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[SENTRY LOGO]
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Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[GRAPHIC]
ANNUAL REPORT
DECEMBER 31, 1995
SENTRY LIFE INSURANCE COMPANY
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Dear Policy Owner: February 15, 1996
Thank you for choosing Sentry for your insurance and investment needs. Your
Self-Directed Life policy offers you the ability to control your investment
strategy, premium payments and life insurance protection. In addition, the
policy has a guaranteed death benefit provided Sentry receives the prescribed
minimum premium amount.
The comments below on the performance of the underlying investment are provided
by its investment advisor, Neuberger and Berman Management, Incorporated.
The stock and bond markets took off in 1995 after relatively unmemorable
performances in 1994. Investors will certainly look back on the harmony of the
dual bull market with fondness, as will our AMT Portfolio shareholders.
Dropping interest rates, coupled with growing company earnings despite a
cooling overall economy was music to investor's ears. All major indices reached
record highs (the S&P 500 jumped 34%, the Dow topped 33%, and the Nasdaq was up
nearly 40% for the year), and just about every sector of industry locked in
higher share prices for the year. The same decline in rates created a rebound
from 1994's dismal bond results; so good, in fact, that it was one of the best
bond market performance years in history. The Federal Reserve Board cut rates
by 0.25% in July and December, and bond investors were further encouraged by
slowing economic growth and fiscal restraint. Long-term rates went just over
7.9% at the peak in January, and ended the year at 5.94%.
The advantages of a favorable bond environment were not lost to the management
behind Neuberger & Berman AMT Limited Maturity Bond Investments or the fixed
income portion of Neuberger & Berman AMT Balanced Investments, which both took
advantage of bond price appreciation by lengthening duration in the first half
of the year, and again in the Fall. Duration (the measure of how bond prices
respond to shifts in interest rates, taking into account maturity, coupon, call
protection and other factors) was raised from 1.79 years (a weighted average
maturity of 2.1 years) in January to 2.18 years (or 2.4 years weighted average
maturity) by the end of June. The rally subsided during the third quarter, as
market participants became concerned about a pick up in economic activity.
However, by the end of the third quarter inflationary concerns waned and the
rally resumed. Duration was extended again in October - this time to 2.6 years
(2.9 years average weighted maturity); which greatly benefited fourth-quarter
performance. We remain bullish heading into 1996, and have been adding
corporate and asset-backed positions while avoiding the prepayment-plagued
mortgage arena (an area which hindered performance last year as well).
The strategy for Neuberger & Berman AMT Liquid Asset Investments during this
time was to continue to take advantage of higher yields which persisted despite
the two Federal Funds rate cuts. As the bond rally set in, the portfolio's
dollar-weighted average maturity was raised from 44 days to 62 days, then
remained between 40 and 63 days during the bond market's fits and starts during
Summer. During the last quarter, the money market yield curve inverted, meaning
higher interest rates could be found in shorter maturities - accordingly we
ended the year with a 24-day average maturity.
Among companies, the market certainly fell in love with technology and finance,
even if the affair ended by the fourth quarter and profit-taking took the froth
off of their valuations. Lowering interest rates and strong earnings results
provided the impetus for equities in 1995. Neuberger & Berman AMT Growth
Investments and the stock portion of Neuberger & Berman AMT Balanced
Investments were heavily weighted in both, as well as other prime contributors
such as HMO and other health care names, and specialty retailers which defied
the doldrums in the general retail sector. Gaming and restaurant investments
lost some ground in the fourth quarter, but it was not enough to dampen the
excellent total return performance results for the entire year.
Even though market valuations are at an all-time high, we continue to find
attractive investments selling below their intrinsic worth. This
growth-at-a-reasonable-price strategy will best serve to enhance the portfolios
and provide a solid foundation for long-term results. As always, we continue to
tackle each stock individually on a fundamental ("bottom-up") basis.
Please feel free to contact us at any time should you have questions.
