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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
[GRAPHIC]
ANNUAL REPORT
DECEMBER, 1997
SENTRY LIFE INSURANCE COMPANY OF NEW YORK
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Dear Contract Owner: February 15, 1998
We are pleased to present you with the following comments of Neuberger & Berman
Management Incorporated, the investment advisors for your Patriot variable
annuity.
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 mid July. They felt it important to directly address the
shareholders and describe their investment discipline. They are growth stock
investors in the purest sense of the term. They want to own the stocks of
companies that are growing earnings faster than the average American business
and ideally, faster than the competitors in their respective industries.
They focus their research efforts on mid-cap stocks in new and/or rapidly
evolving industries. By operating in the mid-cap arena (stocks with market
capitalizations between $500 million and $8 billion), they believe they are
likely to identify more of their brand of growth stock opportunities.
Considering the currently high valuations of large cap growth stocks relative
to mid-cap stocks, with comparable or in many cases, better earnings growth
potential, they believe the portfolio is well positioned to take advantage of
what they think will be a more favorable outlook for mid-cap growth stocks in
the year ahead.
In 1997, bonds in AMT Limited Maturity Bond Portfolio and the debt portion of
AMT Balanced Portfolio benefited from low inflation and reduced inflationary
expectations, benign monetary and fiscal policies, and favorable supply/ demand
factors in the fixed income marketplace. Inflation remained low and we saw
increasing evidence that the federal budget deficit was shrinking
substantially. In addition, the Treasury Department's funding policy helped
create a "scarcity" value for traditional fixed rate securities.
In the fourth quarter 1997, extreme volatility in the U.S. equity market sent
investors scurrying to the relative safety of bonds and economic upheaval in
Asia helped attract even more foreign investors to the U.S. bond market. Strong
demand and limited supply, particularly in the U.S. Treasuries market, helped
fuel the strong bond rally at the close of that year.
One of their most successful strategies in 1997 was something they didn't do,
namely invest in Southeast Asia. They took a hard look at these offerings and
their analysis showed these bonds to have below investment grade risk
characteristics with huge downside risk if the supply of external capital dried
up. Their concerns were confirmed when currency turmoil, which began in July
and accelerated through year end 1997, overwhelmed these countries and sent
bonds plummeting.
In closing, the managers are gratified by the Portfolios' performance in 1997.
The fundamental outlook for bonds remains appealing. Inflation remains low and
dis-inflationary forces resulting from Asian economic turmoil should help keep
the lid on inflation for the foreseeable future. Fiscal and monetary policy
should continue to be benign.
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/ Harold A. Rice
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 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 OF NEW YORK
SENTRY VARIABLE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 108,497
shares (cost $108,497) $ 108,497
Growth Portfolio, 47,663
shares (cost $1,109,844) 1,455,627
Limited Maturity Bond Portfolio, 7,350
shares (cost $100,488) 103,777
Balanced Portfolio, 14,814
shares (cost $232,817) 263,698
----------
Total investments 1,931,599
Dividends receivable 433
----------
Total assets 1,932,032
LIABILITIES:
Accrued expenses 2,565
----------
NET ASSETS $1,929,467
==========
</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 NET ASSETS
For the Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
---------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Dividends $ 5,340 $ 9,428 $ -- $ 546
Expenses:
Mortality and expense charges 1,406 2,598 16,886 17,548
---------- ---------- ---------- ----------
Net investment income (loss) 3,934 6,830 (16,886) (17,002)
---------- ---------- ---------- ----------
Realized net investment gain (loss) -- -- 50,208 62,366
Unrealized appreciation (depreciation), net -- -- 190,613 (70,142)
Capital gain distributions received -- -- 110,632 127,915
---------- ---------- ---------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 351,453 120,139
---------- ---------- ---------- ----------
Net increase in net assets
from operations 3,934 6,830 334,567 103,137
---------- ---------- ---------- ----------
Purchase payments 7,759 16,415 21,166 29,244
Transfers between subaccounts, net -- 40,562 6,066 36,903
