The prospectus containing information for the Privileged Assets(R) Select
Annuity filed electronically in Registrant's Post-Effective Amendment No. 5 to
Registration Statement No. 333-00041 on Form N-4, filed on or about April 27,
2000, is incorporated by reference.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
for
PRIVILEGED ASSETS(R) SELECT ANNUITY
ACL VARIABLE ANNUITY ACCOUNT 1
May 1, 2000
Revised as of July 21, 2000
ACL Variable Annuity Account 1 is a separate account established and maintained
by American Centurion Life Assurance Company (American Centurion Life).
This Statement of Additional Information (SAI) is not a prospectus. It should be
read together with the prospectus dated the same date as this SAI, which may be
obtained by writing or calling us at the address and telephone number below. The
prospectus is incorporated in this SAI by reference.
American Centurion Life Assurance Company
20 Madison Avenue Extension
Albany, NY 12203
518-452-4150 (Albany area)
800-633-3565
<PAGE>
TABLE OF CONTENTS
Performance Information.................................................p. 3
Calculating Annuity Payouts.............................................p. 6
Rating Agencies.........................................................p. 6
Principal Underwriter...................................................p. 7
Independent Auditors....................................................p. 7
Financial Statements
<PAGE>
PERFORMANCE INFORMATION
------------------------------------------------------------------------------
The subaccounts may quote various performance figures to illustrate past
performance. We base total return and current yield quotations (if applicable)
on standardized methods of computing performance as required by the Securities
and Exchange Commission (SEC). An explanation of the methods used to compute
performance follows below.
Average Annual Total Return
We will express quotations of average annual total return for the subaccounts in
terms of the average annual compounded rate of return of a hypothetical
investment in the certificate over a period of one, five and ten years (or, if
less, up to the life of the subaccounts), calculated according to the following
formula:
P(1+T)n = ERV
where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = Ending Redeemable Value of a hypothetical $1,000 payment
made at the beginning of the period, at the end of the
period (or fractional portion thereof)
We calculated the following performance figures on the basis of historical
performance of each fund. We show actual performance from the date the
subaccounts began investing in the funds. We also show performance from the
commencement date of the funds as if the certificate existed at that time, which
it did not. Although we base performance figures on historical earnings, past
performance does not guarantee future results.
<PAGE>
<TABLE>
<CAPTION>
Average Annual Total Return For Periods Ending Dec. 31, 1999
Performance since
commencement of the Performance since
subaccount commencement of the Fund**
Since
Subaccount 1 Year commencement Since
Investing In: 1 Year 5 Years 10 Years commencement
------------------------------------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
AXPSM VARIABLE PORTFOLIO %
DSI Bond Fund (12/96; 10/81)* 0.69% 2.81% 0.69% 6.94% 7.10% 9.62%
DCR Capital Resource Fund (12/96; 22.52 21.34 22.52 20.15 14.36 14.83
10/81)
DMS Cash Management Fund (12/96; 10/81) 3.69 3.96 3.69 4.07 3.86 5.53
DIE International Fund (12/96; 1/92) 44.18 18.81 44.18 15.04 -- 12.25
DMG Managed Fund (12/96; 4/86) 13.70 14.85 13.70 17.04 12.41 11.76
DAG Strategy Aggressive Fund (12/96; 69.33 23.65 69.33 23.56 -- 15.86
1/92)
AMERICAN CENTURY VARIABLE
PORTFOLIOS, INC.
DGR VP Capital Appreciation (12/96; 62.89 13.19 62.89 13.17 10.28 10.92
11/87)
DVL VP Value (12/96; 5/96) -1.84 8.68 -1.84 -- -- 10.00
INVESCO
DII VIF - Equity Income Fund (12/96; 13.70 17.52 13.70 20.60 -- 19.04
8/94)
JANUS ASPEN SERIES
DSG Growth Portfolio: Institutional 42.55 31.59 42.55 28.60 -- 23.03
Shares (12/96; 9/93)
DWG Worldwide Growth Portfolio: 62.82 34.59 62.82 32.27 -- 28.41
Institutional Shares (12/96; 9/93)
WARBURG PINCUS TRUST
DVC Global Post-Venture Capital 61.87 22.44 61.87 -- -- 20.58
Portfolio (12/96; 9/96)
</TABLE>
* (Commencement dates of the subaccounts; Commencement dates of the Funds)
** Current applicable charges deducted from fund performance include a $30
administrative charge and a 1% mortality and expense risk fee.
Cumulative Total Return
Cumulative total return represents the cumulative change in the value of an
investment for a given period (reflecting change in a subaccount's accumulation
unit value). We compute cumulative total return by using the following formula:
ERV - P
---------
P
where: P = a hypothetical initial payment of $1,000
ERV = Ending Redeemable Value of a hypothetical $1,000
payment made at the beginning of the period, at the
end of the period (or fractional portion thereof).
Total return figures assume you surrender the entire certificate value at the
end of the one, five, and ten year periods (or, if less, up to the life of the
subaccount). In addition, total return figures reflect the deduction of all
other applicable charges including the administrative charge and the mortality
and expense risk fee.
<PAGE>
Calculation of Yield for Subaccounts Investing in Money Market Funds
Annualized Simple Yield:
For the subaccounts investing in money market funds, we base quotations of
simple yield on:
(a) the change in the value of a hypothetical subaccount (exclusive of
capital changes and income other than investment income) at the
beginning of a particular seven-day period;
(b) less a pro rata share of the subaccount expenses accrued over the
period;
(c) dividing this difference by the value of the subaccount at the
beginning of the period to obtain the base period return; and
(d) multiplying the base period return by 365/7.
The subaccount's value includes:
o any declared dividends,
o the value of any shares purchased with dividends paid during the period, and
o any dividends declared for such shares.
It does not include any realized or unrealized gains or losses.
Annualized Compound Yield:
We calculate compound yield using the base period return described above, which
we then compound according to the following formula:
Compound Yield = [(Base Period Return + 1)365/7] -1
Annualized Yields Based on the Seven-Day Period Ending Dec. 31, 1999
Subaccount Investing In: Simple Yield Compound Yield
---------- ------------- ------------ --------------
DMS AXPSM Variable Portfolio - 5.01% 5.14%
Cash Management Fund
You must consider (when comparing an investment in subaccounts investing in
money market funds with fixed annuities) that fixed annuities often provide an
agreed-to or guaranteed yield for a stated period of time, whereas the
subaccount's yield fluctuates. In comparing the yield of the subaccount to a
money market fund, you should consider the different services that the
certificate provides.
Annualized Yield for Subaccounts Investing in Income Funds
For the subaccounts investing in income funds, we base quotations of yield on
all investment income earned during a particular 30-day period, less expenses
accrued during the period (net investment income) and compute it by dividing net
investment income per accumulation unit by the value of an accumulation unit on
the last day of the period, according to the following formula:
YIELD = 2[( a-b + 1)6 - 1]
----
cd
where: a = dividends and investment income earned during the period
b = expenses accrued for the period (net of reimbursements)
c = the average daily number of accumulation units outstanding
during the period that were entitled to receive dividends
d = the maximum offering price per accumulation unit on the last
day of the period
<PAGE>
The subaccount earns yield from the increase in the net asset value of shares of
the fund in which it invests and from dividends declared and paid by the fund,
which are automatically invested in shares of the fund.
Annualized Yield Based on the 30-Day Period Ended Dec. 31, 1999
Subaccount Investing In: Yield
---------- ------------- -----
DSI AXPSM Variable Portfolio - Bond Fund 7.47%
The yield on the subaccount's accumulation unit may fluctuate daily and does not
provide a basis for determining future yields.
Independent rating or statistical services or publishers or publications such as
those listed below may quote subaccount performance, compare it to rankings,
yields or returns, or use it in variable annuity accumulation or settlement
illustrations they publish or prepare.
The Bank Rate Monitor National Index, Barron's, Business Week, CDA
Technologies, Donoghue's Money Market Fund Report, Financial Services
Week, Financial Times, Financial World, Forbes, Fortune, Global
Investor, Institutional Investor, Investor's Business Daily,
Kiplinger's Personal Finance, Lipper Analytical Services, Money,
Morningstar, Mutual Fund Forecaster, Newsweek, The New York Times,
Personal Investor, Stanger Report, Sylvia Porter's Personal Finance,
USA Today, U.S. News & World Report, The Wall Street Journal and
Wiesenberger Investment Companies Service.
