SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Pre-Effective Amendment No. 1
FORM S-6
File No. 333-84121
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM
N-8B-2 (811-09515)
A. Exact name of trust: American Enterprise Variable Life Account
B. Name of depositor: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
C. Complete address of depositor's principal executive offices:
D. Name and complete address of agent for service:
Mary Ellyn Minenko, Esq.
IDS Life Insurance Company
IDS Tower 10
Minneapolis, MN 55440-0010
E. Title of securities being registered:
Flexible Premium Variable Life Insurance Policy
F. Approximate date of proposed public offering: as soon as practicable
It is proposed that this filing become effective November 18, 1999 or as soon as
practicable.
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b) or as soon as practicable
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
Prospectus
Nov. __, 1999
American Express Signature Variable Universal Life, a
flexible premium variable life insurance policy
American Enterprise Variable Life Account
Issued by: American Enterprise Life Insurance Company
Administrative Offices:
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440-0534
Telephone: 800-333-3437
This prospectus contains information about the life insurance policy that you
should know before investing. You also will receive prospectuses for the
underlying funds that are investment options under your policy. Please read all
prospectuses carefully and keep them for future reference.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus. Any representation to
the contrary is a criminal offense.
An investment in this policy is not a deposit of a bank or financial institution
and is not insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. An investment in this policy involves investment
risk including possible loss of principal.
<PAGE>
Table of contents
The policy in brief
Purchasing your policy
Loads, fees and charges
Keeping the policy in force
The variable account
The funds
Rates of return of the subaccounts
The fixed account
Policy value
Policy value credits
Proceeds payable upon death
Transfers between the fixed account and subaccounts
Policy loans
Policy surrenders
Optional insurance benefits
Payment of policy proceeds
Federal taxes
American Enterprise Life
Management of American Enterprise Life
Other information
Policy illustrations
Key terms
<PAGE>
The policy in brief
Purchasing your policy: To apply, send a completed application and premium
payment to American Enterprise Life's home office. You will need to provide
medical and other evidence that the person you propose to insure (yourself or
someone else) is insurable according to our underwriting rules before we can
accept your application. (p.)
Right to examine policy: You may return your policy for any reason and receive a
refund of your policy value, less indebtedness, plus any premium expense charges
or monthly deductions taken by mailing us the policy and a written request for
cancellation by the 20th day after you receive it. (p.)
Premiums: In applying for your policy, you state how much you intend to pay and
whether you will pay quarterly, semiannually or annually. You may also make
additional, unscheduled premium payments subject to certain limits. You cannot
make premium payments on or after the insured's attained insurance age 100. We
may refuse premiums in order to comply with the Internal Revenue Code of 1986,
as amended (the Code). (p.)
Loads, fees and charges: You pay the following charges, either directly (such as
deductions from your premium payments or from your policy value), or indirectly
(as deductions from the underlying funds). These charges primarily compensate
American Enterprise Life for administering and distributing the policy as well
as paying policy benefits and assuming related risks:
o Premium expense charge -- 3% deducted from each premium payment to
cover some distribution expenses, state and local premium taxes, and
federal taxes.
o Monthly deduction -- charged against the value of your policy each
month (prior to the insured's attained insurance age 100), covering the
cost of insurance, cost of issuing the policy, administrative expenses
and optional insurance benefits; includes a $7 per month administrative
charge.
o Surrender charge -- applies if you surrender your policy for its full
cash surrender value, or the policy lapses, during the first 15 years
and for 15 years after requesting an increase in the specified amount.
The maximum surrender charge ranges from $6.84 to $57.75 per thousands
of dollars of the initial specified amount and any increase in the
specified amount and is based on the insured's age, sex and risk
classification.
o Partial surrender fee -- applies if you surrender part of the value of
your policy; equals $25 or 2% of the amount surrendered, whichever is
less.
o Mortality and expense risk charge -- applies only to the subaccounts;
equals, on an annual basis, 0.9% of the average daily net asset value
of the subaccounts.
o Fund expenses -- apply only to the underlying funds and consist of
investment management fees, 12b-1 fees, taxes, brokerage commissions
and nonadvisory expenses ranging from 0.65% to 2.01% in total expenses.
(p.)
No lapse guarantee (NLG): A feature of the policy guaranteeing the policy will
remain in force five policy years. The feature is in effect if you meet certain
premium requirements. (p.)
<PAGE>
Grace period: If the cash surrender value of your policy becomes less than the
amount needed to pay the monthly deduction and the no lapse guarantee is not in
effect, you will have 61 days to pay a premium that raises the cash surrender
value to an amount sufficient to pay the monthly deduction. If you don't, the
policy will lapse. (p.)
Reinstatement: If your policy lapses, it can be reinstated within five years.
The reinstatement is subject to certain conditions including evidence of
insurability satisfactory to American Enterprise Life and the payment of a
sufficient premium. (p.)
Purpose: The purpose of the policy is to provide life insurance protection on
the life of the insured and to build policy value. The policy provides a death
benefit that we pay to the beneficiary upon the insured's death. As in the case
of other life insurance policies, it may not be advantageous to purchase this
policy as a replacement for, or in addition to an existing life insurance
policy.
The policy allows you, as the owner, to allocate your net premiums, or transfer
policy value, to:
The variable account, consisting of subaccounts, each of which invests
in a fund with a particular investment objective. You may direct
premiums to any or all of these subaccounts. Your policy's value may
increase or decrease daily, depending on the investment return. No
minimum amount is guaranteed. (p.)
The fixed account, which earns interest at rates that are adjusted
periodically by American Enterprise Life. This rate will never be lower
than 4.0%. (p.)
Policy value credits: Beginning in the 11th policy year and while this policy is
in force, we will periodically apply a policy value credit to your policy value.
Proceeds payable upon death: Prior to the insured's attained insurance age 100,
your policy's death benefit can never be less than the specified amount, unless
you change that amount or your policy has outstanding indebtedness. The
relationship between the policy value and the death benefit depends on which of
two options you choose:
o Option 1 level amount: The death benefit is the greater of the
specified amount or a percentage of policy value.
o Option 2 variable amount: The death benefit is the greater of the
specified amount plus the policy value or a percentage of policy value.
You may change the death benefit option or specified amount within certain
limits; doing so generally will affect policy charges.
On or after the insured's attained insurance age 100, the proceeds payable upon
the death of the insured will be the cash surrender value.(p.)
Transfers between the fixed account and subaccounts: You may, at no charge,
transfer policy value from one subaccount to another or between subaccounts and
the fixed account. (Certain restrictions apply to transfers involving the fixed
account.) You also can arrange for automated transfers among the fixed account
and subaccounts. (p.)
