<PAGE> 1
FINANCIAL STATEMENTS
AMERICAN BENEFIT VARIABLE ANNUITY ACCOUNT
YEAR ENDED DECEMBER 31, 1997
WITH REPORT OF INDEPENDENT AUDITORS
<PAGE> 2
American Benefit Variable Annuity Account
Financial Statements
Year ended December 31, 1997
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.................................................................... 1
Audited Financial Statements
Statement of Net Assets........................................................................... 2
Statement of Operations........................................................................... 5
Statements of Changes in Net Assets............................................................... 7
Notes to Financial Statements..................................................................... 9
</TABLE>
<PAGE> 3
Report of Independent Auditors
The Board of Directors
American Benefit Life Insurance Company
We have audited the accompanying statement of net assets of American Benefit
Variable Annuity Account (comprising, respectively, the Money Market, Growth,
Growth and Income, Global Growth, Global Income, Strategic Fixed Income, and
Balanced Divisions) as of December 31, 1997, and the related statements of
operations for the year then ended and changes in net assets for each of the
two years in the period then ended. These financial statements are the
responsibility of the Account'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 transfer agent. 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 American Benefit Variable
Annuity Account at December 31, 1997, and the results of its operations for the
year then ended and the changes in its net assets for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Des Moines, Iowa
January 14, 1998
1
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American Benefit Variable Annuity Account
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
MONEY
MARKET
COMBINED DIVISION
------------------------------
<S> <C> <C>
ASSETS
Investments at net asset value:
PaineWebber Series Trust Money Market Portfolio, 63,053 shares
at $1.00 per share (cost -- $63,053) $ 63,053 $63,053
PaineWebber Series Trust Growth Portfolio, 27,445 shares at
$15.63 per share (cost -- $422,833) 428,965 -
PaineWebber Series Trust Growth and Income Portfolio, 34,088
shares at $13.69 per share (cost -- $363,207) 466,663 -
PaineWebber Series Trust Global Growth Portfolio, 17,947 shares
at $14.62 per share (cost -- $235,194) 262,391 -
PaineWebber Series Trust Global Income Portfolio, 29,181 shares
at $10.81 per share (cost -- $328,037) 315,444 -
PaineWebber Series Trust Strategic Fixed Income Portfolio,
34,132 shares at $10.64 per share (cost -- $387,544) 363,168 -
PaineWebber Series Trust Balanced Portfolio, 45,002 shares at
$11.33 per share (cost -- $493,454) 509,876 -
------------------------------
Total investments (cost -- $2,293,322) 2,409,560 63,053
Accrued investment income 364,670 -
------------------------------
Total net assets $2,774,230 $63,053
==============================
</TABLE>
2
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<TABLE>
<CAPTION>
GROWTH AND GLOBAL GLOBAL STRATEGIC
GROWTH INCOME GROWTH INCOME FIXED INCOME BALANCED
DIVISION DIVISION DIVISION DIVISION DIVISION DIVISION
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ - $ - $ - $ - $ - $ -
428,965 - - - - -
- 466,663 - - - -
- - 262,391 - - -
- - - 315,444 - -
- - - - 363,168 -
- - - - - 509,876
- --------------------------------------------------------------------------------------------------------
428,965 466,663 262,391 315,444 363,168 509,876
125,411 87,335 1,877 20,829 23,817 105,401
- --------------------------------------------------------------------------------------------------------
$554,376 $553,998 $264,268 $336,273 $386,985 $615,277
========================================================================================================
</TABLE>
3
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American Benefit Variable Annuity Account
Statement of Net Assets (continued)
<TABLE>
<S> <C> <C> <C>
Net assets represented by:
Currently payable annuity contracts:
Strategic Fixed Income Division $ 27,599
UNITS VALUE
----------------------
Contracts in accumulation period:
Money Market Division 4,597 $13.72 63,053
Growth Division 15,400 36.00 554,376
Growth and Income Division 30,087 18.41 553,998
Global Growth Division 14,897 17.74 264,268
Global Income Division 19,090 17.62 336,273
Strategic Fixed Income Division 20,655 17.40 359,386
Balanced Division 25,422 24.20 615,277
-------------
2,746,631
-------------
$2,774,230
=============
</TABLE>
See accompanying notes.