CALCULATING ANNUITY PAYOUTS
We guarantee the fixed annuity payout amounts. Once calculated, the payout will
remain the same and never change. To calculate annuity payouts we:
o take the total value of the fixed account and the subaccounts at the
annuity start date or the date selected to begin receiving annuity payouts;
then
o using an annuity table we apply the value according to the annuity payout
plan selected.
The annuity payout table we use will be the one in effect at the time chosen to
begin annuity payouts. The table will be equal to or greater than the table in
the contract.
RATING AGENCIES
The following chart reflects the ratings given to us by independent rating
agencies. These agencies evaluate the financial soundness and claims-paying
ability of insurance companies based on a number of different factors. This
information does not relate to the management or performance of the subaccounts
of the certificate. This information relates only to the fixed account and
reflects our ability to make annuity payouts and to pay death benefits and other
distributions from the certificate.
Rating Agency Rating
----------------------- -----------------------
A.M. Best A+
(Superior)
Duff & Phelps AAA
<PAGE>
A.M. Best's superior rating reflects our strong distribution network, favorable
overall balance sheet, consistently improving profitability, adequate level of
capitalization and asset/liability management expertise.
Duff & Phelps rating reflects our consistently excellent profitability record,
leadership position in chosen markets, stable operating leverage and effective
use of asset/liability management techniques.
PRINCIPAL UNDERWRITER
The principal underwriter for the contract is American Express Financial
Advisors Inc. (AEFA) which offers the contract on a continuous basis.
INDEPENDENT AUDITORS
The financial statements appearing in this SAI have been audited by Ernst &
Young LLP (1400 Pillsbury Center, 200 South Sixth Street, Minneapolis, MN
55402), independent auditors, as stated in their report appearing herein.
FINANCIAL STATEMENTS
<PAGE>
ACL Variable Annuity Account 1
Annual Financial Information
Report of Independent Auditors
The Board of Directors
American Centurion Life Assurance Company
We have audited the accompanying individual and combined statements of net
assets of the segregated asset subaccounts of ACL Variable Annuity Account 1
(comprised of subaccounts DSI, DCR, DMS, DIE, DMG, DAG, DGR, DVL, DII, DSG, DWG,
and DVC) as of December 31, 1999, and the related statements of operations for
the year then ended, and statements of changes in net assets for each of the two
years in the period then ended. These financial statements are the
responsibility of the management of American Centurion Life Assurance Company.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 at December 31, 1999 with
the affiliated and unaffiliated mutual fund managers. 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 individual and combined financial position of the
segregated asset subaccounts of ACL Variable Annuity Account 1 (as described
above) at December 31, 1999, and the individual and combined results of their
operations and changes in their net assets for the periods described above, in
conformity with accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
Minneapolis, Minnesota
March 17, 2000
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets DSI DCR DMS DIE
Investments in shares of mutual funds and portfolios:
<S> <C> <C> <C> <C>
at cost $ 21,893 $ 130,675 $ 51,918 $ 14,606
-------- --------- -------- --------
at market value $ 19,972 $ 147,549 $ 51,918 $ 18,063
Dividends receivable 122 -- 204 --
Accounts receivable from American Centurion Life
for certificate purchase paymennts -- 123 -- --
Receivable from mutual funds and portfolios
for share redemptions -- -- -- --
Total assets 20,094 147,672 52,122 18,063
Liabilities
Payable to American Centurion Life for:
Mortality and expense risk fee 16 125 39 15
Certificate terminations -- -- -- --
Payable to mutual funds and portfolios
for investments purchased -- -- -- --
---- ----- ---- ----
Total liabilities 16 125 39 15
-- --- -- --
Net assets applicable to contracts
in accumulation period $ 20,078 $ 147,547 $ 52,083 $ 18,048
======== ========= ======== ========
Accumulation units outstanding 18,703 81,627 46,428 10,649
====== ====== ====== ======
Net asset value per accumulation unit $ 1.07 $ 1.81 $ 1.12 $ 1.69
====== ====== ====== ======
Assets DMG DAG
Investments in shares of mutual funds and portfolios:
at cost $ 99,331 $ 74,287
-------- --------
at market value $ 105,903 $ 110,353
Dividends receivable -- --
Accounts receivable from American Centurion Life
for certificate purchase paymennts 123 10
Receivable from mutual funds and portfolios
for share redemptions -- --
------ -------
Total assets 106,026 110,363
======= =======
Liabilities
Payable to American Centurion Life for:
Mortality and expense risk fee 92 93
Certificate terminations -- --
Payable to mutual funds and portfolios
for investments purchased -- --
---- ----
Total liabilities 92 93
-- --
Net assets applicable to contracts
in accumulation period $ 105,934 $ 110,270
========= =========
Accumulation units outstanding 69,340 57,585
====== ======
Net asset value per accumulation unit $ 1.53 $ 1.91
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Net Assets
December 31, 1999
Segregated Asset Subaccounts
Assets DGR DVL DII DSG
Investments in shares of mutual funds
and portfolios:
<S> <C> <C> <C> <C>
at cost $ 45,163 $ 71,837 $ 265,278 $ 743,242
-------- -------- --------- ---------
at market value $ 72,138 $ 67,951 $ 318,667 $ 1,095,504
Dividends receivable -- -- -- --
Accounts receivable from American Centurion Life
for certificate purchase paymennts 1,480 890 788 2,107
Receivable from mutual funds and portfolios
for share redemptions 59 57 273 957
-- -- --- ---
----- ------ ------- --------
Total assets 73,677 68,898 319,728 1,098,568
====== ====== ======= =========
Liabilities
Payable to American Centurion Life for:
Mortality and expense risk fee 59 57 273 957
Certificate terminations -- -- -- --
Payable to mutual funds and portfolios
for investments purchased 1,480 890 788 2,107
----- --- --- -----
Total liabilities 1,539 947 1,061 3,064
----- --- ----- -----
Net assets applicable to contracts
in accumulation period $ 72,138 $ 67,951 $ 318,667 $ 1,095,504
======== ======== ========= ===========
Accumulation units outstanding 49,296 52,683 194,220 472,464
====== ====== ======= =======
Net asset value per accumulation unit $ 1.46 $ 1.29 $ 1.64 $ 2.32
====== ====== ====== ======
Combined
Variable
Assets DWG DVC Account
Investments in shares of mutual funds
and portfolios:
at cost $ 819,055 $ 67,252 $ 2,404,537
--------- -------- -----------
at market value $ 1,174,163 $ 126,272 $ 3,308,453
Dividends receivable -- -- 326
Accounts receivable from American Centurion Life
for certificate purchase paymennts 844 -- 6,365
--- ------ -----
Receivable from mutual funds and portfolios
for share redemptions 956 152 2,454
--- --- -----
Total assets 1,175,963 126,424 3,317,598
========= ======= =========
Liabilities
Payable to American Centurion Life for:
Mortality and expense risk fee 956 108 2,790
Certificate terminations -- 44 44
Payable to mutual funds and portfolios
for investments purchased 844 -- 6,109
--- ---- -----
Total liabilities 1,800 152 8,943
Net assets applicable to contracts
in accumulation period $ 1,174,163 $ 126,272 $ 3,308,655
=========== ========= ===========
Accumulation units outstanding 462,165 67,479
======= ======
Net asset value per accumulation unit $ 2.54 $ 1.87
====== ======
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Operations
Year ended December 31, 1999
Segregated Asset Subaccounts
Investment income DSI DCR DMS DIE
<S> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $ 1,283 $ 13,119 $ 2,278 $ 2,295
Mortality and expense risk fee 186 1,053 484 147
--- ----- --- ---
Investment income (loss) - net 1,097 12,066 1,794 2,148
===== ====== ===== =====
Realized and unrealized gain (loss)
on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 7,224 15,876 437,245 11,249
Cost of investments sold 7,706 13,843 437,245 9,960
----- ------ ------- -----
Net realized gain (loss) on investments (482) 2,033 -- 1,289
Net change in unrealized appreciation or
depreciation of investments (463) 10,440 (2) 2,223
---- ------ -- -----
Net gain (loss) on investments (945) 12,473 (2) 3,512
---- ------ -- -----
Net increase (decrease) in net assets
resulting from operations $ 152 $ 24,539 $ 1,792 $ 5,660