Policy loans: You may borrow against your policy's cash surrender value. A
policy loan, even if repaid, can have a permanent effect on the death benefit
and policy value. A loan may have tax consequences if your policy lapses or you
surrender it. (p.)
<PAGE>
Policy surrenders: You may cancel this policy while it is in force and receive
its cash surrender value. The cash surrender value is the policy value minus
indebtedness, minus any applicable surrender charges. (p.)
Exchange right: For two years after the policy is issued, you can exchange it
for one that provides benefits that do not vary with the investment return of
the subaccounts. Because the policy itself offers a fixed return option, all you
need do is transfer all of the policy value in the subaccounts to the fixed
account.
Payment of policy proceeds: We will pay policy proceeds when you surrender the
policy or the insured dies. You or the beneficiary may choose whether you want
us to make a lump sum payment or payments under one or more of certain options.
(p.)
Federal taxes: The death benefit is not considered part of the beneficiary's
income and therefore is not subject to federal income taxes. When the proceeds
are paid after the insured's attained insurance age 100, if the amount received
plus any indebtedness exceeds your investment in the policy, the excess may be
taxable as ordinary income. Part or all of any proceeds you receive through full
or partial surrender, lapse, policy loan or assignment of policy value may be
subject to federal income tax as ordinary income. Proceeds other than death
benefits from certain policies, classified as "modified endowments," are taxed
differently from proceeds of conventional life insurance contracts and also may
be subject to an additional 10% IRS penalty tax if you are younger than 59 1/2.
A policy is considered to be a modified endowment if it was applied for or
materially changed after June 21, 1988, and premiums paid in the early years
exceed certain modified endowment limits. (p.)
Purchasing your policy
Application
To apply for coverage, complete an application and send it with your premium
payment to American Enterprise Life's office. In your application, you:
o select a specified amount of insurance;
o select a death benefit option;
o designate a beneficiary; and
o state how premiums are to be allocated among the fixed account and/or
the subaccounts.
Insurability: Before issuing your policy, we require satisfactory evidence of
the insurability of the person whose life you propose to insure (yourself or
someone else). Our underwriting department will review your application and any
medical information or other data required to determine whether the proposed
individual is insurable under our underwriting rules. We may decline your
application if we determine the individual is not insurable and we will return
any premium you have paid.
Age limit: American Enterprise Life generally will not issue a policy where the
proposed insured is over the insurance age of 85. We may, however, do so at our
sole discretion.
Risk classification: The risk classification is based on the insured's health,
occupation or other relevant underwriting standards. This classification will
affect the monthly deduction and may affect the cost of certain optional
insurance benefits. (See "Loads, Fees and Charges" and "Optional insurance
benefits").
Other conditions: In addition to proving insurability, you and the insured must
also meet certain conditions, stated in the application form, before coverage
will become effective and your policy will be delivered to you.
Incontestability: American Enterprise Life will have two years from the
effective date of your policy to contest the truth of statements or
representations in your application. After the policy has been in force during
the insured's lifetime for two years from the policy date, we cannot contest the
policy.
<PAGE>
Right to examine policy
You may return your policy for any reason and receive a refund of policy value,
less indebtedness, plus any premium expense charges or monthly deductions taken.
To do so, you must mail or deliver the policy to American Enterprise Life's
office or your sales representative with a written request for cancellation by
the 20th day after you receive it. On the date your request is postmarked or
received, the policy will immediately be considered void from the start.
Premiums
Payment of premiums:
In applying for your policy, you decide how much you intend to pay and how often
you will make payments. During the first several policy years until the policy
value is sufficient to cover the surrender charge, American Enterprise Life
requires that you pay premiums sufficient to keep the NLG in effect in order to
keep the policy in force.
You may schedule payments annually, semiannually or quarterly. (American
Enterprise Life must approve payment at any other interval). We show this
premium schedule in your policy.
The scheduled premium serves only as an indication of your intent as to the
frequency and amount of future premium payments. You may skip scheduled premium
payments at any time if your cash surrender value is sufficient to pay the
monthly deduction or if you have paid sufficient premiums to keep the no lapse
guarantee in effect.
You may also change the amount and frequency of scheduled premium payments by
written request. American Enterprise Life reserves the right to limit the amount
of such changes. Any change in the premium amount is subject to applicable tax
laws and regulations.
Although you have flexibility in paying premiums, the amount and frequency of
your payments will affect the policy value, cash surrender value and length of
time your policy will remain in force, as well as affect whether the NLG remains
in effect.
Premium limitations:
You may make unscheduled premium payments at any time and in any amount of at
least $25. American Enterprise Life reserves the right to limit the number and
amount of unscheduled premium payments. No premium payments, scheduled or
unscheduled, are allowed on or after the insured's attained insurance age 100.
Also, in order to receive favorable tax treatment under the Code, premiums you
pay during the life of the policy must not exceed certain limitations. To comply
with the Code, we can either refuse excess premiums as you pay them or refund
excess premiums with interest no later than 60 days after the end of the policy
year in which they were paid.
Allocation of premiums:
As of the policy date, we will allocate the net premiums to the account(s) you
have selected in your application. At that time, we will begin to assess the
various loads, fees, charges and expenses.
We convert any amount that you allocate to a subaccount into accumulation units
of that subaccount, as explained under "Policy Value." Similarly, when you
transfer value between subaccounts, we convert accumulation units in one
subaccount into a cash value, which we then convert into accumulation units of
the second subaccount.
<PAGE>
Loads, Fees and Charges
Policy charges compensate American Enterprise Life for:
o providing the insurance benefits of the policy;
o issuing the policy;
o administering the policy;
o assuming certain risks in connection with the policy; and
o distributing the policy.
We deduct some of these charges from your premium payments. We deduct others
periodically from your policy value in the fixed account and/or subaccounts. We
may also assess a charge if you surrender your policy or the policy lapses.
Premium expense charge
We deduct this charge from each premium payment. We credit the amount remaining
after the deduction, called the net premium, to the account(s) you have
selected. The premium expense charge is 3% of each premium payment. It partially
compensates American Enterprise Life for expenses of distributing the policy,
including agents' commissions, advertising and printing of prospectuses and
sales literature. (The surrender charge, discussed under "Surrender charge" in
the section "Loads, Fees and Charges", also may partially compensate these
expenses.) It also compensates American Enterprise Life for paying taxes imposed
by certain states and governmental subdivisions on premiums received by
insurance companies. All policies in all states are charged the same premium
expense charge even though state premium taxes vary.
Monthly deduction
On each monthly date we deduct from the value of your policy in the fixed
account and/or subaccounts an amount equal to the sum of:
1. the cost of insurance for the policy month;
2. the policy fee shown in your policy; and
3. charges for any optional insurance benefits provided by rider for the
policy month.
We explain each of the three components below.
We will take monthly deductions from the fixed account and the subaccounts on a
pro rata basis.