Sincerely,
Dale R. Schuh
Dale R. Schuh, President and Chief Operating Officer
Sentry Life Insurance Company
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS, LIABILITIES
AND CONTRACT OWNERS' EQUITY
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
Liquid Asset Portfolio, 221,017
shares (cost $221,017) $ 221,017
Growth Portfolio, 99,586
shares (cost $2,219,496) 2,575,285
Limited Maturity Bond Portfolio, 12,256
shares (cost $173,089) 180,327
Balanced Portfolio, 45,335
shares (cost $690,232) 794,229
----------
Total investments 3,770,858
Dividends receivable 900
----------
Total assets 3,771,758
LIABILITIES:
Accrued expenses 1,617
----------
CONTRACT OWNERS' EQUITY (NET ASSETS) $3,770,141
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENTS OF OPERATIONS AND CHANGES IN CONTRACT OWNERS' EQUITY
For the Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
---------------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
--------------------------------- -----------------------------------
1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 9,124 $ 6,269 $ 4,000 $ 4,390 $ 8,224 $ 10,005
Expenses:
Risk charges 1,940 1,979 1,800 23,650 17,946 15,480
-------- --------- ---------- ---------- --------- ----------
Net investment income (loss) 7,184 4,290 2,200 (19,260) (9,722) (5,475)
-------- --------- ---------- ---------- --------- ----------
Realized net investment gain (loss) -- -- -- 46,745 44,083 73,172
Unrealized appreciation (depreciation), net -- -- -- 473,452 (332,294) (1,361)
Capital gain distributions received -- 210 115 58,834 192,558 21,774
-------- --------- ---------- ---------- --------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- 210 115 579,031 (95,653) 93,585
-------- --------- ---------- ---------- --------- ----------
Net increase (decrease) in contract owners'
equity from operations 7,184 4,500 2,315 559,771 (105,375) 88,110
-------- --------- ---------- ---------- --------- ----------
Purchase payments 90,888 195,485 245,524 478,225 461,504 386,443
Transfers between subaccounts, net (54,134) (155,730) (202,250) 62,754 162,021 84,408
Withdrawals and surrenders (1,034) (634) (63,267) (116,440) (159,695) (24,291)
Monthly deductions (12,109) (13,666) (12,891) (183,791) (158,175) (130,795)
Policy loans (31) (239) (2,541) (37,216) (55,443) (65,095)
-------- --------- ---------- ---------- --------- ----------
Net increase (decrease) in contract owners'
equity derived from principal transactions 23,580 25,216 (35,425) 203,532 250,212 250,670
-------- --------- ---------- ---------- --------- ----------
Total increase (decrease) in contract
owners' equity 30,764 29,716 (33,110) 763,303 144,837 338,780
Contract owners' equity at beginning of year 190,683 160,967 194,077 1,811,605 1,666,768 1,327,988
-------- --------- ---------- ---------- --------- ----------
Contract owners' equity at end of year $221,447 $190,683 $160,967 $2,574,908 $1,811,605 $1,666,768
======== ========= ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
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<TABLE>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
--------------------------- --------------------------- ----------------------------------
1995 1994 1993 1995 1994 1993 1995 1994 1993
---- ---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 9,541 $ 7,291 $ 6,571 $ 11,714 $ 9,450 $ 6,857 $ 34,769 $ 31,234 $ 27,433
Expenses:
Risk charges 1,908 1,906 2,038 7,621 6,379 5,612 35,119 28,210 24,930
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Net investment income (loss) 7,633 5,385 4,533 4,093 3,071 1,245 (350) 3,024 2,503
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Realized net investment
gain (loss) 1,206 (227) 2,338 19,996 11,174 15,051 67,948 55,030 90,561
Unrealized appreciation
(depreciation), net 8,032 (8,658) 2,380 114,203 (55,710) 11,383 595,686 (396,662) 12,402
Capital gain distributions
received -- 1,080 885 3,765 15,613 1,029 62,599 209,461 23,803
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Realized and unrealized
gain (loss) on investments
and capital gain
distributions, net 9,238 (7,805) 5,603 137,964 (28,923) 27,463 726,233 (132,171) 126,766
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity
from operations 16,871 (2,420) 10,136 142,057 (25,852) 28,708 725,883 (129,147) 129,269
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Purchase payments 27,036 23,864 20,066 161,567 111,653 128,170 757,716 792,506 780,203
Transfers between
subaccounts, net (3,276) 4,506 4,551 (5,344) (10,797) 113,291 -- -- --
Withdrawals and surrenders (12,119) (40,827) (3,846) (29,762) (22,365) (13,625) (159,354) (223,521) (105,029)
Monthly deductions (13,030) (13,342) (13,504) (81,053) (67,614) (64,263) (289,984) (252,797) (221,453)
Policy loans (3,029) (10) (2,467) (1,715) (14,764) (11,149) (41,991) (70,456) (81,252)
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Net increase (decrease) in
contract owners' equity
derived from principal
transactions (4,418) (25,809) 4,800 43,693 (3,887) 152,424 266,387 245,732 372,469
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Total increase (decrease) in
contract owners' equity 12,453 (28,229) 14,936 185,750 (29,739) 181,132 992,270 116,585 501,738
Contract owners' equity
at beginning of year 167,729 195,958 181,022 607,854 637,593 456,461 2,777,871 2,661,286 2,159,548
-------- -------- -------- -------- -------- -------- ---------- ---------- ----------
Contract owners' equity at
end of year $180,182 $167,729 $195,958 $793,604 $607,854 $637,593 $3,770,141 $2,777,871 $2,661,286
======== ======== ======== ======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statementS
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NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. ORGANIZATION AND CONTRACTS
The Sentry Variable Life Account I (the Variable Life 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 Life Account was established by the
Company on February 12, 1985 and commenced operations on January 13, 1987.
Accordingly, it is an accounting entity wherein all segregated account
transactions are reflected.
