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[SENTRY LOGO]
Sentry Variable Account I
THE PATRIOT
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[GRAPHIC]
SEMI-ANNUAL REPORT
JUNE 30, 1996
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
<PAGE> 2
Dear Contract Owner: August 15, 1996
We are pleased to provide you with this report on the Patriot Variable Annuity
results for the six-month period ended June 30, 1996, together with the
following comments from the investment advisor, Neuberger & Berman Management,
Incorporated.
Through the first half of 1996, our equity Portfolios were positively
impacted by a generally strong stock market, while our fixed-income
Portfolios were held back by a very weak bond market.
The strategy for Neuberger & Berman Liquid Assets Investments during this
time was to heed the depressed bond market with caution. There was a sharp
increase in interest rates, which changed the yield curve dramatically. Most
of the sell-off in the bond market was caused by investors who perceived
higher inflation and improving economic progress, and feared that the Federal
Reserve Board would elect to increase short-term rates. This created
widespread devaluation in the bond market and produced some of the biggest
one-day bond price declines in years. As the bond market adjusted through the
first half of 1996, 3-month commercial paper in the money market sector - a
popular investment - actually dropped in yield by 2 basis points as investors
sought low risk alternatives to deteriorating bond prices (this at a time
when bond yields were increasing dramatically). Therefore, throughout the
first half of 1996, we carefully took advantage of the interest-rate yield
curve and extended the weighted average portfolio maturity target range from
24 days to 44 days as the longer maturities became attractive.
Under the same bond market conditions, Neuberger & Berman AMT Limited
Maturity Bond Investments also suffered as the "bears" took over. This
occurred despite the fact that we shortened duration (duration is a measure
of the Portfolio's exposure to interest rate risk) during the first quarter.
We lowered the average portfolio duration from 2.9 years to 2.6 years during
February, and shortened it again to 2.3 years before the end of the first
quarter. While the corporate bond market remained expensive, we were still
able to find some that offered good relative value; corporate bonds made up
60% of the Portfolio by the end of June. We maintained a 16% weighting in
asset-backed securities throughout much of the Semi-Annual Report period,
which provided incremental yield and AAA-rated credit quality. Our mortgage
position was increased to 6% in response to our changed view of interest
rates. Mortgage bonds tend to hold up better in rising rate environments
because homeowners are less-tempted to refinance their mortgages, a consumer
action that often causes mortgage bonds to prepay and lose value. The use of
futures to manage interest rate risk was our main use of derivatives. We
wanted to offset some of the interest rate risk in our heavy corporate bond
weighting. We accomplished this hedging strategy by holding a short position
(a technique used to take advantage of an anticipated decline in bond prices)
in the futures contracts (agreements to buy or sell a specific amount of a
bond on a stipulated future date) of 5- and 10-year Treasuries.
The story for Neuberger & Berman AMT Growth Investments was much brighter
during the Semi-Annual Report period. Our best-performing sectors were
financial services, restaurants, and selected consumer/retail stocks. The
financial sector provided many good performers, in spite of rising interest
rates. Earnings growth and merger transactions aided a number of our holdings
in this area. Two lagging sectors were health care and technology. The HMO
(health maintenance organization) industry was our major concentration in
health care. After rebounding 50% from mid-year 1995 lows into February 1996,
the group fell from 25%-35% off its 1996 price levels through June due to
concerns regarding increased medical costs and pricing competition. First
quarter earnings were slightly below expectations for most companies. We
believe that pricing is improving and that medical cost increases can be
contained. We anticipate that the earnings growth of the companies in the
Portfolio may substantially exceed that of the overall market in 1996/97,
while the multiple valuation of the Portfolio is equal to the market on 1996
earnings and 10%-15% less than the market based on 1997 earnings. Over time,
we feel the market has generally recognized such inconsistencies.
Please feel free to contact us at any time should you have questions.
