<PAGE> 1
VARIABLE UNIVERSAL LIFE
ANNUAL REPORT
DECEMBER 31, 1998
Funded by Neuberger Berman
Advisers Management Trust
Volume 1 of 2
SENTRY'S
Self-Directed
LIFE
[SENTRY LIFE
INSURANCE COMPANY LOGO]
<PAGE> 2
Dear Policy Owner: February 15, 1999
We are pleased to present you with the following comments of Neuberger Berman
Management Inc., the investment advisors for your Patriot variable annuity.
The Neuberger Berman Advisers Management Trust (AMT) and the equity portion of
AMT Balanced Portfolio are co-managed by Jennifer Silver and Brooke Cobb. Their
goal is to invest today in the fast growing mid sized companies that will
comprise tomorrow's Fortune 500.
As was the case for virtually all equity funds, the AMT Growth portfolio
experienced a roller coaster ride in 1998. At mid-year, the portfolio had a gain
in the mid teens. At its September low, it had given back all its gains and then
some. After a breathtaking fourth quarter rally, the portfolio recaptured all
lost ground and closed the year near its highs. When three Federal Reserve
interest rate cuts injected much needed liquidity into the financial system,
mid-cap stocks rebounded strongly. Looking ahead, with financial liquidity no
longer a pressing issue and portfolio holdings priced quite reasonably relative
to favorable earnings growth prospects, we are hopeful that shareholders will
enjoy a smoother ride.
1998's biggest portfolio winners include technology holdings, healthcare
investments, and value oriented retailers. A boost was received from relatively
small positions in well known internet stocks and lesser known "net" names, all
of which were added to the portfolio in the fourth quarter. The co-managers will
continue to tread carefully in this area, sticking to real companies with the
realistic potential to meet or exceed high growth expectations. They are pleased
with the portfolio's 1998 gains in what was a truly challenging market.
Portfolio characteristics are consistent with the investment thesis that above
average earnings growth and earnings momentum coupled with reasonable valuations
relative to earnings growth rates should reward investors.
The AMT Limited Maturity Bond Portfolio and the debt portion of AMT Balanced
Portfolio are co-managed by Theodore P. Giuliano and Catherine Waterworth.
The title of Shakespeare's play All's Well That Ends Well aptly describes 1998's
fixed income markets. Strong first half returns set the stage for the high drama
of August-September, when the global economic market plot thickened and all
sectors of the fixed income market except U.S. Treasuries declined. Then in the
fourth act (fourth quarter), the hero appeared (Federal Reserve Chairman Alan
Greenspan) and three Fed rate cuts produced a very happy ending. In fact, when
the curtain came down on 1998, fixed income patrons had enjoyed the best year
since 1991.
Looking ahead, given historically wide yield spreads for a non-recession
environment, and an accommodative Fed, the managers continue to be moderately
constructive on the corporate bond sector. However, investors should expect
continued volatility.
In conclusion, as we enter 1999, inflation is at its lowest level in three
decades and economic conditions appear to be balanced. However, interest rates
and bond yields are also at or near historic lows, and the introduction of the
new Euro may siphon some money from the U.S. bond market. This could make for
choppy fixed income markets in the year ahead. We will continue to strive to
select attractive sectors, find values, and most importantly, to deliver
competitive returns with low principal risk.
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. The investments
for the Portfolio are managed by the same portfolio manager(s) who manage one or
more other mutual funds that have similar names, investment objectives and
investment styles as the Portfolio. You should be aware that the Portfolio is
likely to differ from other mutual funds in size, cash flow pattern and tax
matters. Accordingly, the holdings and performance of the Portfolio can be
expected to vary from those of the other mutual funds.