===== ======== ======= =======
Investment income DMG DAG
Dividend income from mutual funds and portfolios $ 7,552 $ 8,266
Mortality and expense risk fee 987 771
--- ---
Investment income (loss) - net 6,565 7,495
===== =====
Realized and unrealized gain (loss)
on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 20,545 31,112
Cost of investments sold 19,969 28,871
------ ------
Net realized gain (loss) on investments 576 2,241
Net change in unrealized appreciation or
depreciation of investments 6,094 36,821
----- ------
Net gain (loss) on investments 6,670 39,062
----- ------
Net increase (decrease) in net assets
resulting from operations $ 13,235 $ 46,557
======== ========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Operations
Year ended December 31, 1999
Segregated Asset Subaccounts
Investment income DGR DVL DII DSG
<S> <C> <C> <C> <C>
Dividend income from mutual funds and portfolios $-- $ 6,955 $ 5,445 $ 7,066
Mortality and expense risk fee 466 672 3,069 9,482
--- --- ----- -----
Investment income (loss) - net (466) 6,283 2,376 (2,416)
==== ===== ===== ======
Realized and unrealized gain (loss)
on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 15,637 7,366 92,164 443,045
Cost of investments sold 14,409 7,130 76,732 344,134
------ ----- ------ -------
Net realized gain (loss) on investments 1,228 236 15,432 98,911
Net change in unrealized appreciation or
depreciation of investments 24,787 (7,626) 23,834 251,569
------ ------ ------ -------
Net gain (loss) on investments 26,015 (7,390) 39,266 350,480
------ ------ ------ -------
Net increase (decrease) in net assets
resulting from operations $ 25,549 $ (1,107) $ 41,642 $ 348,064
======== ======== ======== =========
Combined
Variable
Investment income DWG DVC Account
Dividend income from mutual funds and portfolios $ 1,122 $-- $ 55,381
Mortality and expense risk fee 6,486 848 24,651
----- --- ------
Investment income (loss) - net (5,364) (848) 30,730
====== ==== ======
Realized and unrealized gain (loss)
on investments - net
Realized gain (loss) on sales of investments
in mutual funds and portfolios:
Proceeds from sales 672,427 22,684 1,776,574
Cost of investments sold 604,660 18,578 1,583,237
------- ------ ---------
Net realized gain (loss) on investments 67,767 4,106 193,337
Net change in unrealized appreciation or
depreciation of investments 306,625 43,976 698,278
------- ------ -------
Net gain (loss) on investments 374,392 48,082 891,615
------- ------ -------
Net increase (decrease) in net assets
resulting from operations $ 369,028 $ 47,234 $ 922,345
========= ======== =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Changes in Net Assets
Year ended December 31, 1999
Segregated Asset Subaccounts
Operations DSI DCR DMS DIE
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 1,097 $ 12,066 $ 1,794 $ 2,148
Net realized gain (loss) on investments (482) 2,033 -- 1,289
Net change in unrealized appreciation or
depreciation of investments (463) 10,440 (2) 2,223
---- ------ -- -----
Net increase (decrease) in net assets
resulting from operations 152 24,539 1,792 5,660
=== ====== ===== =====
Certificate transactions
Certificate purchase payments 2,618 19,672 350,846 2,003
Net transfers* (4,761) 35,444 (484,337) (6,162)
Certificate charges (30) (136) (11) (57)
Certificate terminations:
Surrender benefits (322) (7,144) (57) (442)
Death benefits -- -- -- --
---- ----- ------ ----
Increase (decrease) from certificate transactions (2,495) 47,836 (133,559) (4,658)
------ ------ -------- ------
Net assets at beginning of year 22,421 75,172 183,850 17,046
------ ------ ------- ------
Net assets at end of year $ 20,078 $ 147,547 $ 52,083 $ 18,048
======== ========= ======== ========
Accumulation unit activity
Units outstanding at beginning of year 21,035 50,716 169,770 14,542
Certificate purchase payments 2,458 12,425 317,757 1,594
Net transfers* (4,456) 22,914 (441,037) (5,064)
Certificate charges (29) (85) (10) (44)
Certificate terminations:
Surrender benefits (305) (4,343) (52) (379)
Death benefits -- -- -- --
---- ----- ------ -----
Units outstanding at end of year 18,703 81,627 46,428 10,649
====== ====== ====== ======
Operations DMG DAG
Investment income (loss) - net $ 6,565 $ 7,495
Net realized gain (loss) on investments 576 2,241
Net change in unrealized appreciation or
depreciation of investments 6,094 36,821
----- ------
Net increase (decrease) in net assets
resulting from operations 13,235 46,557
====== ======
Certificate transactions
Certificate purchase payments 12,737 7,874
Net transfers* 11,182 (9,954)
Certificate charges (150) (147)
Certificate terminations:
Surrender benefits (15,884) (6,966)
Death benefits -- --
---- -----
Increase (decrease) from certificate transactions 7,885 (9,193)
----- ------
Net assets at beginning of year 84,814 72,906
------ ------
Net assets at end of year $ 105,934 $ 110,270
========= =========
Accumulation unit activity
Units outstanding at beginning of year 62,875 64,794
Certificate purchase payments 9,145 6,454
Net transfers* 8,233 (9,230)
Certificate charges (108) (121)
Certificate terminations:
Surrender benefits (10,805) (4,312)
Death benefits -- --
---- -----
Units outstanding at end of year 69,340 57,585
====== ======
*Includes transfer activity from (to) other subaccounts and transfers from (to)
American Centurion Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Changes in Net Assets
Year ended December 31, 1999
Segregated Asset Subaccounts
Operations DGR DVL DII DSG
<S> <C> <C> <C> <C>
Investment income (loss) - net $ (466) $ 6,283 $ 2,376 $ (2,416)
Net realized gain (loss) on investments 1,228 236 15,432 98,911
Net change in unrealized appreciation or
depreciation of investments 24,787 (7,626) 23,834 251,569
------ ------ ------ -------
Net increase (decrease) in net assets
resulting from operations 25,549 (1,107) 41,642 348,064
====== ====== ====== =======
Certificate transactions
Certificate purchase payments 6,814 4,773 25,209 67,877
Net transfers* 2,976 1,057 8,922 144,587
Certificate charges (103) (56) (323) (570)
Certificate terminations:
Surrender benefits (9,293) (2,056) (75,247) (37,478)
Death benefits -- -- -- --
----- ------ ----- ------
Increase (decrease) from certificate transactions 394 3,718 (41,439) 174,416
--- ----- ------- -------
Net assets at beginning of year 46,195 65,340 318,464 573,024
------ ------ ------- -------
Net assets at end of year $ 72,138 $ 67,951 $ 318,667 $ 1,095,504
======== ======== ========= ===========
Accumulation unit activity
Units outstanding at beginning of year 51,413 49,686 220,592 352,386
Certificate purchase payments 6,372 3,570 16,213 36,385
Net transfers* 1,639 933 5,388 104,110
Certificate charges (109) (41) (210) (315)
Certificate terminations:
Surrender benefits (10,019) (1,465) (47,763) (20,102)
Death benefits -- -- -- --
----- ------ ------- -----
Units outstanding at end of year 49,296 52,683 194,220 472,464
====== ====== ======= =======
Combined
Variable
Operations DWG DVC Account
Investment income (loss) - net $ (5,364) $ (848) $ 30,730
Net realized gain (loss) on investments 67,767 4,106 193,337
Net change in unrealized appreciation or
depreciation of investments 306,625 43,976 698,278
------- ------ -------
Net increase (decrease) in net assets
resulting from operations 369,028 47,234 922,345
======= ====== =======
Certificate transactions
Certificate purchase payments 45,315 5,669 551,407
Net transfers* 276,262 (12,393) (37,177)
Certificate charges (585) (40) (2,208)
Certificate terminations:
Surrender benefits (41,999) (563) (197,451)
Death benefits (2,756) -- (2,756)
------ ------ ------
Increase (decrease) from certificate transactions 276,237 (7,327) 311,815
------- ------ -------
Net assets at beginning of year 528,898 86,365 2,074,495
------- ------ ---------
Net assets at end of year $ 1,174,163 $ 126,272 $ 3,308,655
=========== ========= ===========
Accumulation unit activity
Units outstanding at beginning of year 339,084 74,697
Certificate purchase payments 25,191 4,615
Net transfers* 123,216 (11,328)
Certificate charges (336) (33)
Certificate terminations:
Surrender benefits (23,350) (472)
Death benefits (1,640) --
------ -----
Units outstanding at end of year 462,165 67,479
======= ======
*Includes transfer activity from (to) other subaccounts and transfers from (to)
American Centurion Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Changes in Net Assets
Year ended December 31, 1998
Segregated Asset Subaccounts
Operations DSI DCR DMS DIE
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 1,361 $ 4,304 $ 4,761 $ 52