Withdrawals (33,219) (172,964) (271,847) (263,594)
Contract maintenance fees (248) (462) (1,873) (2,109)
Surrender charges (131) (686) (1,976) (517)
---------- ---------- ---------- ----------
Net decrease in net assets
derived from principal transactions (25,839) (117,135) (248,464) (200,073)
---------- ---------- ---------- ----------
Total increase (decrease) in net assets (21,905) (110,305) 86,103 (96,936)
Net assets at beginning of year 130,654 240,959 1,368,676 1,465,612
---------- ---------- ---------- ----------
Net assets at end of year $ 108,749 $ 130,654 $1,454,779 $1,368,676
========== ========== ========== ==========
</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
- ----------------------- ----------------------- -----------------------
1997 1996 1997 1996 1997 1996
- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$ 9,357 $ 22,382 $ 4,981 $ 6,319 $ 19,678 $ 38,675
1,623 3,070 3,261 3,199 23,176 26,415
- ---------- ---------- ---------- ---------- ---------- ----------
7,734 19,312 1,720 3,120 (3,498) 12,260
- ---------- ---------- ---------- ---------- ---------- ----------
(1,724) (3,138) 5,364 2,752 53,848 61,980
1,024 (9,327) 22,275 (26,056) 213,912 (105,525)
-- -- 12,785 35,141 123,417 163,056
- ---------- ---------- ---------- ---------- ---------- ----------
(700) (12,465) 40,424 11,837 391,177 119,511
- ---------- ---------- ---------- ---------- ---------- ----------
7,034 6,847 42,144 14,957 387,679 131,771
- ---------- ---------- ---------- ---------- ---------- ----------
1 525 16,644 71,464 45,570 117,648
(6,066) (17,353) -- (60,112) -- --
(78,000) (117,736) (60,881) (41,065) (443,947) (595,359)
(198) (321) (651) (618) (2,970) (3,510)
(609) (42) (721) (716) (3,437) (1,961)
- ---------- ---------- ---------- ---------- ---------- ----------
(84,872) (134,927) (45,609) (31,047) (404,784) (483,182)
- ---------- ---------- ---------- ---------- ---------- ----------
(77,838) (128,080) (3,465) (16,090) (17,105) (351,411)
180,635 308,715 266,607 282,697 1,946,572 2,297,983
- ---------- ---------- ---------- ---------- ---------- ----------
$ 102,797 $ 180,635 $ 263,142 $ 266,607 $1,929,467 $1,946,572
========== ========== ========== ========== ========== ==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
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 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.
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, 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 $2,565 at December 31, 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 to 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, 1997 and 1996
4. NET ASSETS
Net Assets are represented by accumulation units in the related Variable
Account.
At December 31, 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>
Liquid Asset Portfolio 6,264 $17.36 $ 108,749
Growth Portfolio 28,775 50.56 1,454,779
Limited Maturity Bond Portfolio 4,233 24.28 102,797
Balanced Portfolio 12,900 20.40 263,142
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Total contract owners' equity $1,929,467
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</TABLE>
At December 31, 1997 significant concentrations of ownership were as
follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 5 73.5
Growth Portfolio 1 20.1
Limited Maturity Bond Portfolio 2 55.6
Balanced Portfolio 1 13.0
</TABLE>
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
==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1996
5. PURCHASES AND SALES OF SECURITIES
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$201,312 and $485,936, 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 $ 16,205 $141,339 $ 9,357 $ 34,411 $201,312
Proceeds on sales 38,639 296,170 85,875 65,252 485,936
</TABLE>
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>
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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 and liabilities of the
Liquid Asset Portfolio, Growth Portfolio, Limited Maturity Bond Portfolio and
Balanced Portfolio of the Sentry Variable Account I as of December 31, 1997,
and the related statements of operations and changes in net assets 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 audits.
We conducted our audits 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, 1997 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 audits provide 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, 1997, and the results of their
operations and the changes in their net assets 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 11, 1998
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[SENTRY LOGO] SENTRY LIFE INSURANCE
COMPANY OF NEW YORK
251 Salina Meadows Parkway, Suite 100
P.O. Box 4944
Syracuse, NY 13221
(315) 453-6301
32-95 2-98