If the cash surrender value of your policy is not enough to cover the monthly
deduction on a monthly anniversary, the policy may lapse. However, the policy
will not lapse if the no lapse guarantee is in effect. (See "No lapse
guarantee;" also "Grace period" and "Reinstatement" under the section "Keeping
the Policy in Force").
Components of the monthly deduction:
1. Cost of insurance: primarily, the cost of providing the death benefit under
your policy. It depends on:
o the amount of the death benefit;
o the policy value; and
o the statistical risk that the insured will die in a given period.
<PAGE>
The cost of insurance for a policy month is calculated as:
[(a + b) x (c - d)]
1000
where:
(a) is the monthly cost of insurance rate based on the insured's attained
insurance age, sex (unless unisex rates are required by law) and risk
classification. Generally, the cost of insurance rate will increase as the
insured's attained insurance age increases.
We set the rates based on our expectations as to future mortality experience. We
may change the rates from time to time; any change will apply to all individuals
of the same rate classification. However, rates will not exceed the "Guaranteed
Maximum Monthly Cost of Insurance Rates" shown in your policy, which are based
on the 1980 Commissioners Standard Ordinary Smoker and Nonsmoker Mortality
Tables, Age Last Birthday.
(b) is any flat extra insurance charges we assess as a result of special
underwriting considerations.
(c) is the death benefit on the monthly date divided by 1.0032737 (which reduces
American Enterprise Life's net amount at risk, solely for computing the cost of
insurance, by taking into account assumed monthly earnings at an annual rate of
4.0%).
(d) is the policy value on the monthly date. At this point, the policy value has
been reduced by the policy fee, and any charges for optional riders.
2. Administrative charge: $7 per month. This charge reimburses American
Enterprise Life for expenses of issuing the policy, such as processing the
application (primarily underwriting) and setting up computer records; and of
administering the policy, such as processing claims, maintaining records, making
policy changes and communicating with owners.
3. Optional insurance benefit charges: charges for any optional benefits you add
to the policy by rider. (See "Optional Insurance Benefits.)"
Surrender charge
If you surrender your policy or the policy lapses during the first 15 policy
years and in the 15 years following an increase in specified amount, we will
assess a surrender charge.
The surrender charge reimburses American Enterprise Life for costs of issuing
the policy, such as processing the application (primarily underwriting) and
setting up computer records. It also partially pays for commissions, advertising
and printing the prospectus and sales literature.
The surrender charge for the initial specified amount is shown in your policy.
It is based on the insured's insurance age, sex, risk classification and initial
specified amount. The surrender charge for the initial specified amount will
decrease annually until it is zero at the beginning of the 16th policy year. If
you increase the specified amount, an additional surrender charge will apply.
The additional surrender charge in a revised policy will be based on the
insured's attained insurance age, sex, risk classification and the amount of the
increase. The additional surrender charge will decrease annually until it is
zero at the beginning of the 16th year following the increase.
<PAGE>
The following example illustrates how we calculate the surrender charge for a
male, insurance age 35 qualifying for nonsmoker rates. We assume the specified
amount to be $100,000.
Lapse or surrender
during year Surrender Charge
1 $1201.00
2 1120.93
3 1040.87
4 960.80
5 880.73
6 800.67
7 720.60
8 640.53
9 560.47
10 480.40
11 400.33
12 320.27
13 240.20
14 160.13
15 80.07
16+ 0
The amounts shown decrease on an annual basis.
The maximum surrender charge is the rate from the table below multiplied by the
number of thousands of dollars of initial specified amount. For example, a male
age 20 with a nonsmoker risk classification and an initial specified amount of
$50,000 will have a surrender charge per 1000 of $8.81 multiplied by 50 or
$440.50. As another example, a female age 75 with a smoker risk classification
and an initial specified amount of $5,000,000 will have a surrender charge per
1000 of $57.32 multiplied by 5,000 or $286,600.
<PAGE>
Maximum Surrender Charge
(Rate per Thousand of Initial specified amount)
nonsmoker smoker nonsmoker smoker
Age male male female female
0 7.25 7.25 6.84 6.84
1 7.20 7.20 6.81 6.81
2 7.27 7.27 6.85 6.85
3 7.33 7.33 6.91 6.91
4 7.40 7.40 6.96 6.96
5 7.48 7.48 7.03 7.03
6 7.56 7.56 7.08 7.08
7 7.64 7.64 7.15 7.15
8 7.75 7.75 7.23 7.23
9 7.84 7.84 7.29 7.29
10 7.95 7.95 7.37 7.37
11 8.07 8.07 7.47 7.47
12 8.19 8.19 7.55 7.55
13 8.31 8.31 7.64 7.64
14 8.44 8.44 7.75 7.75
15 8.57 8.57 7.84 7.84
16 8.69 8.69 7.95 7.95
17 8.83 8.83 8.05 8.05
18 8.96 8.96 8.17 8.17
19 9.09 9.09 8.29 8.29
20 8.81 9.96 8.25 8.81
21 8.93 10.13 8.39 8.96
22 9.08 10.32 8.51 9.12
23 9.23 10.52 8.64 9.29
24 9.39 10.73 8.79 9.47
25 9.55 10.96 8.95 9.65
26 9.73 11.21 9.11 9.85
27 9.93 11.48 9.27 10.05
28 10.13 11.76 9.45 10.27
29 10.36 12.07 9.64 10.51
30 10.59 12.39 9.84 10.75
31 10.84 12.73 10.05 11.00
32 11.11 13.11 10.27 11.28
33 11.39 13.49 10.51 11.56
34 11.69 13.92 10.76 11.87
35 12.01 14.36 11.01 12.19
36 12.35 14.83 11.29 12.52
37 12.71 15.32 11.59 12.88
38 13.08 15.84 11.89 13.25
39 13.48 16.40 12.21 13.64
40 13.89 16.99 12.56 14.05
41 14.35 17.60 12.92 14.48
42 14.83 18.25 13.29 14.92
43 15.32 18.95 13.69 15.39
<PAGE>
Maximum Surrender Charge
(Rate per Thousand of Initial specified amount)
nonsmoker smoker nonsmoker smoker
Age male male female female
44 15.85 19.67 14.11 15.88
45 16.43 20.44 14.55 16.40
46 17.03 21.25 15.01 16.93
47 17.67 22.11 15.51 17.51
48 18.33 23.01 16.03 18.11
49 19.07 23.99 16.59 18.73
50 19.83 25.00 17.17 19.40
51 20.65 26.09 17.80 20.11
52 21.53 27.25 18.45 20.85
53 22.47 28.47 19.16 21.64
54 23.47 29.76 19.91 22.47
55 24.52 31.13 20.69 23.35
56 25.65 32.57 21.53 24.27
57 26.87 34.11 22.44 25.25
58 28.15 35.72 23.40 26.31
59 29.53 37.44 24.43 27.44
60 31.01 39.28 25.55 28.65
61 32.60 41.24 26.75 29.97
62 34.29 43.33 28.04 31.39
63 36.12 45.55 29.44 32.91
64 38.07 47.89 30.93 34.53
65 40.15 50.37 32.53 36.25
66 42.37 52.99 34.25 38.09
67 44.76 55.75 36.09 40.05
68 47.33 57.75 38.08 42.17
69 50.09 57.69 40.25 44.47
70 53.08 57.63 42.63 46.97
71 56.31 57.58 45.21 49.72
72 57.41 57.55 48.04 52.72
73 57.37 57.53 51.12 55.97
74 57.33 57.53 54.47 57.38
75 57.29 57.53 57.23 57.32
76 57.24 57.53 57.14 57.26
77 57.19 57.52 57.05 57.18
78 57.11 57.48 56.94 57.09
79 57.04 57.43 56.83 56.99
80 56.97 57.39 56.73 56.90
81 56.91 57.36 56.63 56.81
82 56.88 57.36 56.56 56.74
83 56.87 57.39 56.51 56.71
84 56.89 57.42 56.46 56.69
85 56.90 57.44 56.42 56.66
<PAGE>
Partial surrender fee
If you surrender part of the value of your policy, we will charge you $25 (or 2%
of the amount surrendered, if less.) We guarantee that this fee will not
increase for the duration of your policy.