Net realized gain (loss) on investments (257) 94 1 223
Net change in unrealized appreciation or
depreciation of investments (1,222) 5,923 2 1,882
------ ----- - -----
Net increase (decrease) in net assets
resulting from operations (118) 10,321 4,764 2,157
==== ====== ===== =====
Certificate transactions
Certificate purchase payments 3,159 6,247 423,167 2,107
Net transfers* 5,586 34,931 (440,645) (1,009)
Certificate charges (32) (80) (2) (54)
Certificate terminations:
Surrender benefits (2,005) (4,076) -- (886)
------ ------ ----
Increase (decrease) from certificate transactions 6,708 37,022 (17,480) 158
----- ------ ------- ---
Net assets at beginning of year 15,831 27,829 196,566 14,731
------ ------ ------- ------
Net assets at end of year $ 22,421 $ 75,172 $ 183,850 $ 17,046
======== ======== ========= ========
Accumulation unit activity
Units outstanding at beginning of year 14,926 23,022 188,943 14,411
Certificate purchase payments 2,938 4,760 399,642 1,864
Net transfers* 5,041 26,094 (418,814) (871)
Certificate charges (30) (64) (1) (48)
Certificate terminations:
Surrender benefits (1,840) (3,096) -- (814)
------ ------ ----
Units outstanding at end of year 21,035 50,716 169,770 14,542
====== ====== ======= ======
Operations DMG DAG
Investment income (loss) - net $ 8,558 $ 4,027
Net realized gain (loss) on investments 2,697 1,885
Net change in unrealized appreciation or
depreciation of investments 824 (647)
--- ----
Net increase (decrease) in net assets
resulting from operations 12,079 5,265
====== =====
Certificate transactions
Certificate purchase payments 6,484 6,904
Net transfers* 17,594 14,251
Certificate charges (105) (117)
Certificate terminations:
Surrender benefits (2,814) (239)
------ ----
Increase (decrease) from certificate transactions 21,159 20,799
------ ------
Net assets at beginning of year 51,576 46,842
------ ------
Net assets at end of year $ 84,814 $ 72,906
======== ========
Accumulation unit activity
Units outstanding at beginning of year 43,796 42,084
Certificate purchase payments 5,255 6,256
Net transfers* 16,151 16,789
Certificate charges (84) (99)
Certificate terminations:
Surrender benefits (2,243) (236)
------ ----
Units outstanding at end of year 62,875 64,794
====== ======
*Includes transfer activity from (to) other subaccounts and transfers from (to)
American Centurion Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Statements of Changes in Net Assets
Year ended December 31, 1998
Segregated Asset Subaccounts
Operations DGR DVL DII DSG
<S> <C> <C> <C> <C>
Investment income (loss) - net $ 1,859 $ 3,001 $ 13,515 $ 23,815
Net realized gain (loss) on investments (6,909) 569 3,090 (4,862)
Net change in unrealized appreciation or
depreciation of investments 2,844 (1,870) 15,916 82,115
----- ------ ------ ------
Net increase (decrease) in net assets
resulting from operations (2,206) 1,700 32,521 101,068
====== ===== ====== =======
Certificate transactions
Certificate purchase payments 6,866 4,082 20,730 35,395
Net transfers* 2,832 18,238 74,558 175,149
Certificate charges (89) (9) (171) (204)
Certificate terminations:
Surrender benefits -- -- (4,747) (10,164)
----- ------- ------ -------
Increase (decrease) from certificate transactions 9,609 22,311 90,370 200,176
----- ------ ------ -------
Net assets at beginning of year 38,792 41,329 195,573 271,780
------ ------ ------- -------
Net assets at end of year $ 46,195 $ 65,340 $ 318,464 $ 573,024
======== ======== ========= =========
Accumulation unit activity
Units outstanding at beginning of year 41,823 32,637 154,631 229,764
Certificate purchase payments 7,620 3,035 15,382 26,249
Net transfers* 2,066 14,021 54,277 104,139
Certificate charges (96) (7) (126) (155)
Certificate terminations:
Surrender benefits -- -- (3,572) (7,611)
----- ------ ------ ------
Units outstanding at end of year 51,413 49,686 220,592 352,386
====== ====== ======= =======
Combined
Variable
Operations DWG DVC Account
Investment income (loss) - net $ 13,700 $ (771) $ 55,119
Net realized gain (loss) on investments 29,016 (12) 20,892
Net change in unrealized appreciation or
depreciation of investments 31,627 5,155 135,787
------ ----- -------
Net increase (decrease) in net assets
resulting from operations 74,343 4,372 211,798
====== ===== =======
Certificate transactions
Certificate purchase payments 32,002 4,027 103,102
Net transfers* 134,946 7,404 413,127
Certificate charges (465) (34) (972)
Certificate terminations:
Surrender benefits (18,342) (246) (33,499)
------- ---- -------
Increase (decrease) from certificate transactions 148,141 11,151 481,758
------- ------ -------
Net assets at beginning of year 306,414 70,842 924,730
------- ------ -------
Net assets at end of year $ 528,898 $ 86,365 $ 1,618,286
========= ======== ===========
Accumulation unit activity
Units outstanding at beginning of year 251,604 64,614
Certificate purchase payments 22,301 3,737
Net transfers* 78,497 6,612
Certificate charges (336) (30)
Certificate terminations:
Surrender benefits (12,982) (236)
------- ----
Units outstanding at end of year 339,084 74,697
======= ======
*Includes transfer activity from (to) other subaccounts and transfers from (to)
American Centurion Life's fixed account.
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACL Variable Annuity Account 1
Notes to Financial Statements
1. ORGANIZATION
ACL Variable Annuity Account 1 (the Account) was established under New York law
on Feb. 9, 1995 and the subaccounts are registered together as a single unit
investment trust of American Centurion Life Assurance Company (American
Centurion Life) under the Investment Company Act of 1940, as amended (the 1940
Act). Operations of the Account commenced on Jan. 1, 1997.
The Account is comprised of various subaccounts. Each subaccount invests
exclusively in shares of the following funds or portfolios (collectively, the
Funds), which are registered under the 1940 Act as diversified, open-end
management investment companies and have the following investment managers.
Subaccount Invests exclusively in shares of Investment Manager
<S> <C> <C>
DSI AXP SM Variable Portfolio-- Bond Fund IDS Life Insurance Company 1
DCR AXPSM Variable Portfolio-- Capital Resource Fund IDS Life Insurance Company 1
DMS AXP SM Variable Portfolio-- Cash Management Fund IDS Life Insurance Company 1
DIE AXPSM Variable Portfolio-- International Fund IDS Life Insurance Company 2
DMG AXPSM Variable Portfolio-- Managed Fund IDS Life Insurance Company 1
DAG AXPSM Variable Portfolio-- Strategy Aggressive IDS Life Insurance Company 1
Fund
DGR American Century VP Capital Appreciation American Century Investment Management, Inc.
DVL American Century VP Value American Century Investment Management, Inc.
DII INVESCO VIF -- Equity Income Fund INVESCO Funds Group, Inc.
DSG Janus Aspen Series Growth Portfolio: Institutional Janus Capital Corporation
Shares
DWG Janus Aspen Series Worldwide Growth Portfolio: Janus Capital Corporation
Institutional Shares
DVC Warburg Pincus Trust-- Global Post-Venture Capital Warburg Pincus Asset Management, Inc.
Portfolio
1 American Express Financial Corporation (AEFC) is the investment advisor.
2 AEFC is the investment advisor. American Express Asset Management
International Inc. is the sub-investment advisor.
The assets of each subaccount of the Account are not chargeable with liabilities
arising out of the business conducted by any other segregated asset account or
by American Centurion Life.
American Centurion Life serves as issuer of the contracts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in the Funds
Investments in shares of the Funds are stated at market value which is the net
asset value per share as determined by the respective Funds. Investment
transactions are accounted for on the date the shares are purchased and sold.
The cost of investments sold and redeemed is determined on the average cost
method. Dividend distributions received from the Funds are reinvested in
additional shares of the Funds and are recorded as income by the subaccounts on
the ex-dividend date.
Unrealized appreciation or depreciation of investments in the accompanying
financial statements represents the subaccounts' share of the Funds'
undistributed net investment income, undistributed realized gain or loss and the
unrealized appreciation or depreciation on their investment securities.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increase and decrease in net assets from
operations during the period. Actual results could differ from those estimates.