<PAGE> 3
SENTRY LIFE INSURANCE COMPANY
SENTRY VARIABLE LIFE ACCOUNT I
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1998
<TABLE>
<S> <C>
ASSETS:
Investments at market value:
Neuberger Berman Advisers Management Trust:
Liquid Asset Portfolio, 164,605
shares (cost $164,605) $ 164,605
Growth Portfolio, 183,894
shares (cost $4,652,183) 4,834,535
Limited Maturity Bond Portfolio, 12,216
shares (cost $168,180) 168,875
Balanced Portfolio, 86,792
shares (cost $1,377,410) 1,418,179
----------
Total investments 6,586,194
Dividends receivable 673
----------
Total assets 6,586,867
LIABILITIES:
Accrued expenses 1,703
----------
NET ASSETS $6,585,164
==========
</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, 1998, 1997 and 1996
<TABLE>
<CAPTION>
SUB-ACCOUNTS INVESTING IN:
----------------------------
LIQUID ASSET GROWTH
PORTFOLIO PORTFOLIO
---------------------------- ------------------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income:
Dividends $ 7,551 $10,121 $ 9,580 $ -- $ -- $ 997
Expenses:
Risk charges 1,740 2,305 2,288 45,238 37,804 29,155
-------- ------- ------- ---------- --------- ----------
Net investment income (loss) 5,811 7,816 7,292 (45,238) (37,804) (28,158)
-------- ------- ------- ---------- --------- ----------
Realized net investment gain (loss) -- -- -- 130,456 143,719 48,754
Unrealized appreciation (depreciation), net -- -- -- (607,832) 478,813 (44,382)
Capital gain distributions received -- -- -- 1,138,697 264,588 233,304
-------- ------- ------- ---------- --------- ----------
Realized and unrealized gain (loss)
on investments and capital
gain distributions, net -- -- -- 661,321 887,120 237,676
-------- ------- ------- ---------- --------- ----------
Net increase in net assets
from operations 5,811 7,816 7,292 616,083 849,316 209,518
-------- ------- ------- ---------- --------- ----------
Purchase payments 229,539 447,087 96,463 690,677 698,213 549,845
Transfers between subaccounts, net (200,831) (427,134) (59,472) 134,665 304,525 56,399
Withdrawals and surrenders (2,093) (80,269) (32,192) (460,042) (375,499) (184,653)
Monthly deductions (18,659) (16,117) (13,163) (291,193) (250,870) (217,320)
Policy loans (282) (60) (709) (27,406) (32,746) (10,421)
-------- ------- ------- ---------- --------- ----------
Net increase (decrease) in net assets
derived from principal transactions 7,674 (76,493) (9,073) 46,701 343,623 193,850
-------- ------- ------- ---------- --------- ----------
Total increase (decrease) in net assets 13,485 (68,677) (1,781) 662,784 1,192,939 403,368
Net assets at beginning of year 150,989 219,666 221,447 4,171,215 2,978,276 2,574,908
-------- ------- ------- ---------- --------- ----------
Net assets at end of year $164,474 $150,989 $219,666 $4,833,999 $4,171,215 $2,978,276
======== ======== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE> 5
<TABLE>
<CAPTION>
LIMITED MATURITY BALANCED
BOND PORTFOLIO PORTFOLIO TOTAL
-------------------------------------- --------------------------------------- ------------------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ---- ---- ---- ----
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 10,093 $ 8,980 $ 15,386 $ 28,603 $ 16,109 $ 18,652 $ 46,247 $ 35,210 $ 44,615
1,731 1,647 1,797 13,274 10,422 8,680 61,983 52,178 41,920
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
8,362 7,333 13,589 15,329 5,687 9,972 (15,736) (16,968) 2,695
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
(290) (1,219) (2,558) 14,003 15,467 8,235 144,169 157,967 54,431
(2,702) 2,465 (6,306) (86,499) 100,185 (76,957) (697,033) 581,463 (127,645)
-- -- -- 200,904 41,345 103,719 1,339,601 305,933 337,023
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
(2,992) 1,246 (8,864) 128,408 156,997 34,997 786,737 1,045,363 263,809
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
5,370 8,579 4,725 143,737 162,684 44,969 771,001 1,028,395 266,504
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
24,332 20,154 25,849 222,905 176,611 142,335 1,167,453 1,342,065 814,492
(2,103) 793 (9,331) 68,269 121,816 12,404 -- -- --
(10,939) (7,924) (37,994) (98,008) (19,038) (59,749) (571,082) (482,730) (314,588)
(11,050) (11,054) (12,163) (109,415) (93,257) (83,683) (430,317) (371,298) (326,329)
(551) 1,987 (306) (1,098) (219) (6,732) (29,337) (31,038) (18,168)
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
(311) 3,956 (33,945) 82,653 185,913 4,575 136,717 456,999 155,407
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
5,059 12,535 (29,220) 226,390 348,597 49,544 907,718 1,485,394 421,911
163,497 150,962 180,182 1,191,745 843,148 793,604 5,677,446 4,192,052 3,770,141
---------- ---------- ----------- ----------- ---------- ----------- ---------- ----------- -----------
$ 168,556 $ 163,497 $ 150,962 $1,418,135 $1,191,745 $ 843,148 $6,585,164 $5,677,446 $4,192,052
========== ========== =========== =========== ========== =========== ========== =========== ===========
</TABLE>
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996
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.