Mortality and expense risk charge
This charge applies only to the subaccounts and not to the fixed account. It is
equal, on an annual basis, to 0.9% of the average daily net asset value of the
subaccounts.
Computed daily, the charge compensates American Enterprise Life for:
o Mortality risk -- the risk that the cost of insurance charge will be
insufficient to meet actual claims.
o Expense risk -- the risk that the policy fee and the surrender charge
(described above) may be insufficient to cover the cost of
administering the policy.
Any profit from the mortality and expense risk charge would be available to
American Enterprise Life for any proper corporate purpose including, among
others, payment of sales and distribution expenses, which we do not expect to be
covered by the premium expense charge and surrender charges discussed earlier.
American Enterprise Life will make up any further deficit from its general
assets.
<PAGE>
Fund expenses
The investment managers and advisers receive fees for their services to the
funds. The funds also pay taxes, brokerage commissions and nonadvisory expenses,
such as custodian and trustee fees, registration fees for shares, postage,
fidelity and security bond costs, legal fees and other miscellaneous fees and
charges. The table below will help you understand the expenses that the funds
pay.
<TABLE>
<CAPTION>
Annual operating expenses of the funds
(as a percentage of average daily net assets)
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXPSM Variable Portfolio - Blue Chip Advantage Fund .56% .13 .26 .95%11
AXPSM Variable Portfolio - Bond Fund .60% .13 .07 .80%1
AXPSM Variable Portfolio - Capital Resource Fund .59% .13 .07 .79%1
AXPSM Variable Portfolio - Cash Management Fund .50% .13 .06 .69%1
AXPSM Variable Portfolio - Diversified Equity .56% .13 .26 .95%11
Income Fund
AXPSM Variable Portfolio - Extra Income Fund .62% .13 .09 .84%1
AXPSM Variable Portfolio - Federal Income Fund .61% .13 .14 .88%11
AXPSM Variable Portfolio - Growth Fund .63% .13 .19 .95%11
AXPSM Variable Portfolio - Managed Fund .59% .13 .04 .76%1
AXPSM Variable Portfolio - New Dimensions Fund .61% .13 .06 .80%1
AXPSM Variable Portfolio - Small Cap Advantage Fund .79% .13 .31 1.23%11
AIM V.I. Capital Appreciation Fund .62% -- .05 .67%2
AIM V.I. Capital Development Fund (after fee --% -- 1.21 1.21%3
waivers and expense reimbursements)
AIM V.I. Value Fund .61% -- .05 .66%2
Alliance Premier Growth Portfolio (Class B) .97% .25 .09 1.31%4
Alliance Technology Portfolio (Class B) .81% .25 .14 1.20%4
Alliance U.S. Government/High Grade Securities .60% .25 .18 1.03%4
Portfolio (Class B)
Baron Capital Asset Fund (after fee waivers and 1.00% .25 .20 1.45%5
expense reimbursements)
Fidelity VIP III Growth & Income Portfolio .49% .10 .11 .70%1, 6
(Service Class)
Fidelity VIP III Mid Cap Portfolio (Service Class) .59% .10 .41 1.10%1, 6
Fidelity VIP Overseas Portfolio (Service Class) .74% .10 .13 .97%1, 6
(after expense reimbursements)
FT VIP Mutual Shares Securities Fund - Class 2 .74% .25 .03 1.02%7
FT VIP Franklin Real Estate Fund - Class 2 .52% .25 .02 .79%7
FT VIP Templeton International Smaller Companies 1.00% .25 .10 1.35%7
Fund - Class 2
Goldman Sachs VIT Capital Growth Fund .75% -- .15 .90%
<PAGE>
Management 12b-1 Other
Fees Fees Expenses Total
Goldman Sachs VIT COREsm U.S. Equity Fund .70% -- .10 .80%13
Goldman Sachs VIT Global Income Fund .90% -- .15 1.05%13
Goldman Sachs VIT International Equity Fund 1.00% -- .25 1.25%13
J.P. Morgan U.S. Disciplined Equity Portfolio .35% -- .52 .87%8
(after fee waivers and expense reimbursements)
Lazard Retirement Equity Portfolio (after fee .75% .25 .25 1.25%9
waivers and expense reimbursements)
Lazard Retirement International Equity Portfolio .75% .25 .25 1.25%9
(after fee waivers and expense reimbursements)
MFS(R)New Discovery Series (after fee waivers and .90% -- .27 1.17%10
expense reimbursements)
MFS(R)Research Series .75% -- .11 .86%2
MFS(R)Utilities Series .75% -- .26 1.01%2
Putnam VT Growth and Income Fund - Class IB Shares .46% .15 .04 .65%11
Putnam VT International Growth Fund - Class IB .80% .15 .27 1.22%11
Shares
Putnam VT International New Opportunities Fund - 1.18% .15 .68 2.01%11
Class IB Shares
Royce Micro-Cap Portfolio (after fee waivers and 1.25% -- .10 1.35%12
expense reimbursements)
Royce Premier Portfolio (after fee waivers and 1.00% -- .35 1.35%12
expense reimbursements)
Wanger International Small Cap 1.27% -- .28 1.55%2
Wanger U.S. Small Cap .96% -- .06 1.02%2
Warburg Pincus Trust - Emerging Growth Portfolio .84% -- .41 1.25%14
</TABLE>
1Annualized operating expenses (without reimbursement) for the period ended Dec.