Federal Income Taxes
American Centurion Life is taxed as a life insurance company. The Account is
treated as part of American Centurion Life for federal income tax purposes.
Under existing tax law, no income taxes are payable with respect to any
investment income of the Account.
3. MORTALITY AND EXPENSE RISK FEE
American Centurion Life makes contractual assurances to the Account that
possible future adverse changes in administrative expenses and mortality
experience of the contract owners and annuitants will not affect the Account.
The mortality and expense risk fee paid to American Centurion Life is computed
daily and is equal, on an annual basis, to 1% of the average daily net assets of
the subaccounts.
4. CERTIFICATE ADMINISTRATIVE CHARGES
An annual charge of $30 is deducted from the certificate value of each
Privileged Assets Select Annuity certificate. The annual charges are deducted on
each certificate anniversary for administrative services provided to the Account
by American Centurion Life. The deduction is allocated to the subaccounts on a
pro-rata basis. American Centurion Life does not anticipate that it will make
any profit on this charge. If the total purchase payments (less partial
surrenders) on a certificate anniversary are at least $10,000 the charge will be
waived. American Centurion Life reserves the right to increase the charge in the
future, however, in no event will the charge exceed $50 per year.
5. INVESTMENT IN SHARES
The subaccounts' investment in shares of the Funds as of Dec. 31, 1999 were as follows:
Subaccount Investment Shares NAV
<S> <C> <C> <C>
DSI AXP SM Variable Portfolio-- Bond Fund 1,894 $10.54
DCR AXPSM Variable Portfolio-- Capital Resource Fund 4,054 36.40
DMS AXP SM Variable Portfolio-- Cash Management Fund 51,924 1.00
DIE AXPSM Variable Portfolio-- International Fund 932 19.38
DMG AXPSM Variable Portfolio-- Managed Fund 5,344 19.82
DAG AXPSM Variable Portfolio-- Strategy Aggressive Fund 4,614 23.92
DGR American Century VP Capital Appreciation 4,861 14.84
DVL American Century VP Value 11,420 5.95
DII INVESCO VIF-- Equity Income Fund 15,167 21.01
DSG Janus Aspen Series Growth Portfolio: Institutional Shares 32,556 33.65
DWG Janus Aspen Series Worldwide Growth Portfolio: Institutional 24,590 47.75
Shares
DVC Warburg Pincus Trust-- Global Post-Venture Capital Portfolio 6,556 19.26
6. INVESTMENT TRANSACTIONS
The subaccounts' purchases of Funds' shares, including reinvestment of dividend
distributions, were as follows:
Year ended Dec. 31,
Subaccount Investment 1999 1998
<S> <C> <C> <C>
DSI AXP SM Variable Portfolio-- Bond Fund $ 5,720 $ 44,944
DCR AXPSM Variable Portfolio-- Capital Resource Fund 75,780 47,786
DMS AXP SM Variable Portfolio-- Cash Management Fund 305,315 844,529
DIE AXPSM Variable Portfolio-- International Fund 8,754 5,319
DMG AXPSM Variable Portfolio-- Managed Fund 34,964 90,990
DAG AXPSM Variable Portfolio-- Strategy Aggressive Fund 29,497 67,818
DGR American Century VP Capital Appreciation 15,526 48,257
DVL American Century VP Value 17,303 50,336
DII INVESCO VIF-- Equity Income Fund 52,828 157,145
DSG Janus Aspen Series Growth Portfolio: Institutional Shares 614,577 672,558
DWG Janus Aspen Series Worldwide Growth Portfolio: 942,876 1,145,676
Institutional Shares
DVC Warburg Pincus Trust-- Global Post-Venture Capital 14,436 10,956
Portfolio
Combined Variable Account $2,117,576 $3,186,314
7. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of American Centurion Life
and the Account. All of the major systems used by the American Centurion Life
and the Account are maintained by AEFC and are utilized by multiple subsidiaries
and affiliates of AEFC. American Centurion Life's businesses are heavily
dependent upon AEFC's computer systems and have significant interactions with
systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Centurion Life, was conducted to identify
the major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing software
and the purchase of new software. As of Dec. 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of Dec. 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on American Centurion Life's and the
Account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Centurion Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
</TABLE>
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
AMERICAN CENTURION LIFE ASSURANCE COMPANY
We have audited the accompanying balance sheets of American Centurion Life
Assurance Company (a wholly-owned subsidiary of IDS Life Insurance Company) as
of December 31, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the 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 auditing standards generally accepted
in the United States. 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. 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 Centurion Life
Assurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
February 3, 2000
Minneapolis, Minnesota
--------------------------------------------------------------------------------
1
<PAGE>
AMERICAN CENTURION LIFE ASSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31,
($ THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
ASSETS
------------------------------------------------------------
Investments:
Fixed maturities:
Held to maturity, at amortized cost
(fair value:
1999, $10,939; 1998, $14,307) $ 10,971 $ 13,894
Available for sale, at fair value
(amortized cost:
1999, $315,486; 1998, $269,483) 297,251 273,873
------------------
308,222 287,767
Mortgage loans on real estate 11,691 --
------------------------------------------------------------
Total investments 319,913 287,767
Cash and cash equivalents 7,159 13,992
Amounts recoverable from reinsurers 2,389 2,515
Accrued investment income 4,974 4,364
Deferred policy acquisition costs 16,823 12,864
Deferred income taxes 6,201 --
Other assets 77 69
Separate account assets 24,597 12,614
------------------------------------------------------------
Total assets $382,133 $334,185
LIABILITIES AND STOCKHOLDER'S EQUITY
------------------------------------------------------------
Liabilities:
Future policy benefits:
Fixed annuities $317,709 $268,348
Traditional life insurance 1,653 1,724
Disability income insurance 85 225
Policy claims and other policyholders'
funds 672 2,048
Deferred income taxes -- 1,758
Other liabilities 701 463
Separate account liabilities 24,597 12,614
------------------------------------------------------------
Total liabilities 345,417 287,180
Stockholder's equity:
Capital stock, $10 par value per
share;
100,000 shares authorized, issued
and outstanding 1,000 1,000
Additional paid-in capital 26,600 26,600
Accumulated other comprehensive (loss)
income:
Net unrealized securities (losses)
gains (11,102) 2,512
Retained earnings 20,218 16,893
------------------------------------------------------------
Total stockholder's equity 36,716 47,005
------------------------------------------------------------
Total liabilities and
stockholder's equity $382,133 $334,185
------------------------------------------------------------
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
2
<PAGE>
AMERICAN CENTURION LIFE ASSURANCE COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31,
($ THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Revenues:
Net investment income $23,693 $18,990 $13,331
Contractholder charges 760 568 318
Mortality and expense risk fees 242 87 8
Net realized gain on investments 153 39 25
----------------------------------------------------------------------
Total revenues 24,848 19,684 13,682
Benefits and expenses:
Death and other benefits on investment
contracts (117) 72 2
Interest credited on investment
contracts 15,290 12,838 8,887
Amortization of deferred policy
acquisition costs 1,413 624 114
Other operating expenses 2,511 2,260 1,324
----------------------------------------------------------------------
Total expenses 19,097 15,794 10,327
----------------------------------------------------------------------
Income before income taxes 5,751 3,890 3,355
Income taxes 2,426 1,574 1,389
----------------------------------------------------------------------
Net income $ 3,325 $ 2,316 $ 1,966
----------------------------------------------------------------------
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
3
<PAGE>
AMERICAN CENTURION LIFE ASSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
THREE YEARS ENDED DECEMBER 31, 1999
($ THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
TOTAL ADDITIONAL COMPREHENSIVE
STOCKHOLDER'S CAPITAL PAID-IN (LOSS) INCOME, RETAINED
EQUITY STOCK CAPITAL NET OF TAX EARNINGS
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $31,074 $1,000 $16,600 $ 863 $12,611
Comprehensive income:
Net income 1,966 -- -- -- 1,966
Unrealized holding losses arising
during the year, net of deferred
policy acquisition costs of $(259)
and taxes of $(1,231) 2,286 -- -- 2,286 --
Reclassification adjustment for gains
included in net income, net of tax
of $5 (10) -- -- (10) --
-------------------------------------------------------------------------------------------------------
Other comprehensive income 2,276 -- -- 2,276 --
-------------------------------------------------------------------------------------------------------
Comprehensive income 4,242
Capital contribution from parent 10,000 -- 10,000 -- --
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 35,316 1,000 16,600 3,139 14,577
Comprehensive income:
Net income 2,316 -- -- -- 2,316
Unrealized holding losses arising
During the year, net of deferred
policy acquisition costs of $135
and taxes of $327 (608) -- -- (646) --
Reclassification adjustment for gains
included in net income, net of tax
of $10 (19) -- -- 19 --
-------------------------------------------------------------------------------------------------------
Other comprehensive loss (627) -- -- (627) --
-------------------------------------------------------------------------------------------------------
