<PAGE> 1
[SENTRY LOGO]
Sentry Variable Life Account I
SELF-DIRECTED LIFE
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
FUNDED BY NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST
[SENTRY ART]
ANNUAL REPORT
DECEMBER 31, 1997
Sentry Life Insurance Company
<PAGE> 2
Dear Policy 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 life insurance and
investment needs. We value your business and appreciate your confidence in
Sentry to provide this service.
Sincerely,
Dale R. Schuh
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 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.
<PAGE> 3
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1997
<TABLE>
<CAPTION>
ASSETS:
Investments at market value:
Neuberger & Berman Advisers Management Trust:
<S> <C>
Liquid Asset Portfolio, 150,455
shares (cost $150,455) $ 150,455
Growth Portfolio, 136,593
shares (cost $3,381,329) 4,171,506
Limited Maturity Bond Portfolio, 11,618
shares (cost $160,688) 164,081
Balanced Portfolio, 66,995
shares (cost $1,065,247) 1,192,521
----------
Total investments 5,678,563
Dividends receivable 598
----------
Total assets 5,679,161
LIABILITIES:
Accrued expenses 1,715
----------
NET ASSETS $5,677,446
==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 4
SENTRY LIFE INSURANCE COMPANY
Sentry Variable Life Account I
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
For the Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
--------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Income:
<S> <C> <C> <C> <C> <C> <C>
Dividends $ 10,121 $ 9,580 $ 9,124 $ -- $ 997 $ 4,390
Expenses:
Risk charges 2,305 2,288 1,940 37,804 29,155 23,650
----------- ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 7,816 7,292 7,184 (37,804) (28,158) (19,260)
Realized net investment gain (loss) -- -- -- 143,719 48,754 46,745
Unrealized appreciation
(depreciation), net -- -- -- 478,813 (44,382) 473,452
Capital gain distributions received -- -- -- 264,588 233,304 58,834
----------- ----------- ----------- ----------- ----------- -----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- 887,120 237,676 579,031
----------- ----------- ----------- ----------- ----------- -----------
Net increase in net assets
from operations 7,816 7,292 7,184 849,316 209,518 559,771
----------- ----------- ----------- ----------- ----------- -----------
Purchase payments 447,087 96,463 90,888 698,213 549,845 478,225
Transfers between subaccounts, net (427,134) (59,472) (54,134) 304,525 56,399 62,754
Withdrawals and surrenders (80,269) (32,192) (1,034) (375,499) (184,653) (116,440)
Monthly deductions (16,117) (13,163) (12,109) (250,870) (217,320) (183,791)
Policy loans (60) (709) (31) (32,746) (10,421) (37,216)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in net assets
derived from principal transactions (76,493) (9,073) 23,580 343,623 193,850 203,532
----------- ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets (68,677) (1,781) 30,764 1,192,939 403,368 763,303
Net assets at beginning of year 219,666 221,447 190,683 2,978,276 2,574,908 1,811,605
----------- ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 150,989 $ 219,666 $ 221,447 $ 4,171,215 $ 2,978,276 $ 2,574,908
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 8,980 $ 15,386 $ 9,541 $ 16,109 $ 18,652 $ 11,714 $ 35,210 $ 44,615 $ 34,769
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
1,647 1,797 1,908 10,422 8,680 7,621 52,178 41,920 35,119
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
7,333 13,589 7,633 5,687 9,972 4,093 (16,968) 2,695 (350)
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
(1,219) (2,558) 1,206 15,467 8,235 19,996 157,967 54,431 67,947
2,465 (6,306) 8,032 100,185 (76,957) 114,203 581,463 (127,645) 595,687
-- -- -- 41,345 103,719 3,765 305,933 337,023 62,599
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
1,246 (8,864) 9,238 156,997 34,997 137,964 1,045,363 263,809 726,233
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
8,579 4,725 16,871 162,684 44,969 142,057 1,028,395 266,504 725,883
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
20,154 25,849 27,036 176,611 142,335 161,567 1,342,065 814,492 757,716
793 (9,331) (3,276) 121,816 12,404 (5,344) -- -- --
(7,924) (37,994) (12,119) (19,038) (59,749) (29,762) (482,730) (314,588) (159,355)
(11,054) (12,163) (13,030) (93,257) (83,683) (81,053) (371,298) (326,329) (289,983)
1,987 (306) (3,029) (219) (6,732) (1,715) (31,038) (18,168) (41,991)
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
3,956 (33,945) (4,418) 185,913 4,575 43,693 456,999 155,407 266,387
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
12,535 (29,220) 12,453 348,597 49,544 185,750 1,485,394 421,911 992,270
150,962 180,182 167,729 843,148 793,604 607,854 4,192,052 3,770,141 2,777,871
--------- -------- -------- --------- -------- -------- ---------- ---------- -----------
$ 163,497 $150,962 $180,182 $1,191,745 $843,148 $793,604 $5,677,466 $4,192,052 $ 3,770,141
========= ======== ======== ========== ======== ======== ========== ========== ===========
</TABLE>
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
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 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 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
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 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
investment gains of the Variable Life Account which are applied to increase
contract owners' equity are not taxed.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
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 $1,715 at December 31, 1997.
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.
<PAGE> 8
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997, 1996 and 1995
4. NET ASSETS
Net Assets are represented by accumulation units in the related
Variable Life Account.
At December 31, 1997 ownership of the Variable Life 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 9,691 $15.58 $ 150,989
Growth Portfolio 143,731 29.02 4,171,215
Limited Maturity Bond Portfolio 9,339 17.51 163,497
Balanced Portfolio 57,188 20.84 1,191,745
----------
Total contract owners' equity $5,677,446
==========
At December 31, 1997 significant concentrations of ownership were as follows:
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 2 34.1
Limited Maturity Bond Portfolio 1 27.2
At December 31, 1996 ownership of the Variable Life Account was
represented by the following accumulation units and accumulation unit values:
<CAPTION>
ACCUMULATION ACCUMULATION
UNITS UNIT VALUE VALUE
------------ ------------- -----
<S> <C> <C> <C>
Liquid Asset Portfolio 14,611 $15.03 $ 219,666
Growth Portfolio 131,013 22.73 2,978,276
Limited Maturity Bond Portfolio 9,110 16.57 150,962
Balanced Portfolio 47,830 17.63 843,148
----------
Total contract owners' equity $4,192,052
==========
At December 31, 1995 ownership of the Variable Life Account was
represented by the following accumulation units and accumulation unit values:
<CAPTION>
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>
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1997, 1996 and 1995
5. PURCHASES AND SALES OF SECURITIES
In 1997, purchases and proceeds on sales of the Trust's shares aggregated
$2,245,774 and $1,500,435, 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 $501,151 $1,310,732 $32,033 $401,858 $2,245,774
Proceeds on sales 570,324 740,521 21,099 168,491 1,500,435
In 1996, purchases and proceeds on sales of the Trust's shares aggregated
$1,368,190 and $872,040, respectively, and were as follows:
<CAPTION>
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
----------- --------- -------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $153,780 $889,149 $44,216 $281,045 $1,368,190
Proceeds on sales 155,168 489,998 63,774 163,100 872,040
In 1995, purchases and proceeds on sales of the Trust's shares aggregated
$1,062,251 and $733,637, respectively, and were as follows:
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>
<PAGE> 10
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 and liabilities 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,
1997, and the related statements of operations and changes in net assets 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 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 Life Account I as of December 31, 1997, and the results of their
operations and the changes in their net assets 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 11, 1998
<PAGE> 11
[SENTRY LOGO]
1800 North Point Drive
Stevens Point, WI 54481