4
<PAGE> 7
American Benefit Variable Annuity Account
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
MONEY
MARKET GROWTH
COMBINED DIVISION DIVISION
-------------------------------------------
<S> <C> <C> <C>
NET INVESTMENT INCOME (LOSS)
Income:
Dividends $ 69,653 $7,451 $ 739
Capital gains distributions 302,894 - 124,672
Expenses (Note 2):
Administrative charges (3,310) (5,112) (544)
Mortality, distribution, and expense risk (43,188) (2,457) (8,315)
-------------------------------------------
Net investment income (loss) 326,049 (118) 116,552
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
(Note 4)
Net realized gain (loss) on investments 88,490 - 40,989
Change in net unrealized appreciation/
depreciation of investments (14,321) - (82,559)
-------------------------------------------
Net increase (decrease) in net assets resulting from
operations $400,218 $ (118) $ 74,982
===========================================
</TABLE>
See accompanying notes.
5
<PAGE> 8
<TABLE>
<CAPTION>
GROWTH AND GLOBAL GLOBAL STRATEGIC FIXED
INCOME GROWTH INCOME INCOME BALANCED
DIVISION DIVISION DIVISION DIVISION DIVISION
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$ 3,548 $ 765 $20,728 $23,817 $ 12,605
83,859 1,112 365 - 92,886
(460) (454) (692) (267) 4,219
(7,247) (4,515) (6,702) (5,564) (8,388)
-----------------------------------------------------------------------------------------------------------------------
79,700 (3,092) 13,699 17,986 101,322
25,495 23,861 3,774 (15,566) 9,937
32,843 (4,425) (11,393) 33,065 18,148
-----------------------------------------------------------------------------------------------------------------------
$138,038 $16,344 $ 6,080 $35,485 $129,407
=======================================================================================================================
</TABLE>
6
<PAGE> 9
American Benefit Variable Annuity Account
Statements of Changes in Net Assets
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
MONEY
MARKET GROWTH
COMBINED DIVISION DIVISION
------------------------------------------
<S> <C> <C> <C>
NET ASSETS AT JANUARY 1, 1996 $5,112,085 $547,326 $1,074,444
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) 280,104 15,680 94,824
Net realized gain (loss) on investments 173,042 - 152,487
Change in net unrealized appreciation/depreciation of
investments (35,377) - (104,955)
------------------------------------------
Net increase in net assets resulting from operations 417,769 15,680 142,356
Changes from principal transactions:
Purchase payments 8,661 57 (457)
Contract distributions and terminations (1,856,706) (128,367) (431,778)
Transfer payments from (to) other divisions or other 13,538 108,157 (106,459)
contracts
Annuity payments and related actuarial adjustment in
reserves (4,555) - -
------------------------------------------
Increase (decrease) in net assets derived from principal
transactions (1,839,062) (20,153) (538,694)
------------------------------------------
Total increase (decrease) (1,421,294) (4,473) (396,338)
------------------------------------------
Net assets at December 31, 1996 3,690,792 542,853 678,106
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income (loss) 326,049 (118) 116,552
Net realized gain (loss) on investments 88,490 - 40,989
Change in net unrealized appreciation/depreciation of
investments (14,321) - (82,559)
------------------------------------------
Net increase in net assets resulting from operations 400,218 (118) 74,982
Changes from principal transactions:
Contract distributions and terminations (1,313,648) (573,047) (142,619)
Transfer payments from (to) other divisions or other - 93,365 (56,093)
contracts
Annuity payments and related actuarial adjustments in
reserves (3,132) - -
------------------------------------------
Decrease in net assets derived from principal transactions (1,316,780) (479,682) (198,712)
------------------------------------------
Total increase (decrease) (916,562) (479,800) (123,730)
------------------------------------------
Net assets at December 31, 1997 $2,774,230 $ 63,053 $ 554,376
==========================================
</TABLE>
See accompanying notes.