Sincerely,
Harold A. Rice
Harold A. Rice, President and Chief Operating Officer
Sentry Life of New York
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SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
June 30, 1996
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 228,600
shares (cost $228,600) $ 228,600
Growth Portfolio, 60,528
shares (cost $1,366,240) 1,511,999
Limited Maturity Bond Portfolio, 20,704
shares (cost $291,289) 279,710
Balanced Portfolio, 15,960
shares (cost $245,462) 244,983
--------------
Total investments 2,265,292
Dividends receivable 822
--------------
Total assets 2,266,114
LIABILITIES:
Accrued expenses 2,929
-------------
Contract owners' equity (Net Assets) $ 2,263,185
=============
</TABLE>
The accompanying notes are an integral part of these financial statements
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SENTRY LIFE INSURANCE COMPANY OF NEW YORK
SENTRY VARIABLE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the six months ended June 30, 1996 and 1995 (Unaudited)
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
-------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
------------------------- ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Income:
Dividends 5,571 8,045 546 2,715
Expenses:
Mortality and expense risk 1,538 1,941 9,154 7,450
------- ------- --------- ---------
Net investment income (loss) 4,033 6,104 (8,608) (4,735)
------- ------- --------- ---------
Realized net investment gain -- -- 32,572 23,691
Unrealized appreciation (depreciation), net -- -- (79,554) 181,086
Capital gain distributions received -- -- 127,915 36,370
-- -- --------- ---------
Realized and unrealized gain (loss)
on investments and capital
gains distributions, net -- -- 80,933 241,147
-- -- --------- ---------
Net increase (decrease) in contract owners'
equity from operations 4,033 6,104 72,325 236,412
------- ------- --------- ---------
Purchase payments 13,835 15,604 20,942 59,773
Transfers between subaccounts, net 40,560 (47,990) 28,600 23,979
Withdrawals (70,041) (48,585) (74,416) (45,893)
Contract maintenance fees (351) (492) (1,507) (1,547)
Surrender charges (289) (855) (125) (431)
------- ------- --------- ---------
Net increase (decrease) in contract owners'
equity derived from principal transactions (16,286) (82,318) (26,506) 35,881
------- ------- --------- ---------
Total increase (decrease) in contract
owners' equity (12,253) (76,214) 45,819 272,293
Contract owners' equity at beginning of period 240,959 345,028 1,465,612 1,128,695
------- ------- --------- ---------
Contract owners' equity at end of period 228,706 268,814 1,511,431 1,400,988
======= ======= ========= =========
</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
---------------------- ---------------------- -----------------------
1996 1995 1996 1995 1996 1995
-------- ------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
22,382 15,713 6,319 3,731 34,818 30,204
1,644 1,794 1,620 1,480 13,956 12,665
-------- ------- ------- -------- --------- ---------
20,738 13,919 4,699 2,251 20,862 17,539
-------- ------- ------- -------- --------- ---------
1,835 336 2,562 7,992 36,969 32,019
(23,172) 1,918 (35,139) 19,394 (137,865) 202,398
- - 35,141 1,199 163,056 37,569
-------- ------- ------- -------- --------- ---------
(21,337) 2,254 2,564 28,585 62,160 271,986
-------- ------- ------- -------- --------- ---------
(599) 16,173 7,263 30,836 83,022 289,525
-------- ------- ------- -------- --------- ---------
232 228 15,256 7,566 50,265 83,171
(12,560) 17,696 (56,600) 6,315 - -
(16,747) (3,934) (3,807) (217,070) (165,011) (315,482)
(241) (262) (301) (339) (2,400) (2,640)
(25) (21) (235) (3,348) (674) (4,655)
-------- ------- ------- -------- --------- ---------
(29,341) 13,707 (45,687) (206,876) (117,820) (239,606)
-------- ------- ------- -------- --------- ---------
(29,940) 29,880 (38,424) (176,040) (34,798) 49,919
308,715 284,405 282,697 411,093 2,297,983 2,169,221
-------- ------- ------- -------- --------- ---------
278,775 314,285 244,273 235,053 2,263,185 2,219,140
======== ======= ======= ======== ========= =========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1996 and 1995
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Account I (the Variable Account) is a segregated
investment account of the Sentry Life Insurance Company of New York (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
24, 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, 1996 and 1995
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 $2,929 at June 30, 1996.
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 to 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 $261,129 at June 30, 1996.
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NOTES TO FINANCIAL STATEMENTS (Unaudited-continued)
June 30, 1996 and 1995
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the related
Variable Account.
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 13,855 $ 16.51 $ 228,706
Growth Portfolio 39,087 38.67 1,511,431
Limited Maturity Bond Portfolio 12,516 22.27 278,775
Balanced Portfolio 14,569 16.77 244,273
-----------
Total contract owners' equity $ 2,263,185
===========
</TABLE>
At June 30, 1995 ownership of the Variable Account was represented by the
following accumulation units and accumulation unit values:
<TABLE>
<CAPTION>
ACCUMUATION ACCUMULATION
UNITS UNIT VALUE VALUE
----------- ------------ -----
<S> <C> <C> <C>
Neuberger & Berman
Advisers Management Trust:
Liquid Asset Portfolio 16,853 $ 15.95 $ 268,814
Growth Portfolio 40,950 34.21 1,400,988
Limited Maturity Bond Portfolio 14,589 21.54 314,285
Balanced Portfolio 15,242 15.42 235,053
------------
Total contract owners' equity $ 2,219,140
============
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (Unaudited-continued)
June 30, 1996 and 1995
6. PURCHASES AND SALES OF SECURITIES
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$418,661 and $350,452, 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 $ 92,384 $ 225,046 $ 44,517 $ 56,714 $ 418,661
Proceeds on sales $ 103,945 $ 132,089 $ 52,475 $ 61,943 $ 350,452
</TABLE>
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$322,835 and $507,378, 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 $ 80,768 $ 169,542 $ 43,637 $ 28,888 $ 322,835
Proceeds on sales $ 156,751 $ 102,577 $ 16,217 $ 231,833 $ 507,378
</TABLE>