31, 1998.
2Figures in "Management Fees," "Other Expenses" and "Total" are based on actual
expenses for the fiscal year ended Dec. 31, 1998.
3Had there been no fee waivers or expense reimbursements, expenses would have
been: 0.75%, 0.00%, 5.05% and 5.80%, respectively.
4The fund's expense figures are based on estimated expenses (net of fee waivers
and/or expense reimbursements) for the fiscal period ended Dec. 31, 1998.
5Fees are stated net of waivers and/or reimbursements. Absent fee waivers and/or
reimbursements, the Management Fee, Other Expenses and Total as a percentage of
average net assets for Baron Capital Asset Fund would be (1.00%, 6.62% and
7.62%).
6Fidelity Management & Research Company agreed to reimburse a portion of the
class' expenses during the period. Without this reimbursement, the Management
Fee, 12b-1 Fee, Other Expenses and Total as a percentage of average net assets
for the following funds would have been, Fidelity VIP Growth and Income
Portfolio (0.49%, 0.10%, 0.12% and 0.71%), Fidelity VIP Overseas Portfolio
(Service Class) (0.74%, 0.10%, 0.17% and 1.01%) and Fidelity VIP Mid Cap
Portfolio (Service Class) (0.56%, 0.10%, 115.30% and 115.96%).
7The figure shown under Management Fees, combines both the Management and
Portfolio Administration Fees. The Portfolio Administration Fee is a direct
expense for the Templeton International Smaller Companies Fund and the Mutual
Shares Securities Fund; the Franklin Real Estate Fund pays for similar services
indirectly through the Management Fee. Because no Class 2 shares were issued as
of Dec. 31, 1998, figures (other than Rule 12b-1 Fees) are based on the
Portfolios' Class 1 actual expenses for the fiscal year ended Dec. 31, 1998 plus
Class 2's annual Rule 12b-1 Fee of 0.25% (While the maximum amount payable under
each Portfolio's Class 2 Rule 12b-1 Plan is 0.35% per year of the Portfolio's
average daily net assets, the Board of Trustees of Franklin Templeton Variable
Insurance Products Trust has set the current rate at 0.25% per year.)
8Fees are stated net of waivers and/or reimbursements. Absent fee waivers and/or
reimbursements, the Management Fee, Other Expenses and Total as a percentage of
average net assets for J.P. Morgan U.S. Disciplined Equity Portfolio would be
(0.35%, 1.08% and 1.43%). Effective July 1, 1999 current expenses were lowered
to 0.85%.
<PAGE>
9The portfolio's Investment Manager agrees to waive its fees and/or reimburse
the portfolios through Dec. 31, 1999 to the extent total portfolio annual
expenses exceed 1.25% of the portfolio's average daily net assets. Absent fee
waivers and/or reimbursements, the Management Fee, 12b-1 Fee, Other Expenses and
Total as a percentage of average net assets for fiscal year end Dec. 31, 1998
for the following portfolios would have been: Equity Portfolio (0.75%, 0.25%,
20.32% and 21.32%) and International Equity Portfolio (0.75%, 0.25%, 47.67% and
48.67%). Expenses are annualized for the International Equity Portfolio for the
period Sep. 1 - Dec. 31, 1998 (commencement of operations through fiscal year
end).
10Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursements, the Management Fee, Other Expenses and Total as a
percentage of average net assets for MFS(R) New Discovery Series would have been
(0.90%, 4.32% and 5.22%).
11Based on estimated expenses.
12Expense ratios are shown after fee waivers and expense reimbursements by the
investment advisor. The expense ratios before the waivers and reimbursements
would have been: Royce Micro-Cap Portfolio (1.25%, 1.34% and 2.59%) and Royce
Premier Portfolio (1.00%, 6.05% and 7.05%).
13The Goldman Sachs VIT Capital Growth Fund's expenses are estimated due to the
Fund being in existence for less than 10 months as of December 31, 1998. The
Goldman Sachs VIT CORE U.S. Equity, Global Income and International Equity
Funds' expenses are based on actual expenses for fiscal year ended December 31,
1998. The Investment Advisers to the Goldman Sachs VIT Capital Growth, CORE U.S.
Equity, Global Income and International Equity Funds have voluntarily agreed to
reduce or limit certain "Other Expenses" of such Funds (excluding management
fees, taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed 0.15%, 0.10%, 0.15%
and 0.25% per annum of such Funds' average daily net assets, respectively. The
expenses shown include this reimbursement. If not included, the "Other Expenses"
and "Total Expenses" for the Goldman Sachs VIT Capital Growth, CORE U.S. Equity,
Global Income and International Equity Funds would be 1.03% and 1.78%, 2.13% and
2.83%, 2.40% and 3.30% and 1.97% and 2.97% respectively. The reductions or
limits may be disconnected or modified by the investment advisers in their
discretion at any time.
14Fees are estimated net ofwaivers and/or reimbursements for the fiscal year
ended December 31, 1999. Fee waivers and/or reimbursements may be discontinued
at any time. Absent waivers and/or reimbursements, the management fee, 12b-1
fee, other expenses and total as a percentage of average assets would be (0.90%,
0.00%, 0.51% and 1.41%).
American Enterprise Life has entered into certain arrangements under which it is
compensated by the funds' advisors and/or distributors for the administrative
services it provides to these funds.
Other information on charges
American Enterprise Life may reduce or eliminate various fees and charges when
we incur lower sales costs and/or perform fewer administrative services than
usual.
<PAGE>
Keeping the policy in force
No lapse guarantee
The NLG provides that your policy will remain in force for five policy years
even if the cash surrender value is insufficient to pay the monthly deduction.
The NLG will stay in effect as long as:
o the sum of premiums paid; minus
o partial surrenders; minus
o outstanding indebtedness; equals or exceeds
o the minimum monthly premiums due since the policy date.
The minimum monthly premium is shown in the policy.
If, on a monthly date, you have not paid enough premiums to keep the NLG in
effect, the no lapse guarantee will terminate. In addition, your policy will
lapse (terminate) if the cash surrender value is less than the amount needed to
pay the monthly deduction.
Grace period
If on a monthly date the cash surrender value of your policy is less than the
amount needed to pay the next monthly deduction and the NLG is not in effect,
you will have 61 days to pay the required premium amount. If you do not pay the
required premium, the policy will lapse.
American Enterprise Life will mail a notice to your last known address,
requesting payment of the premium needed to keep the policy in force. If we
receive this premium before the end of the 61-day grace period, we will use the
payment to cover all monthly deductions and any other charges then due. We will
add any balance to the policy value and allocate it in the same manner as other
premium payments.