7
<PAGE> 10
<TABLE>
<CAPTION>
GROWTH AND GLOBAL GLOBAL STRATEGIC FIXED
INCOME GROWTH INCOME INCOME BALANCED
DIVISION DIVISION DIVISION DIVISION DIVISION
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$358,727 $480,103 $1,249,876 $724,445 $677,164
60,898 (4,672) 27,568 28,403 57,403
1,891 7,931 16,125 (23,303) 17,911
10,727 47,138 (5,747) 1,433 16,027
--------------------------------------------------------------------------------------------------------------------------
73,516 50,397 37,946 6,533 91,341
- (141) (112) 165 9,149
(1,500) (195,745) (683,794) (220,571) (194,951)
17,679 (9,238) - (741) 4,140
- - - (4,555) -
--------------------------------------------------------------------------------------------------------------------------
16,179 (205,124) (683,906) (225,702) (181,662)
--------------------------------------------------------------------------------------------------------------------------
89,695 (154,727) (645,960) (219,169) (90,321)
--------------------------------------------------------------------------------------------------------------------------
448,422 325,376 603,916 505,276 586,843
79,700 (3,092) 13,699 17,986 101,322
25,495 23,861 3,774 (15,566) 9,937
32,843 (4,425) (11,393) 33,065 18,148
--------------------------------------------------------------------------------------------------------------------------
138,038 16,344 6,080 35,485 129,407
(30,641) (117,494) (273,723) (127,331) (48,793)
(1,821) 40,042 - (23,313) (52,180)
- - - (3,132) -
--------------------------------------------------------------------------------------------------------------------------
(32,462) (77,452) (273,723) (153,776) (100,973)
--------------------------------------------------------------------------------------------------------------------------
105,576 (61,108) (267,643) (118,291) 28,434
--------------------------------------------------------------------------------------------------------------------------
$553,998 $264,268 $ 336,273 $386,985 $615,277
==========================================================================================================================
</TABLE>
8
<PAGE> 11
American Benefit Variable Annuity Account
Notes to Financial Statements
December 31, 1997
1. INVESTMENT AND ACCOUNTING POLICIES
ORGANIZATION
American Benefit Variable Annuity Account (the Account) was organized by
American Benefit Life Insurance Company (the Company) (a wholly-owned
subsidiary of American Republic Insurance Company) in accordance with the
provisions of the New York Insurance laws and is a part of the total operations
of the Company. The assets and liabilities of the Account are clearly
identified and distinguished from the other assets and liabilities of the
Company. The Account invests solely in specified portfolios of PaineWebber
Series Trust, an open-end management investment company under the Investment
Company Act of 1940, as directed by eligible contract owners. All series of
shares are diversified except Global Income Portfolio.
The Company was sold on January 2, 1998 to Keyport Life Insurance Company,
including the assumption of all responsibilities related to the Account.
INVESTMENT OPERATIONS
Investments are stated at the closing net asset values per share on December
31, 1997.
The average cost method is used to determine realized gains and losses.
Dividends are taken into income on an accrual basis as of the ex-dividend date.
ANNUITY RESERVES
Currently payable annuity contract reserves are computed according to the
Individual Annuity Valuation 1983 Table using an assumed interest rate of 4.0%.
If the amount paid to the contractholder is less than originally estimated,
charges paid for mortality and expense risks are reimbursed to the Company. If
additional amounts are required, the Company reimburses the Account.
USE OF ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future
as more information becomes known, which could impact the amounts reported and
disclosed herein.
9
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American Benefit Variable Annuity Account
Notes to Financial Statements (continued)
2. EXPENSES
The Company is compensated for certain expenses. Mortality, distribution, and
expense risks assumed by the Company are compensated for by a charge equivalent
to an annual rate of 1.40% of the total net assets of each division. These
charges amounted to $43,188 in 1997.
