 61,330 54,333 358,148 322,398
--------- --------- ---------- --------- ---------- ----------
359,388 372,701 169,176 109,765 318,216 309,592
--------- --------- ---------- --------- ---------- ----------
(17,072) 2,563 93,446 108,987 687,659 690,123
(223,712) (215,078) (898,558) 287,689 (6,161,288) 2,229,394
- - 1,619,027 421,183 12,106,427 3,369,375
--------- --------- ---------- --------- ---------- ----------
(240,784) (212,515) 813,915 817,859 6,632,798 6,288,892
--------- --------- ---------- --------- ---------- ----------
118,604 160,186 983,091 927,624 6,951,014 6,598,484
--------- --------- ---------- --------- ---------- ----------
45,647 124,466 960,368 210,148 2,695,283 1,017,243
38,569 (148,734) (188,975) (21,227) - -
(222,243) (892,857) (450,220) (711,721) (3,044,124) (4,136,597)
(4,198) (4,903) (5,862) (6,074) (38,160) (41,031)
(10,326) (1,782) (1,605) (4,695) (24,553) (21,860)
--------- --------- ---------- --------- ---------- ----------
(152,551) (923,810) 313,706 (533,569) (411,554) (3,182,245)
--------- --------- ---------- --------- ---------- ----------
(33,947) (763,624) 1,296,797 394,055 6,539,460 3,416,239
6,288,074 7,318,730 9,844,273 8,975,265 57,580,270 52,336,002
--------- --------- ---------- --------- ---------- ----------
6,254,127 6,555,106 11,141,070 9,369,320 64,119,730 55,752,241
========= ========= ========== ========= ========== ==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1998 and 1997
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 net assets are
not taxed.
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
June 30, 1998 and 1997
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 $10,543
at June 30, 1998.
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, 1998 and 1997
4. NET ASSETS
Net assets are represented by accumulation units in the related Variable
Account.
At June 30, 1998 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 136,572 $ 17.66 $ 2,411,485
Growth Portfolio 762,292 58.13 44,313,048
Limited Maturity Bond Portfolio 252,754 24.74 6,254,127
Balanced Portfolio 496,726 22.43 11,141,070
------------
Total net assets $ 64,119,730
============
At June 30, 1997 ownership of the Variable Account was represented by the
following accumulation units and accumulation unit values:
<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 net assets $ 55,752,241
============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED - CONTINUED)
June 30, 1998 and 1997
5. PURCHASES AND SALES OF SECURITIES
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$17,475,928 and $5,457,418, 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 $ 1,042,738 $ 12,822,157 $ 586,603 $ 3,024,430 $ 17,475,928
Proceeds on sales 638,527 3,518,681 379,020 921,190 5,457,418
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:
<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>
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[Sentry Life Insurance Company Logo]
1800 North Point Drive
Stevens Point, WI 54481
Volume 1