If a policy lapses with outstanding indebtedness, any excess of the outstanding
indebtedness over the premium paid generally will be taxable to the owner. (See
"Federal Taxes.") If the insured dies during the grace period, we will deduct
any overdue monthly deductions from the death benefit.
Reinstatement
Your policy may be reinstated within five years after it lapses, unless you
surrendered it for cash. To reinstate, American Enterprise Life will require:
o a written request;
o evidence satisfactory to American Enterprise Life that the
insured remains insurable;
o payment of the required reinstatement premium; and
o payment or reinstatement of any indebtedness.
The reinstatement premium is the required premium to reinstate the policy.
The effective date of a reinstated policy will be the monthly date on or next
following the day we accept your application for reinstatement. The suicide
period (see "Proceeds Payable upon Death") will apply from the effective date of
reinstatement (except in Georgia, Nebraska, Oklahoma, Pennsylvania, South
Carolina, Tennessee, Utah and Virginia). Surrender charges will also be
reinstated.
We will have two years from the effective date of reinstatement to contest the
truth of statements or representations in the reinstatement application.
<PAGE>
The variable account
We established the variable account on July 15, 1987 under Indiana law. It is
registered as a single unit investment trust under the Investment Company Act of
1940. The variable account consists of a number of subaccounts, each of which
invests in shares of a particular fund. This registration does not involve any
Securities and Exchange Commission (SEC) supervision of the account's management
or investment practices or policies.
The variable account meets the definition of a separate account under federal
securities laws. Income, capital gains or capital losses of each subaccount are
credited to or charged against the assets of that subaccount alone. State
insurance law provides that we will not charge a variable subaccount with
liabilities of any other subaccount or of any other business conducted by
American Enterprise Life. At all times, American Enterprise Life will maintain
assets in the subaccounts with total market value at least equal to the reserves
and other liabilities required to cover insurance benefits under all policies
participating in the subaccount.
The U.S. Treasury and the IRS indicated they may provide additional guidance on
investment control. This concerns how many subaccounts an insurance company may
offer and how many exchanges among subaccounts it may allow before the owner
would be currently taxed on income earned within subaccount assets. We do not
know what the additional guidance will be or when action will be taken. We
reserve the right to modify the policy, as necessary, so that the owner will not
be subject to current taxation as the owner of the subaccount assets.
The funds
<TABLE>
<CAPTION>
You can direct your premiums to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
- ------------------------------------------------------------------------------------------------------------------------------
Investment Advisor or
Subaccount Investing in Investment Objectives and Policies Manager
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
VPBCA AXPSM Variable Portfolio - Objective: long-term total return exceeding that of IDS Life Insurance Company
Blue Chip Advantage Fund the U.S. stock market. Invests primarily in common (IDS Life), investment
stocks of companies included in the unmanaged S&P manager; American Express
500 Index. Financial Corporation
(AEFC) investment advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPBND AXPSM Variable Portfolio - Objective: high level of current income while IDS Life, investment
Bond Fund conserving the value of the investment for the manager; AEFC investment
longest time period. Invests primarily in advisor.
investment-grade bonds.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPCPR AXPSM Variable Portfolio - Objective: capital appreciation. Invests primarily IDS Life, investment
Capital Resource Fund in U.S. common stocks. manager; AEFC investment
advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPCMG AXPSM Variable Portfolio - Objective: maximum current income consistent with IDS Life, investment
Cash Management Fund liquidity and conservation of capital. Invests in manager; AEFC investment
money market securities. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPDEI AXPSM Variable Portfolio - Objective: a high level of current income and, as a IDS Life, investment
Diversified Equity Income secondary goal, steady growth of capital. Invests manager; AEFC investment
Fund primarily in dividend-paying common and advisor.
preferred stocks.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPEXI AXPSM Variable Portfolio - Objective: high current income, with capital growth IDS Life, investment
Extra Income Fund as a secondary objective. Invests primarily in manager; AEFC investment
long-term, high-yielding, high-risk debt securities advisor.
below investment grade issued by U.S. and foreign
corporations.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPFIF AXPSM Variable Portfolio - Objective: a high level of current income and IDS Life, investment
Federal Income Fund safety of principal consistent with an investment manager; AEFC investment
in U.S. government and government agency advisor.
securities. Invests primarily in debt obligations
issued or guaranteed as to principal and interest
by the U.S. government, its agencies or
instrumentalities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPGRO AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
Growth Fund primarily in common stocks and securities manager; AEFC investment
convertible into common stocks that appear to offer advisor.
growth opportunities.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPMGD AXPSM Variable Portfolio - Objective: maximum total investment return through IDS Life, investment
Managed Fund a combination of capital growth and current income. manager; AEFC investment
Invests primarily in stocks, convertible advisor.
securities, bonds and money market instruments.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPNDM AXPSM Variable Portfolio - Objective: long-term growth of capital. Invests IDS Life, investment
New Dimensions Fund primarily in common stocks of U.S. and foreign manager; AEFC investment
companies showing potential for significant growth. advisor.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPSCA AXPSM Variable Portfolio - Objective: long-term capital growth. Invests IDS Life, investment
Small Cap Advantage Fund primarily in common stocks of small companies that manager; AEFC investment
are often included in the S&P SmallCap 600 Index or advisor.
the Russell 2000 Index.
- ------------------------------------------------------------------------------------------------------------------------------
VACAP AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
Appreciation Fund common stocks, with emphasis on medium- and
small-sized growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
VACDV AIM V.I. Capital Objective: long-term growth of capital. Invests A I M Advisors, Inc.
Development Fund primarily in securities (including common stocks,
convertible securities and bonds) of small- and
medium-sized companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VAVAL AIM V.I. Value Fund Objective: long-term growth of capital with income A I M Advisors, Inc.
as a secondary objective. Invests primarily in
equity securities judged to be undervalued relative
to the investment advisor's appraisal of the
current or projected earnings of the companies
issuing the securities, or relative to current
market values of assets owned by the companies
issuing the securities, or relative to the equity
market generally.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VAPGR Alliance Premier Growth Objective: growth of capital by pursuing aggressive Alliance Capital
Portfolio (Class B) investment policies. Invests primarily in equity Management, L.P.
securities of a limited number of large, carefully
selected, high-quality U.S. companies that are
judged likely to achieve superior earnings growth.
As a matter of fundamental policy, the Portfolio
normally invests at least 85% of its total assets
in the equity securities of U.S. companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VATEC Alliance Technology Objective: growth of capital. Current income is Alliance Capital
Portfolio (Class B) incidental to the Portfolio's objective. Invests Management, L.P.
primarily in securities of companies
expected to benefit from
technological advances and
improvements. The Portfolio's policy
is to invest in any company and
industry and in any type of security
with potential for capital
appreciation. It invests in
well-known and established companies
and new and unseasoned companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VAUGH Alliance U.S. Objective: high level of current income consistent Alliance Capital
Government/High Grade with preservation of capital. Invest primarily in Management, L.P.