Comprehensive income 1,689
Capital contribution from IDS Life 10,000 -- 10,000 -- --
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 47,005 1,000 26,600 2,512 16,893
Comprehensive income:
Net income 3,325 -- -- -- 3,325
Unrealized holding losses arising
During the year, net of deferred
policy acquisition costs of
$1,680, and taxes of $7,216 (13,401) -- -- (13,401) --
Reclassification adjustment for gains
included in net income, net of tax
of $114 (213) -- -- (213) --
-------------------------------------------------------------------------------------------------------
Other comprehensive loss (13,614) -- -- (13,614) --
-------------------------------------------------------------------------------------------------------
Comprehensive loss (10,289)
-------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $36,716 $1,000 $26,600 ($11,102) $20,218
-------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
--------------------------------------------------------------------------------
4
<PAGE>
AMERICAN CENTURION LIFE ASSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
($ THOUSANDS)
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,325 $ 2,316 $ 1,966
Adjustments to reconcile net income to
net cash used in operating
activities:
Change in amounts recoverable from
reinsurers 126 213 --
Change in accrued investment income (610) (1,244) (1,016)
Change in deferred policy
acquisition costs, net (2,279) (3,718) (5,175)
Change in other assets (8) 1,522 (1,536)
Change in liabilities for future
policy benefits for traditional
life and disability income
insurance (211) (160) 1
Change in policy claims and other
policyholders' funds (1,376) (257) 1,614
Deferred income tax (benefit)
provision (629) (295) 574
Change in other liabilities 238 (278) 707
(Accretion of discount) amortization
of premium, net (408) (46) 7
Net realized gain on investments (153) (39) (25)
Other, net (125) (1) 7
----------------------------------------------------------------------
Net cash used in operating
activities (2,110) (1,987) (2,876)
----------------------------------------------------------------------
Cash flows from investing activities:
Fixed maturities held to maturity:
Maturities 2,884 3,770 1,847
Fixed maturities available for sale:
Purchases (83,722) (87,699) (86,006)
Maturities 24,965 22,581 8,438
Sales 13,480 6,695 1,303
Other investments:
Purchases (11,744) --
Sales 53 -- --
Change in due to brokers -- (4,941) 24
----------------------------------------------------------------------
Net cash used in investing
activities (54,084) (59,594) (74,394)
----------------------------------------------------------------------
Cash flows from financing activities:
Activity related to investment
contracts:
Considerations received 69,806 78,367 82,656
Surrenders and other benefits (35,735) (29,388) (24,373)
Interest credited to account
balances 15,290 12,838 8,887
Capital contribution from parent -- 10,000 --
----------------------------------------------------------------------
Net cash provided by financing
activities 49,361 71,817 67,170
----------------------------------------------------------------------
Net (decrease) increase in cash and cash
equivalents (6,833) 10,236 (10,100)
Cash and cash equivalents at beginning
of year 13,992 3,756 13,856
----------------------------------------------------------------------
Cash and cash equivalents at end of year $ 7,159 $ 13,992 $ 3,756
----------------------------------------------------------------------
</TABLE>
See accompanying notes.
--------------------------------------------------------------------------------
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
American Centurion Life Assurance Company (the Company) is a stock life
insurance company that is domiciled in New York and licensed to transact
insurance business in New York, Alabama and Delaware. The Company's principal
product is deferred annuities which are issued primarily to individuals who are
New York residents. It offers single premium and installment premium deferred
annuities on both a fixed and variable dollar basis. Immediate annuities are
offered as well.
BASIS OF PRESENTATION
The Company is a wholly-owned subsidiary of IDS Life Insurance Company (IDS
Life), which is a wholly owned subsidiary of American Express Financial
Corporation (AEFC), which is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in conformity
with accounting principles generally accepted in the United States which vary in
certain respects from reporting practices prescribed or permitted by the New
York Department of Insurance (see Note 4).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS
Fixed maturities that the Company has both the positive intent and the ability
to hold to maturity are classified as held to maturity and carried at amortized
cost. All other fixed maturities are classified as available for sale and
carried at fair value. Unrealized gains and losses on securities classified as
available for sale are reported as a separate component of accumulated other
comprehensive (loss) income, net of deferred policy acquisition costs and
deferred income taxes.
Realized investment gain or loss is determined on an identified cost basis.
Prepayments are anticipated on certain investments in mortgage-backed securities
in determining the constant effective yield used to recognize interest income.
Prepayment estimates are based on information received from brokers who deal in
mortgage-backed securities.
Mortgage loans on real estate are carried at amortized cost less an allowance
for mortgage loan losses. The estimated fair value of the mortgage loans is
determined by a discounted cash flow analysis using mortgage interest rates
currently offered for mortgages of similar maturities.
Impairment of mortgage loans is measured as the excess of the loan's recorded
investment over its present value of expected principal and interest payments
discounted at the loan's effective interest rate, or the fair value of
collateral. The amount of the impairment is recorded in an allowance for
mortgage loan losses. The allowance for mortgage loan losses is maintained at a
level that management believes is adequate to absorb estimated losses in the
portfolio. The level of the allowance account is determined based on several
factors, including historical experience, expected future principal and interest
payments, estimated collateral values, and current and anticipated economic and
political conditions. Management regularly evaluates the adequacy of the
allowance for mortgage loan losses.
--------------------------------------------------------------------------------
6
<PAGE>
The Company generally stops accruing interest on mortgage loans for which
interest payments are delinquent more than three months. Based on management's
judgment as to the ultimate collectibility of principal, interest payments
received are either recognized as income or applied to the recorded investment
in the loan.
The cost of interest rate caps and floors is amortized to investment income over
the life of the contracts and payments received as a result of these agreements
are recorded as investment income when realized. The amortized cost of interest
rate caps and floors is included in other investments
When evidence indicates a decline, which is other than temporary, in the
underlying value or earning power of individual investments, such investments
are written down to the fair value by a charge to income.
STATEMENTS OF CASH FLOWS
The Company considers investments with a maturity at the date of their
acquisition of three months or less to be cash equivalents. These securities are
carried principally at amortized cost which approximates fair value.
Supplementary information to the statements of cash flows for the years ended
December 31, is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $2,700 $ 42 $2,404
Interest on borrowings 11 332 7
</TABLE>
CONTRACTHOLDER CHARGES
Contractholder charges include surrender charges and fees collected regarding
the issue and administration of annuity contracts.
DEFERRED POLICY ACQUISITION COSTS
The costs of acquiring new business, principally sales compensation, policy
issue costs, and certain sales expenses, have been deferred on annuity
contracts. These costs are amortized using primarily the interest method.
For variable annuities and variable universal life insurance, the amortization
of deferred acquisition costs can be impacted by separate account asset
performance. The Company generally assumes assets will appreciate at a constant
rate, and considers whether recent fluctuations from that rate are temporary and
likely to correct.
LIABILITIES FOR FUTURE POLICY BENEFITS
Liabilities for universal-life type insurance and fixed and variable deferred
annuities are accumulation values.
Liabilities for equity indexed deferred annuities are determined as the present
value of guaranteed benefits and the intrinsic value of index-based benefits.
FEDERAL INCOME TAXES
The Company's taxable income is included in the consolidated federal income tax
return of American Express Company. The Company provides for income taxes on a
separate return basis, except that, under an agreement between AEFC and American
Express Company, tax benefit is recognized for losses to the extent they can be
used on the consolidated tax return. It is the policy of AEFC and its
subsidiaries that AEFC will reimburse subsidiaries for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $335 receivable
from and $178 payable to IDS Life for federal income taxes, respectively.
--------------------------------------------------------------------------------
7
<PAGE>
SEPARATE ACCOUNT BUSINESS
The separate account assets and liabilities represent funds held for the
exclusive benefit of the variable annuity contract owners. The Company receives
mortality and expense risk fees from the variable annuity separate accounts.
