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[SENTRY LIFE INSURANCE COMPANY LOGO] VOLUME 1 OF 2
THE PATRIOT
SENTRY VARIABLE ACCOUNT II
ANNUAL REPORT
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY FUNDED BY
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
DECEMBER 31, 1999
<PAGE> 2
Dear Contract Owner: February 15, 2000
I am pleased to announce that as of January 7, 2000 the Variable Account invests
in shares of T. Rowe Price Fixed Income Series, Inc., T. Rowe Price Equity
Series, Inc., and Janus Aspen Institutional Series. The Variable Account no
longer invests in Neuberger Berman Advisers Management Trust, Inc.
The investment managers for these new portfolios are: T. Rowe Price and
Associates, Inc. and Janus Capital Corporation.
On January 7, 2000 each Sentry Life variable contract owner was sent a Notice of
Substitution of Shares and a new contract prospectus. Please refer to your
contract prospectus dated January 7, 2000 for a complete description of the
following portfolios:
T. Rowe Price Fixed Income Series, Inc.
- T. Rowe Price Prime Reserve Portfolio
- T. Rowe Price Limited-Term Bond Portfolio
T. Rowe Price Equity Series, Inc.
- T. Rowe Price Personal Strategy Balanced Portfolio
Janus Aspen Institutional Series
- Janus Aggressive Growth Portfolio
You may make transfers as you wish among the new portfolios without charge. To
initiate a transfer, make a written request or call (800) 533-7827 to authorize
a telephone transfer.
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,
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, T. Rowe
Price Fixed Income Series, Inc., T. Rowe Price Equity Series, Inc. and Janus
Aspen Institutional Series are sold only through the currently effective
prospectus and are not available to the general public. Shares of these
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. This material is authorized for distribution only when preceded or
accompanied by a prospectus. 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
Portfolios. You should be aware that the Portfolios are likely to differ from
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.
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1999
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 3,355,328
shares (cost $3,355,328) $ 3,355,328
Growth Portfolio, 1,635,362
shares (cost $39,921,147) 60,949,957
Limited Maturity Bond Portfolio, 386,681
shares (cost $5,288,618) 5,119,661
Balanced Portfolio, 715,410
shares (cost $11,204,846) 14,944,925
-----------
Total investments 84,369,871
Dividends receivable 12,930
-----------
Total assets 84,382,801
LIABILITIES:
Accrued expenses 7,434
NET ASSETS $84,375,367
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF OPERATIONS
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
-------------------------- -----------------------
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Dividends $ 118,848 $ 115,086 $ -- $ --
Expenses:
Mortality and expense risk 33,848 30,299 525,689 474,117
---------- ---------- ----------- -----------
Net investment income (loss) 85,000 84,787 (525,689) (474,117)
---------- ---------- ----------- -----------
Realized gains (losses) on investments
Realized net investment gain -- -- 1,260,786 588,794
Capital gain distributions received -- -- 2,286,697 10,487,400
---------- ---------- ----------- -----------
Realized gain (loss) on investments and
capital gain distributions, net -- -- 3,547,483 11,076,194
Unrealized appreciation (depreciation), net -- -- 16,987,351 (5,211,880)
---------- ---------- ----------- -----------
Net increase in net assets from operations $ 85,000 $ 84,787 $20,009,145 $ 5,390,197
========== ========== =========== ===========
</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
------------------------ ------------------------- --------------------------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
$ 319,622 $ 397,136 $ 185,833 $ 230,506 $ 624,303 $ 742,728
66,370 74,360 140,065 125,291 765,972 704,067
---------- ---------- ----------- ----------- ------------ ------------
253,252 322,776 45,768 105,215 (141,669) 38,661
---------- ---------- ----------- ----------- ------------ ------------
(86,444) (46,651) 109,142 28,391 1,283,484 570,534
-- -- 275,308 1,619,027 2,562,005 12,106,427
---------- ---------- ----------- ----------- ------------ ------------
(86,444) (46,651) 384,450 1,647,418 3,845,489 12,676,961
(152,501) (82,604) 3,175,329 (721,893) 20,010,179 (6,016,377)
---------- ---------- ----------- ----------- ------------ ------------
$ 14,307 $ 193,521 $ 3,605,547 $ 1,030,740 $ 23,713,999 $ 6,669,245
========== ========== =========== =========== ============ ============
</TABLE>
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE ACCOUNT II
STATEMENTS OF CHANGES IN NET ASSETS
For the Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
-------------------------- --------------------------------
1999 1998 1999 1998
----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Net increase (decrease) in net assets
from operations:
Net investment income (loss) $ 85,000 $ 84,787 $ (525,689) $ (474,117)
Realized gains (losses) -- -- 3,547,483 11,076,194