Securities Portfolio (1) U.S. Government securities and (2) other
(Class B) high-grade debt securities rated AAA, AA, A by S&P,
Duff & Phelps or Fitch, Aaa, Aa or
A, by Moody's, or, if unrated, of
equivalent quality. As a matter of
fundamental policy, the Portfolio
invests at least 65% of its total
assets in these types of securities.
The Portfolio may invest up to 35%
of its total assets in investment
grade or corporate debt securities
and CMOs.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VBCAS Baron Capital Asset Fund Objective: capital appreciation. Invests primarily BAMCO, Inc.
in securities of small and medium sized companies
with undervalued assets or favorable growth
prospects.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFGRI Fidelity VIP III Growth & Objective: high total return through a combination Fidelity Management
& Income Portfolio (Service of current income and capital appreciation. Invests Research Company (FMR),
Class) primarily in common stocks with a focus on those investment manager; FMR
that pay current dividends and show potential for U.K. and FMR Far East,
capital appreciation. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFMDC Fidelity VIP III Mid Cap Objective: long-term growth of capital. Invests FMR, investment manager;
Portfolio (Service Class) primarily in medium market capitalization common FMR U.K. and FMR Far East,
stocks. sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFOVS Fidelity VIP Overseas Objective: long-term growth of capital. Invests FMR, investment manager;
Portfolio (Service Class) primarily in common stocks of foreign securities. FMR U.K., FMR Far East,
Fidelity International
Investment Advisors
(FIIA)and FIIA U.K.,
sub-investment advisors.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFMSS FT VIP Mutual Shares Objective: capital appreciation with income as a Franklin Mutual Advisers,
Securities Fund - Class 2 secondary goal. Invests primarily in equity LLC
securities of companies that the
manager believes are available at
market prices less than their actual
value based on certain recognized or
objective criteria (intrinsic
value).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFRES FT VIP Franklin Real Objective: capital appreciation with a secondary Franklin Advisers, Inc.
Estate Fund - Class 2 goal to earn current income. Invests primarily in
securities of companies operating in
the real estate industry, primarily
equity real estate investment trusts
(REITS).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VFISC FT VIP Templeton Objective: long-term capital appreciation. Invests Templeton Investment
International Smaller primarily in equity securities of smaller companies Counsel, Inc.
Companies Fund - Class 2 located outside the U.S., including in emerging
markets.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VGCPG Goldman Sachs VIT Capital Objective: long-term growth of capital. Invests Goldman Sachs Asset
Growth Fund primarily in equity securities considered by the Management
Investment Advisor to have long-term
capital appreciation potential.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VGCUS Goldman Sachs VIT COREsm Objective: long-term growth of capital and dividend Goldman Sachs Asset
U.S. Equity Fund income. Invests primarily in a broadly diversified Management
portfolio of large-cap and blue chip equity
securities representing all major sectors of the
U.S. economy.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VGGLI Goldman Sachs VIT Global Objective: high total return, emphasizing current Goldman Sachs Asset
Income Fund income, and, to a lesser extent, providing Management International
opportunities for capital appreciation. Invests
primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign issuers
and enters into transactions in foreign currencies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VGINE Goldman Sachs VIT Objective: long-term capital appreciation. Invests Goldman Sachs Asset
International Equity Fund primarily in equity securities of companies that Management International
are organized outside the U.S., or whose securities
are principally traded outside the U.S.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VJUDE J.P. Morgan U.S. Objective: provide high total return from a J.P. Morgan
Disciplined Equity portfolio of selected equity securities through a
Portfolio disciplined management approach. Invests primarily
in large- and medium-capitalization U.S. companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VLREQ Lazard Retirement Equity Objective: long-term capital appreciation. Invests Lazard Asset Management
Portfolio primarily in equity securities, principally common
stocks of relatively large U.S.
companies (those whose total market
value is more than $1 billion) that
the Investment Manager believes are
undervalued based on their earnings,
cash flow or
asset values.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VLRIE Lazard Retirement Objective: long-term capital appreciation. Invests Lazard Asset Management
International Equity primarily in equity securities, principally common
Portfolio stocks of relatively large non-U.S. companies
(those whose total market value is more than $1
billion) that the Investment Manager believes are
undervalued based on their earnings, cash flow or
asset values.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VMNDS MFS(R) New Discovery Series Objective: capital appreciation. Invests primarily MFS Investment
in equity securities of emerging growth companies. Management(R)
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VMRES MFS(R) Research Series Objective: long-term growth of capital and future MFS Investment
income. Invests primarily in common stocks and Management(R)
related securities that have favorable prospects
for long-term growth, attractive valuations based
on current and expected earnings or cash flow,
dominant or growing market share, and superior
management.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VMUTS MFS(R) Utilities Series Objective: capital growth and current income. MFS Investment
Invests primarily in equity and debt securities of Management(R)
domestic and foreign companies in the utilities
industry.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPGRI Putnam VT Growth and Objective: capital growth and current income. Putnam Investment
Income Fund -- Class IB Invests primarily in common stocks that offer Management, Inc.
Shares potential for capital growth, current income or
both.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPIGR Putnam VT International Objective: capital appreciation. Invests primarily Putnam Investment
Growth Fund -- Class IB in equity securities of companies located in Management, Inc.
Shares countries other than the United States.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VPINO Putnam VT International Objective: long-term capital appreciation by Putnam Investment
New Opportunities Fund -- investing in companies that have above-average Management, Inc.
Class IB Shares growth prospects due to the fundamental growth of
their market sector. Invests primarily in growth
stocks issued by companies outside the United
States.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VRMCC Royce Micro-Cap Portfolio Objective: long-term growth of capital. Invests Royce & Associates, Inc.
primarily in a broadly diversified portfolio of
equity securities issued by micro-cap companies
(companies with stock market capitalizations below
$300 million).
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VRPRM Royce Premier Portfolio Objective: long-term growth of capital with current Royce & Associates, Inc.
income as a secondary objective.
Invests primarily in a limited
number of equity securities issued
by small companies with stock market
capitalization between $300 million
and $1.5 billion.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VWISC Wanger International Small Objective: long-term growth of capital. Invests Wanger Asset Management,
Cap primarily in stocks of small- and medium-sized L.P.
non-U.S. companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VWUSC Wanger U.S. Small Cap Objective: long-term growth of capital. Invests Wanger Asset Management,
primarily in stocks of small- and medium-sized U.S. L.P.
companies.
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
VWTEG Warburg Pincus Trust Objective: maximum capital appreciation. Invests Credit Suisse Asset
Emerging Growth Portfolio primarily in equity securities of small - or medium Management, LLC.