Actual results could differ from those estimates.
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 at the reported net asset values of such
portfolios, which value their investment securities at fair value.
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
net assets are not taxed.
<PAGE> 7
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
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 $1,703 at December 31, 1998.
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, 1998, 1997 and 1996
4. NET ASSETS
Net Assets are represented by accumulation units in the related Variable Life
Account.
At December 31, 1998 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 10,192 $16.14 $ 164,474
Growth Portfolio 145,685 33.18 4,833,999
Limited Maturity Bond Portfolio 19,319 18.09 168,556
Balanced Portfolio 61,296 23.14 1,418,135
----------
Total net assets $6,585,164
==========
</TABLE>
At December 31, 1998 significant concentrations of ownership were as follows:
<TABLE>
<CAPTION>
NUMBER OF
CONTRACT OWNERS PERCENTAGE OWNED
--------------- ----------------
<S> <C> <C>
Liquid Asset Portfolio 2 32.4
Limited Maturity Bond Portfolio 1 29.6
</TABLE>
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 net assets $5,677,446
==========
</TABLE>
At December 31, 1996 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 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 net assets $4,192,052
==========
</TABLE>
<PAGE> 9
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 1998, 1997 and 1996
5. PURCHASES AND SALES OF SECURITIES
<TABLE>
<CAPTION>
In 1998, purchases and proceeds on sales of the Trust's shares aggregated $2,839,658 and $1,379,167, respectively, and
were as follows:
LIQUID ASSET GROWTH LIMITED MATURITY BALANCED
PORTFOLIO PORTFOLIO BOND PORTFOLIO PORTFOLIO TOTAL
----------- --------- --------------- --------- -----
<S> <C> <C> <C> <C> <C>
Purchases $272,325 $2,009,596 $ 35,610 $522,127 $2,839,658
Proceeds on sales 258,175 869,198 27,828 223,966 1,379,167
<CAPTION>
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:
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
<CAPTION>
In 1996, purchases and proceeds on sales of the Trust's shares aggregated $1,368,190 and $872,040, respectively, and
were as follows:
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
</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:
In our opinion, the accompanying combined statement of assets and liabilities
and the related combined and separate statements of operations and changes in
net assets present fairly, in all material respects, the financial position of
the Sentry Variable Life Account I, and the Liquid Asset Portfolio, Growth
Portfolio, Limited Maturity Bond Portfolio and Balanced Portfolio thereof, at
December 31, 1998, the results of each of their operations and changes in each
of their net assets for each of the three years in the period then ended, in
conformity with generally accepted accounting principles. 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 of these financial statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 1998, by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS L.L.P.
Chicago, Illinois
February 11, 1999
<PAGE> 11
[SENTRY EQUITY SERVICES, INC. LOGO]
1800 North Point Drive
Stevens Point, WI 54481
1-800-533-7827
Volume 1 of 2