The Company makes contractual mortality assurances to the variable annuity
contract owners that the net assets of the separate accounts will not be
affected by future variations in the actual life expectancy experience of the
annuitants and the beneficiaries from the mortality assumptions implicit in the
annuity contracts. The Company makes periodic fund transfers to, or withdrawals
from, the separate accounts for such actuarial adjustments for variable
annuities that are in the benefit payment period. The Company also guarantees
that the rates at which administrative fees are deducted from contract funds
will not exceed contractual maximums.
ACCOUNTING CHANGES
American Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 98-1, "Accounting for Costs of Computer Software Developed or Obtained for
Internal Use" became effective January 1, 1999. The SOP requires the
capitalization of certain costs incurred after the date of adoption to develop
or obtain software for internal use. Software utilized by the Company is owned
by AEFC and capitalized by AEFC. As a result, the new rule did not have a
material impact on the Company's results of operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," providing
guidance for the timing of recognition of liabilities related to guaranty fund
assessments. Adoption of the SOP did not have a material impact on the Company's
results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which is effective January 1, 2001. This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation. The
ultimate financial effect of the new rule will be measured based on the
derivatives in place at adoption and cannot be estimated at this time.
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the New York Insurance
Department. Currently, "prescribed" statutory practices are interspersed
throughout state insurance laws and regulations, the NAIC's ACCOUNTING PRACTICES
AND PROCEDURES MANUAL and a variety of other NAIC publications. "Permitted"
statutory accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, may differ from
company to company within a state, and may change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the State of New York must adopt Codification
as the prescribed basis of accounting on which domestic insurers must report
their statutory-basis results to the Insurance Department. New York has not yet
--------------------------------------------------------------------------------
8
<PAGE>
made a decision regarding whether or not it will accept Codification. While
management has not yet determined the impact of Codification to the Company's
statutory-basis financial statements, it does not believe the impact will be
material.
2. INVESTMENTS
Fair values of investments in fixed maturities represent quoted market prices
and estimated values when quoted prices are not available. Estimated values are
determined by established procedures involving, among other things, review of
market indices, price levels of current offerings of comparable issues, price
estimates and market data from independent brokers and financial files.
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds and
obligations $ 10,006 $ 53 $ 115 $ 9,944
Mortgage-backed securities 965 30 -- 995
----------------------------------------------------------------------------
$ 10,971 $ 83 $ 115 $ 10,939
----------------------------------------------------------------------------
AVAILABLE FOR SALE
----------------------------------------------------------------------------
U.S. Government agency
obligations $ 1,064 $ -- $ 21 $ 1,043
State and municipal
obligations 900 6 -- 906
Corporate bonds and
obligations 211,606 632 14,716 197,522
Mortgage-backed securities 101,916 113 4,249 97,780
----------------------------------------------------------------------------
$315,486 $ 751 $18,986 $297,251
----------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD TO MATURITY COST GAINS LOSSES VALUE
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Corporate bonds and
obligations $ 12,483 $ 352 $ -- $ 12,835
Mortgage-backed securities 1,411 61 -- 1,472
----------------------------------------------------------------------------
$ 13,894 $ 413 $ -- $ 14,307
----------------------------------------------------------------------------
AVAILABLE FOR SALE
----------------------------------------------------------------------------
U.S. Government agency
obligations $ 1,075 $ 70 $ -- $ 1,145
State and municipal
obligations 1,000 48 -- 1,048
Corporate bonds and
obligations 181,622 6,050 3,782 183,890
Mortgage-backed securities 85,786 2,036 32 87,790
----------------------------------------------------------------------------
$269,483 $8,204 $3,814 $273,873
----------------------------------------------------------------------------
</TABLE>
--------------------------------------------------------------------------------
9
<PAGE>
The amortized cost and fair value of investments in fixed maturities at December
31, 1999 by contractual maturity are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
HELD TO MATURITY COST VALUE
-------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 5,052 $ 5,057
Due from one to five years 3,557 3,585
Due in more than ten years 1,397 1,302
Mortgage-backed securities 965 995
-------------------------------------------------------------
$ 10,971 $ 10,939
-------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
AMORTIZED FAIR
AVAILABLE FOR SALE COST VALUE
-------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 6,531 $ 6,553
Due from one to five years 19,017 18,661
Due from five to ten years 124,664 116,727
Due in more than ten years 63,358 57,530
Mortgage-backed securities 101,916 97,780
-------------------------------------------------------------
$315,486 $297,251
-------------------------------------------------------------
</TABLE>
Fixed maturities available for sale were sold during 1999 with proceeds of
$13,480 and gross realized gains and losses of $419 and $92, respectively. Fixed
maturities available for sale were sold during 1998 with proceeds of $6,695 and
gross realized gains and losses of $253 and $224, respectively. Fixed maturities
available for sale were sold during 1997 with proceeds of $1,303 and gross
realized gains and losses of $14 and $nil, respectively.
At December 31, 1999, bonds carried at $1,064 were on deposit with various
states as required by law.
At 12/31/99, fixed maturities comprised 96 percent of the Company's total
invested assets.
Securities are rated by Moody's and Standard & Poor's (S&P), except for
approximately $51 million of securities which are rated by AEFC's internal
analysts using criteria similar to Moody's and S&P. A summary of investments in
fixed maturities, at amortized cost, by rating on December 31 is as follows:
<TABLE>
<CAPTION>
RATING 1999 1998
------------------------------------------------------------
<S> <C> <C>
Aaa/AAA $103,877 $ 88,286
Aa/AA 6,297 4,942
Aa/A 4,751 2,509
A/A 30,560 26,700
A/BBB 8,903 13,439
Baa/BBB 129,337 104,236
Baa/BB 4,427 5,651
Below investment grade 38,305 37,614
------------------------------------------------------------
$326,457 $283,377
------------------------------------------------------------
</TABLE>
At December 31, 1999, approximately 79 percent of the securities rated Aaa/AAA
are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of any other
issuer are greater than ten percent of stockholder's equity.
--------------------------------------------------------------------------------
10
<PAGE>
At December 31, 1999, approximately 4 percent of the Company's invested assets
were mortgage loans on real estate. Summaries of mortgage loans by region of the
United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------
ON COMMITMENTS
REGION BALANCE SHEET TO PURCHASE
--------------------------------------------------------------------
<S> <C> <C>
South Atlantic $ -- $2,544
Middle Atlantic 1,279 --
East North Central 4,483 106
Mountain 2,000 --
West North Central 2,284 --
New England 1,645 --
--------------------------------------------------------------------
$11,691 $2,650
--------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------
ON COMMITMENTS
PROPERTY TYPE BALANCE SHEET TO PURCHASE
--------------------------------------------------------------------
<S> <C> <C>
Department/retail stores $ 4,527 $ --
Apartments 1,093 1,299
Office buildings 5,035 1,245
Industrial buildings 1,036 106
--------------------------------------------------------------------
$11,691 $2,650
--------------------------------------------------------------------
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory authorities
to 80 percent or less of the market value of the real estate at the time of
origination of the loan. The Company holds the mortgage document, which gives it
the right to take possession of the property if the borrower fails to perform
according to the terms of the agreement. Commitments to purchase mortgages are
made in the ordinary course of business. The fair value of the mortgage
commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans was
$nil.
Net investment income for the years ended December 31 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------------------------------------------
<S> <C> <C> <C>
Interest on fixed maturities $22,822 $19,338 $13,818
Interest on mortgage loans 281 -- --
Interest on cash equivalents 277 131 276
Other 585 132 1
--------------------------------------------------------------
23,965 19,601 14,095
Less investment expenses 272 611 764
--------------------------------------------------------------
$23,693 $18,990 $13,331
--------------------------------------------------------------
</TABLE>
Net realized gain on investments was $153, $39 and $25 for the years ended
December 31, 1999, 1998 and 1997, respectively, and was entirely due to sales of
fixed maturities.