The assets of the Variable Life 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 Life 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 Life Account which are applied to increase
contract owners' equity are not taxed.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995, 1994 and 1993
3. EXPENSES
A mortality and expense risk premium and a death benefit guarantee risk
charge are deducted by the Company from the Variable Life Account on a daily
basis which is equal, on an annual basis, to 1.05% (.90% mortality and
expense risk and .15% death benefit guarantee risk charge) of the
daily net asset value of the Variable Life Account. These charges compensate
the Company for assuming these risks under the variable life contract. The
liability for accrued mortality and expense risk premium and death benefit
guarantee risk charge amounted to $1,617 at December 31, 1995.
At the beginning of each policy month, the company makes a deduction, per
contract holder, from the cash value of the policy by canceling
accumulation units. This deduction consists of the cost of insurance for
the policy and any additional benefits provided by rider, if any, for the
policy month and a $5 monthly administrative fee. The administrative fee
reimburses the Company for administrative expenses relating to the issuance
and maintenance of the contract.
The Company deducts a front-end sales expense charge of 5.0% from each
premium payment. A surrender charge may be deducted in the event of a
surrender to reimburse the Company for expenses incurred in
connection with issuing a policy. The full surrender charge will be reduced
during the first nine contract years until it reaches zero in the tenth
contract year.
The Company deducts from each premium payment the amount of premium taxes
levied by any state or government entity. Premium taxes up to 4% are imposed
by certain states.
4. INITIAL CAPITALIZATION
Initial capital of $500 was provided by the Company for the establishment of
the Variable Life Account. As an investor in the Variable Life Account, the
Company shares pro rata in the investment performance of the Variable Life
Account and is subject to the same valuation procedures as are other
contract owners in the Variable Life Account. The Company's investment, at
market value, was $724 at December 31, 1995.
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995, 1994 and 1993
5. CONTRACT OWNERS' EQUITY
Contract owners' equity is represented by accumulation units in the related
Variable Life Account.
At December 31, 1995 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Liquid Asset Portfolio 15,235 $14.54 $ 221,447
Growth Portfolio 122,318 $21.05 $2,574,908
Limited Maturity Bond Portfolio 11,223 $16.05 $ 180,182
Balanced Portfolio 47,615 $16.67 $ 793,604
----------
Total contract owners' equity $3,770,141
==========
</TABLE>
At December 31, 1994 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ ----------
<S> <C> <C> <C>
Liquid Asset Portfolio 13,639 $13.98 $ ,190,683
Growth Portfolio 112,195 16.15 1,811,605
Limited Maturity Bond Portfolio 11,473 14.62 167,729
Balanced Portfolio 44,673 13.61 607,854
----------
Total contract owners' equity $2,777,871
==========
</TABLE>
At December 31, 1993 ownership of the Variable Life Account was represented
by the following accumulation units and accumulation unit values:
<TABLE>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------ -----
<S> <C> <C> <C>
Liquid Asset Portfolio 11,788 $13.65 $ 160,967
Growth Portfolio 97,052 $17.17 $1,666,768
Limited Maturity Bond Portfolio 13,246 $14.79 $ 195,958
Balanced Portfolio 44,822 $14.23 $ 637,593
----------
Total contract owners' equity $2,661,286
==========
</TABLE>
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NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1995, 1994 and 1993
6. PURCHASES AND SALES OF SECURITIES
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$1,062,251 and $733,637, respectively, and were as follows:
<TABLE>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $141,210 $663,423 $48,185 $209,433 $1,062,251
Proceeds on sales $110,647 $420,666 $45,063 $157,261 $ 733,637
</TABLE>
In 1994, purchases and proceeds on sales of the Trust's shares aggregated
$1,340,961 and $883,968, respectively, and were as follows:
<TABLE>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $256,685 $879,777 $44,442 $160,057 $1,340,961
Proceeds on sales $227,423 $446,780 $63,883 $145,882 $ 883,968
</TABLE>
In 1993, purchases and proceeds on sales of the Trust's shares aggregated
$1,148,285 and $749,546, respectively, and were as follows:
<TABLE>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
------------ --------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Purchases $280,844 $549,530 $42,665 $275,246 $1,148,285
Proceeds on sales $314,118 $282,083 $32,408 $120,937 $ 749,546
</TABLE>
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[SENTRY LIFE INSURANCE COMPANY LOGO]
Rated A+ by A.M. Best
1800 North Point Drive
Stevens Point, WI 54481
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REPORT OF INDEPENDENT ACCOUNTANTS
THE BOARD OF DIRECTORS
SENTRY LIFE INSURANCE COMPANY
AND
THE CONTRACT OWNERS OF
SENTRY VARIABLE LIFE 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 Life
Account I as of December 31, 1995, and the related statements of operations and
changes in contract owners' equity for each of the three years in the period
then ended. 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 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 Life 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 three years in the period then ended in conformity with generally accepted
accounting principles.
Cooper & Lybrand L.L.P.
Chicago, Illinois
February 9, 1996