An annual contract administration charge of $30 is deducted on the last
valuation date of each calendar year, upon full withdrawal of a contract's
value or upon commencement of annuity payments if such withdrawal is made or
annuity payments commence prior to the last valuation date of the year. A
transfer charge of $10 will be imposed on each transfer between divisions
(portfolios) of the account in excess of six in any one calendar year. However,
the Company has waived this charge until further notice. An early withdrawal
charge may be imposed in the event of withdrawal of any portion of the contract
value or upon annuitization. The early withdrawal charge is 5% of the amount
withdrawn for purchase payments made within five years prior to the date of
withdrawal. A withdrawal transaction charge of $10 will be imposed on each
withdrawal in excess of three per calendar year. Total administrative charges
amounted to $3,310 in 1997.
3. FEDERAL INCOME TAXES
Operations of the Account are part of the operations of the Company. Under
current practice, no federal income taxes are allocated by the Company to the
operations of the Account.
4. PURCHASES AND SALES OF INVESTMENT SECURITIES
The aggregate cost of purchases and proceeds from sales of investments were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- -----------------------------
PURCHASES SALES PURCHASES SALES
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Portfolio:
Money Market $180,893 $ 660,693 $170,174 $ 174,647
Growth 144,343 243,847 179,351 638,928
Growth and Income 116,464 89,626 21,405 7,475
Global Growth 131,972 212,601 21,250 232,838
Global Income 129,390 371,544 109,975 697,670
Strategic Fixed Income 41,208 168,356 109,182 241,479
Balanced 202,631 235,574 72,691 207,643
----------------------------- -----------------------------
$946,901 $1,982,241 $684,028 $2,200,680
============================= =============================
</TABLE>
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<PAGE> 13
American Benefit Variable Annuity Account
Notes to Financial Statements (continued)
5. SUMMARY OF CHANGES FROM UNIT TRANSACTIONS
Transactions in units were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------------- ----------------------------
PURCHASED REDEEMED PURCHASED REDEEMED
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Division:
Money Market 12,873 49,069 11,279 12,803
Growth 1,070 7,191 2,037 20,338
Growth and Income 3,104 4,884 1,360 132
Global Growth 7,501 11,987 845 13,928
Global Income 5,123 21,036 - 41,111
Strategic Fixed Income 504 9,882 464 15,006
Balanced 6,633 11,106 668 10,435
---------------------------- ----------------------------
36,808 115,155 16,653 113,753
============================ ============================
</TABLE>
6. NET ASSETS
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
GROWTH
MONEY AND
MARKET GROWTH INCOME
COMBINED DIVISION DIVISION DIVISION
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $1,048,706 $26,139 $ 43,037 $290,033
Accumulated net investment income 1,609,286 36,914 505,207 160,509
Net unrealized appreciation/
depreciation of investments 116,238 - 6,132 103,456
--------------------------------------------------------------
$2,774,230 $63,053 $554,376 $553,998
==============================================================
</TABLE>
<TABLE>
<CAPTION>
GLOBAL GLOBAL STRATEGIC
GROWTH INCOME FIXED INCOME BALANCED
DIVISION DIVISION DIVISION DIVISION
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Unit transactions $183,403 $ 63,496 $209,154 $233,444
Accumulated net investment
income 53,668 285,370 202,207 365,411
Net unrealized appreciation/
depreciation of investments 27,197 (12,593) (24,376) 16,422
---------------------------------------------------------------
$264,268 $336,273 $386,985 $615,277
===============================================================
</TABLE>
11
<PAGE> 14
American Benefit Variable Annuity Account
Notes to Financial Statements (continued)
7. YEAR 2000 (UNAUDITED)
Based on a study of its computer software and hardware, the Company has
determined its exposure to the Year 2000 change of the century date issue. The
Company has developed a plan to modify its information technology to be ready
for the Year 2000. Efforts began in 1996 to modify its systems. This project is
expected to be substantially completed early in 1999. While additional testing
will be conducted on its systems through the Year 2000, the Company does not
expect this project to have a significant effect on the Account's operations.
To mitigate the effect of outside influences and other dependencies relative to
the Year 2000, the Company is contacting significant customers, suppliers and
other third parties. To the extent these third parties would be unable to
transact business in the Year 2000 and thereafter, the Account's operations
could be adversely affected.
12