Unrealized appreciation (depreciation) -- -- 16,987,351 (5,211,880)
------------ ------------ ------------- --------------
Net increase in net assets from operations 85,000 84,787 20,009,145 5,390,197
------------ ------------ ------------- --------------
Contract transactions:
Purchase payments 239,467 1,292,248 3,246,498 3,248,943
Transfers between subaccounts, net 955,918 25,234 (236,434) (126,390)
Withdrawals (432,315) (879,099) (5,280,344) (4,612,799)
Contract maintenance fees (3,004) (2,851) (45,922) (39,072)
Surrender charges (1,563) (2,826) (36,485) (13,884)
------------ ------------ ------------- --------------
Net increase (decrease) in net assets
derived from principal transactions 758,503 432,706 (2,352,687) (1,543,202)
------------ ------------ ------------- --------------
Total increase (decrease) in net assets 843,503 517,493 17,656,458 3,846,995
Net assets at beginning of year 2,523,709 2,006,216 43,288,702 39,441,707
------------ ------------ ------------- --------------
Net assets at end of year $ 3,367,212 $ 2,523,709 $ 60,945,160 $ 43,288,702
============ ============ ============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 7
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ----------------------------- ---------------------------- ------------------------------
1999 1998 1999 1998 1999 1998
- ------------ ------------ ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
$ 253,252 $ 322,776 $ 45,768 $ 105,215 $ (141,669) $ 38,661
(86,444) (46,651) 384,450 1,647,418 3,845,489 12,676,961
(152,501) (82,604) 3,175,329 (721,893) 20,010,179 (6,016,377)
-------- --------- --------- ---------- ------------- ----------
14,307 193,521 3,605,547 1,030,740 23,713,999 6,699,245
-------- --------- --------- ---------- ------------- ----------
163,195 156,457 1,731,851 1,758,511 5,381,011 6,456,159
(281,647) 105,524 (437,837) (4,368) -- --
(752,459) (750,978) (1,225,883) (1,315,396) (7,691,001) (7,558,272)
(5,588) (6,327) (11,305) (9,679) (65,819) (57,929)
(4,015) (795) (15,185) (7,543) (57,248) (25,048)
-------- --------- --------- ---------- ------------- ----------
(880,514) (496,119) 41,641 421,525 (2,433,057) (1,185,090)
-------- --------- --------- ---------- ------------- ----------
(866,207) (302,598) 3,647,188 1,452,265 21,280,942 5,514,155
5,985,476 6,288,074 11,296,538 9,844,273 63,094,425 57,580,270
- ------------ ------------ ------------ ------------ -------------- ------------
$ 5,119,269 $ 5,985,476 $ 14,943,726 $ 11,296,538 $ 84,375,367 $ 63,094,425
============ ============ ============ ============ ============== ============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
December 31, 1999 and 1998
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 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 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 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 Account which are applied to increase net
assets are not taxed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
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 $7,434 at December 31, 1999.
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 (CONTINUED)
December 31, 1999 and 1998
4. NET ASSETS
At December 31, 1999 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>
Liquid Asset Portfolio 182,027 $18.50 $ 3,367,212
Growth Portfolio 710,496 85.78 60,945,160
Limited Maturity Bond Portfolio 203,835 25.11 5,119,269
Balanced Portfolio 500,706 29.85 14,943,726
------------
Total net assets $ 84,375,367
============
</TABLE>
At December 31, 1999 there were no significant concentrations of ownership.
At December 31, 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>
Liquid Asset Portfolio 140,566 $ 17.95 2,523,709
Growth Portfolio 750,025 57.72 43,288,702
Limited Maturity Bond Portfolio 238,960 25.05 5,985,476
Balanced Portfolio 499,567 22.61 11,296,538
------------
Total net assets $ 63,094,425
============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 1998
5. PURCHASES AND SALES OF SECURITIES
In 1999, purchases and proceeds on sales of the Trust's shares aggregated
$13,619,689 and $13,634,200, 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 $2,649,719 $ 7,685,380 $ 678,316 $2,606,274 $13,619,689
Proceeds on sales $1,809,121 8,275,374 1,306,207 2,243,498 13,634,200
</TABLE>
In 1998, purchases and proceeds on sales of the Trust's shares aggregated
$24,882,854 and $13,922,844, 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 $3,392,077 $15,934,442 $ 968,445 $4,587,890 $24,882,854
Proceeds on sales 2,876,339 7,463,244 1,141,430 2,441,831 13,922,844
</TABLE>
6. SUBSEQUENT EVENT
On January 7, 2000, the Variable 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 Account Portfolios' unit
value or number of units.
<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE ACCOUNT II:
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
Account II, 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 two 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.
PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 10, 2000
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[SENTRY LIFE INSURANCE COMPANY LOGO]
1800 North Point Drive
Stevens Point, WI 54481