Changes in net unrealized (depreciation) appreciation of investments for the
years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities available for sale $(22,625) $(831) $3,761
</TABLE>
--------------------------------------------------------------------------------
11
<PAGE>
3. INCOME TAXES
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Federal income taxes:
Current $2,417 $1,544 $ 486
Deferred (629) (295) 574
-----------------------------------------------------------
1,788 1,249 1,060
State income taxes -- current 638 325 329
-----------------------------------------------------------
Income tax expense $2,426 $1,574 $1,389
-----------------------------------------------------------
</TABLE>
Increases to the income tax provision applicable to pretax income based on the
statutory rate for the years ended December 31, are attributable to:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
PROVISION RATE PROVISION RATE PROVISION RATE
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes
based on the statutory
rate $2,013 35.0% $1,361 35.0% $1,174 35.0%
Increases are
attributable to:
State tax, net 415 7.2 211 5.4 214 6.4
Other, net (2) -- 2 0.1 1 0
-------------------------------------------------------------------------------------
Total income taxes $2,426 42.2% $1,574 40.5% $1,389 41.4%
-------------------------------------------------------------------------------------
</TABLE>
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Policy reserves $ 4,326 $ 3,049
Investments 6,070 --
----------------------------------------------------------
Total deferred income tax assets 10,396 3,049
----------------------------------------------------------
Deferred income tax liabilities:
Deferred policy acquisition costs 3,900 3,234
Investments -- 1,518
Other 295 55
----------------------------------------------------------
Total deferred income tax
liabilities 4,195 4,807
----------------------------------------------------------
Net deferred income tax
assets/(liabilities) $ 6,201 $(1,758)
----------------------------------------------------------
</TABLE>
The Company is required to establish a valuation allowance for any portion of
the deferred income tax assets that management believes will not be realized. In
the opinion of management, it is more likely than not that the Company will
realize the benefit of the deferred income tax assets and, therefore, no such
valuation allowance has been established.
4. STOCKHOLDER'S EQUITY
Retained earnings available for distribution as dividends to the parent are
limited to the Company's surplus as determined in accordance with accounting
practices prescribed by the New York Department of Insurance. All dividend
distributions must be
--------------------------------------------------------------------------------
12
<PAGE>
approved by the New York Department of Insurance. Statutory unassigned surplus
aggregated $9,149 and $7,512 as of December 31, 1999 and 1998, respectively (see
note 9 for a reconciliation of net income and stockholder's equity per the
accompanying financial statements to statutory net income and surplus).
5. RELATED PARTY TRANSACTIONS
The Company participates in the American Express Retirement Plan which covers
all permanent employees age 21 and over who have met certain employment
requirements. Employer contributions to the plan are based on participants' age,
years of service and total compensation for the year. Funding of retirement
costs for this plan complies with the applicable minimum funding requirements
specified by ERISA. The Company's share of the total net periodic pension cost
was $4, $3 and $nil in 1999, 1998 and 1997, respectively.
The Company also participates in defined contribution pension plans of American
Express Company which cover all employees who have met certain employment
requirements. Company contributions to the plans are a percent of either each
employee's eligible compensation or basic contributions. Costs of these plans
charged to operations in 1999, 1998 and 1997 were $19, $19 and $23,
respectively.
The Company participates in defined benefit health care plans of AEFC that
provide health care and life insurance benefits to retired employees. The plans
include participant contributions and service related eligibility requirements.
Upon retirement, such employees are considered to have been employees of AEFC.
Costs of these plans charged to operations in 1999, 1998 and 1997 were $nil.
Charges by IDS Life and AEFC for use of joint facilities, marketing services and
other services aggregated $2,751, $2,910 and $2,536 for 1999, 1998 and 1997,
respectively. Certain of these costs are included in deferred policy acquisition
costs.
6. LINES OF CREDIT
The Company has an available line of credit with AEFC of $10,000 at AEFC's cost
of funds. The interest rate for the line of credit is established by reference
to various indicies plus 20 to 45 basis points, depending on the term. There
were no borrowings outstanding under this agreement at December 31, 1999 or
1998.
7. COMMITMENTS AND CONTINGENCIES
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one of
these lawsuits. It is expected the settlement will provide $215 million of
benefits to more than 2 million participants. The agreement in principle to
settle also provides for release by class members of all insurance and annuity
market conduct claims dating back to 1985 and is subject to a number of
contingencies including a definitive agreement and court approval. The portion
of the settlement allocated to the Company did not have a material impact on the
Company's financial position or results from operations.
The Company has an agreement whereby it ceded 100 percent of a block of
individual life insurance and individual annuities to an unaffiliated company.
At December 31, 1999 and 1998, traditional life insurance in-force aggregated
$168,830 and $191,972, respectively, of which $168,595 and $191,737 were
reinsured at the respective year ends. Under all reinsurance agreements,
premiums ceded to reinsurers amounted to $1,289, $1,354 and $1,346 for the years
ended December 31, 1999, 1998 and 1997. Reinsurance recovered from reinsurers
amounted to $1,602, $601 and $718 for the years ended December 31, 1999, 1998
and 1997. Reinsurance contracts do not relieve the Company from its primary
obligations to policyholders.
--------------------------------------------------------------------------------
13
<PAGE>
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company discloses fair value information for most on- and off-balance sheet
financial instruments for which it is practicable to estimate that value. Fair
value of life insurance obligations, receivables and all non-financial
instruments, such as deferred acquisition costs are excluded. Off-balance sheet
intangible assets are also excluded. Management believes the value of excluded
assets and liabilities is significant. The fair value of the Company, therefore,
cannot be estimated by aggregating the amounts presented.
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1999 1998
------------------ ------------------
CARRYING FAIR CARRYING FAIR
FINANCIAL ASSETS AMOUNT VALUE AMOUNT VALUE
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investments in fixed
maturities (Note 2)
Held to maturity $ 10,971 $ 10,939 $ 13,894 $ 14,307
Available for sale 297,251 297,251 273,873 273,873
Mortgage loans on real estate
(Note 2) 11,691 11,182 -- --
Cash and cash equivalents
(Note 1) 7,159 7,159 13,992 13,992
Separate account assets 24,597 24,597 12,614 12,614
FINANCIAL LIABILITIES
----------------------------------------------------------------------
Future policy benefits for
fixed Annuities $317,600 $305,733 $268,285 $258,578
Separate account liabilities 24,597 23,394 12,614 11,851
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related contracts
carried at $109 and $63, respectively. The fair value of these benefits is based
on the status of the annuities at December 31, 1999 and 1998. The fair values of
deferred annuities and separate account liabilities are estimated as the
carrying amount less applicable surrender charges. The fair value for annuities
in non-life contingent payout status is estimated as the present value of
projected benefit payments at rates appropriate for contracts issued in 1999 and
1998.
--------------------------------------------------------------------------------
14
<PAGE>
9. STATUTORY INSURANCE ACCOUNTING PRACTICES
Reconciliations of net income for the years ended December 31 and stockholder's
equity at December 31, as shown in the accompanying financial statements, to
that determined using statutory accounting practices are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------------------------------------------
<S> <C> <C> <C>
Net income, per accompanying
financial statements $ 3,325 $ 2,316 $ 1,966
Deferred policy acquisition costs (2,279) (3,719) (5,175)
Adjustments of future policy
benefit liabilities 2,793 2,540 2,222
Deferred federal income taxes (629) (295) 574
IMR gain/loss transfer and
amortization (230) (148) (16)
Deferred surrender charge 513 665 --
Other, net 175 (252) 255
----------------------------------------------------------------
Net income (loss), on basis of
statutory accounting practices $ 3,668 $ 1,107 $ (174)
----------------------------------------------------------------
Stockholder's equity, per
accompanying financial statements $ 36,716 $ 47,005
Deferred policy acquisition costs (16,823) (12,864)
Adjustments of future policy
benefit liabilities 10,361 8,694
Adjustments of reinsurance ceded
reserves (2,390) (2,515)
Deferred federal income taxes (6,201) 1,758
Asset valuation reserve (4,021) (2,986)
Net unrealized gain on investments 18,408 (4,390)
Interest maintenance reserve (456) (227)
Other, net 1,155 637
----------------------------------------------------------------
Stockholder's equity on basis of
statutory accounting practices $ 36,749 $ 35,112
----------------------------------------------------------------
</TABLE>
10. YEAR 2000 (UNAUDITED)
The Year 2000 issue is the result of computer programs having been written using
two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than 2000. This could result in the failure of major systems or miscalculations,
which could have a material impact on the operations of the Company. All of the
major systems used by the Company are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. The Company's businesses are
heavily dependent upon AEFC's computer systems and have significant interaction
with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the major
systems that could be affected by the Year 2000 issue. Steps were taken to
resolve potential problems including modification to existing software and the
purchase of new software. As of December 31, 1999, AEFC had completed its
program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. As of December 31, 1999, AEFC had also
completed an evaluation of the Year 2000 readiness of other third parties whose
system failures could have an impact on the Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. At December 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on the Company's business, results
of operations, or financial condition as a result of the Year 2000 issue.
--------------------------------------------------------------------------------
15
