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[SENTRY LOGO]
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Sentry Variable Account I
THE PATRIOT
A FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
ANNUAL REPORT
DECEMBER 31, 1996
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
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Dear Contract Owner: February 15, 1997
Thank you for selecting the Patriot for your long-term investment needs. As
always we appreciate the confidence you have in Sentry to provide you with this
variable annuity program.
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 feel free to contact us at any time should you have questions about the
Patriot or the information contained in this report.
Sincerely,
[SIG]
Harold A. Rice, President and Chief Operating Officer
Sentry Life of New York
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 OF NEW YORK
SENTRY VARIABLE 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, 130,931
shares (cost $130,931) $ 130,931
Growth Portfolio, 53,128
shares (cost $1,214,467) 1,369,637
Limited Maturity Bond Portfolio, 12,882
shares (cost $178,730) 180,995
Balanced Portfolio, 16,765
shares (cost $258,294) 266,899
----------
Total investments 1,948,462
Dividends receivable 498
----------
Total assets 1,948,960
LIABILITIES:
Accrued expenses 2,388
----------
CONTRACT OWNERS' EQUITY (NET ASSETS) $1,946,572
==========
</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 Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
----------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Income:
Dividends $ 9,428 $ 14,308 $ 546 $ 2,714
Expenses:
Mortality and expense risk 2,598 3,483 17,548 16,478
---------- ---------- ---------- ----------
Net investment income (loss) 6,830 10,825 (17,002) (13,764)
---------- ---------- ---------- ----------
Realized net investment gain -- -- 62,366 55,298
Unrealized appreciation (depreciation), net -- -- (70,142) 264,104
Capital gain distributions received -- -- 127,915 36,370
Realized and unrealized gain (loss) ---------- ---------- ---------- ----------
on investments and capital
gain distributions, net -- -- 120,139 355,772
---------- ---------- ---------- ----------
Net increase in contract owners'
equity from operations 6,830 10,825 103,137 342,008
---------- ---------- ---------- ----------
Purchase payments 16,415 25,819 29,244 68,166
Transfers between subaccounts, net 40,562 (75,873) 36,903 35,954
Withdrawals (172,964) (63,002) (263,594) (106,589)
Contract maintenance fees (462) (665) (2,109) (2,090)
Surrender charges (686) (1,173) (517) (532)
---------- ---------- ---------- ----------
Net decrease in contract owners'
equity derived from principal transactions (117,135) (114,894) (200,073) (5,091)
---------- ---------- ---------- ----------
Total increase (decrease) in contract
owners' equity (110,305) (104,069) (96,936) 336,917
Contract owners' equity at beginning of year 240,959 345,028 1,465,612 1,128,695
---------- ---------- ---------- ----------
Contract owners' equity at end of year $ 130,654 $ 240,959 $1,368,676 $1,465,612
========== ========== ========== ==========
</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 $ 38,675 $ 36,466
3,070 3,657 3,199 3,073 26,415 26,691
--------- ---------- --------- ---------- ---------- ----------
19,312 12,056 3,120 658 12,260 9,775
--------- ---------- --------- ---------- ---------- ----------
(3,138) 678 2,752 8,595 61,980 64,571
(9,327) 14,549 (26,056) 34,855 (105,525) 313,508
-- -- 35,141 1,199 163,056 37,569
--------- ---------- --------- ---------- ---------- ----------
(12,465) 15,227 11,837 44,649 119,511 415,648
--------- ---------- --------- ---------- ---------- ----------
6,847 27,283 14,957 45,307 131,771 425,423
--------- ---------- --------- ---------- ---------- ----------
525 490 71,464 17,923 117,648 112,398
(17,353) 13,132 (60,112) 26,787 -- --
(117,736) (16,059) (41,065) (214,339) (595,359) (399,989)
(321) (391) (618) (664) (3,510) (3,810)
(42) (145) (716) (3,410) (1,961) (5,260)
--------- ---------- --------- ---------- ---------- ----------
(134,927) (2,973) (31,047) (173,703) (483,182) (296,661)
--------- ---------- --------- ---------- ---------- ----------
(128,080) 24,310 (16,090) (128,396) (351,411) 128,762
308,715 284,405 282,697 411,093 2,297,983 2,169,221
--------- ---------- --------- ---------- ---------- ----------
$ 180,635 $ 308,715 $ 266,607 $ 282,697 $1,946,572 $2,297,983
========== =========== ========= ========== ========== ==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
December 31, 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
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
contract owners' equity are not taxed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 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 $2,388 at December 31, 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. The Company removed the investment
during 1996. The value at the disposal date was $260,491.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the related
Variable Account.
At December 31, 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>
Liquid Asset Portfolio 7,787 $ 16.78 $ 130,654
Growth Portfolio 34,509 39.66 1,368,676
Limited Maturity Bond Portfolio 7,846 23.02 180,635
Balanced Portfolio 15,426 17.28 266,607
----------
Total contract owners' equity $1,946,572
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</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 39.2
Growth Portfolio 1 16.8
Limited Maturity Bond Portfolio 3 43.2
Balanced Portfolio 1 10.5
</TABLE>
At December 31, 1995 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 14,831 $16.25 $ 240,959
Growth Portfolio 39,845 36.78 1,465,612
Limited Maturity Bond Portfolio 13,818 22.34 308,715
Balanced Portfolio 17,273 16.37 282,697
----------
Total contract owners' equity $2,297,983
==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1996 and 1995
6. PURCHASES AND SALES OF SECURITIES
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$514,731 and $820,703, 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 $ 99,146 $243,774 $ 44,810 $127,001 $514,731
Proceeds on sales 208,377 332,385 160,354 119,587 820,703
</TABLE>
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$463,219 and $713,431, 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 $130,408 $224,221 $44,776 $ 63,814 $463,219
Proceeds on sales 234,578 207,230 36,035 235,588 713,431
</TABLE>
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REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE 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 Account I as of
December 31, 1995, and the related statements of operations and changes in
contract owners' equity for each of the two years in the period then ended.
These financial statements are the responsibility of Sentry Life Insurance
Company of New York'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 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 two
years in the period then ended in conformity with generally accepted accounting
principles.
/S/ COOPERS & LYBRAND L.L.P.
Chicago, Illinois
February 10, 1997