-sized U.S. emerging-growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fund objectives
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that the investment
advisor or its affiliates manage. Although the objectives and policies may be
similar, each fund will have its own portfolio holdings and its own fees and
expenses. Accordingly, each fund will have its own investment results.
The investment managers and advisors cannot guarantee that the funds will meet
their investment objectives. Please read the funds' prospectuses for facts you
should know before investing. These prospectuses are available by contacting us
at the address or telephone number on the first page of this prospectus.
All funds are available to serve as the underlying investments for variable life
insurance policies. Some funds also are available to serve as investment options
for variable annuities and qualified plans. It is possible that in the future,
it may be disadvantageous for variable annuity accounts and variable life
insurance accounts and/or qualified plans to invest in the available funds
simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, life insurance policy owners and qualified plans and to determine what
action, if any, should be taken in response to a conflict. If a board were to
conclude that it should establish separate funds for the variable annuity,
variable life insurance and qualified plan accounts, you would not bear any
expenses associated with establishing separate funds. Please refer to the fund
prospectuses for risk disclosure regarding simultaneous investments by variable
annuity, variable life insurance and qualified plan accounts.
Diversification: The Internal Revenue Service (IRS) has issued final regulations
relating to the diversification requirements under Section 817(h) of the Code.
Each fund intends to comply with these requirements.
Relationship between funds and subaccounts
Each subaccount buys shares of the appropriate fund at net asset value without a
sales charge. Dividends and capital gain distributions from a fund are
reinvested at net asset value without a sales charge and held by the subaccount
as an asset. Each subaccount redeems fund shares without a charge to the extent
necessary to make death benefit or other payments under the policy.
Rates of return of subaccounts:
Average annual rates of return in the following table reflect all charges
incurred by the funds and charges against the subaccounts (including the
mortality and expense risk charge.) The rates do not reflect the premium expense
charge, surrender charge or monthly deduction. If these charges were reflected,
the illustrated rates of return would have been lower.
Performance information for the subaccounts may appear from time to time in
advertisements or sales literature. This information reflects the performance of
a hypothetical investment in a particular subaccount during a specified time
period. Currently, we do not provide any performance information since
commencement of the subaccounts, because they are new and have not had any
activity to date. However, we show performance from the commencement date of the
funds as if the contract existed at that time which, it did not. Although we
base performance figures on historical earnings, past performance does not
guarantee future results.
Subaccount performance since commencement date of the Fund
as of 12/31/98
1 year 5 years 10 years or since
Subaccount Investing in commencement
VPBCA AXPSM Variable Portfolio - - - -
Blue Chip Advantage
Fund (9/99)*
VPBND AXPSM Variable Portfolio - 0.95% 6.20% 8.34%
Bond Fund (10/81)*
VPCPR AXPSM Variable Portfolio - 23.01 15.52 14.78
Capital Resource Fund
(10/81)*
VPCMG AXPSM Variable Portfolio - 4.56 4.36 4.76
Cash Management Fund (10/81)*
VPDEI AXPSM Variable Portfolio - - - -
Diversified Equity Income
Fund (9/99)*
VPEXI AXPSM Variable Portfolio - -5.27 - 4.30
Extra Income Fund (5/96)*
VPFIF AXPSM Variable Portfolio - - - -
Federal Income Fund (9/99)*
VPGRO AXPSM Variable Portfolio - - - -
Growth Fund (9/99)*
VPMGD AXPSM Variable Portfolio - 14.76 12.91 13.54
Managed Fund (4/86)*
VPNDM AXPSM Variable Portfolio - 27.49 - 23.18
New Dimensions Fund
(5/96)*
VPSCA AXPSM Variable Portfolio - - - -
Small Cap Advantage
Fund (9/99)*
VACAP AIM V.I. Capital 18.25 16.18 17.69
Appreciation Fund (5/93)*
VACDV AIM V.I. Capital Development - - -8.101
Fund (5/98)*
VAVAL AIM V.I. Value Fund (5/93)* 31.19 20.61 20.79
VAPGR Alliance Premier Growth - - -
Portfolio (Class B) (7/99)**
VATEC Alliance Technology - - -
Portfolio (Class B) (9/99)**
VAUGH Alliance U.S. - - -
Government/High Grade
Securities Portfolio
(Class B) (6/99)**
VBCAS Baron Capital Asset Fund - - 33.441
(10/98)*
VFGRI Fidelity VIP III Growth & 28.11 - 27.88
Income Portfolio (Service
Class) (12/96)*
VFMDC Fidelity VIP III Mid Cap - - 3.091
Portfolio (Service Class)
(12/98)*
VFOVS Fidelity VIP Overseas 5.53 6.83 7.48
Portfolio (Service Class)
(12/87)*
VFMSI FT VIP Mutual Shares -0.84 - 8.62
Securities Fund - Class 2
(11/96)*3
VFRES FT VIP Franklin Real Estate -17.57 9.04 9.31
Fund - Class 2 (1/89)*3
VFISC FT VIP Templeton -12.99 - -1.91
International Smaller
Companies Fund - Class 2
(5/96)*3
VGCPG Goldman Sachs VIT Capital - - 12.721
Growth Fund (4/98)*
VGCUS Goldman Sachs VIT CORESM - - 13.711
U.S. Equity Fund
(2/98)*
VGGLI Goldman Sachs VIT Global - - 7.351
Income Fund (1/98)*
VGINE Goldman Sachs VIT - - 19.031
International Equity Fund
(1/98)*
VJUDE J.P. Morgan U.S. Disciplined 21.69 - 24.90
Equity Portfolio (12/94)*
VLREQ Lazard Retirement Equity - - 10.101
Portfolio (3/98)*
VLRIE Lazard Retirement - - 11.971
International Equity
Portfolio
(9/98)*
VMNDS MFS(R)New Discovery Series - - 1.581
(5/98)*
VMRES MFS(R)Research Series (7/95)* 22.29 - 21.51
VMUTS MFS(R)Utilities Series (1/95)* 17.02 - 24.27
VPGRI Putnam VT Growth and Income 14.39 18.58 15.26
Fund -- Class IB Shares
(2/88)*2
VPIGR Putnam VT International 17.40 - 16.23
Growth Fund -- Class IB
Shares (1/97)*2
VPINO Putnam VT International New 14.45 - 6.411
Opportunities Fund -- Class
IB Shares (1/97)*2
VRMCC Royce Micro-Cap Portfolio 3.04 - 11.27
(12/96)*
VRPRM Royce Premier Portfolio 7.85 - 11.88
(12/96)*
VWISC Wanger International Small 15.29 - 20.32
Cap (5/95)*
VWUSC Wanger U.S. Small Cap (5/95)* 7.71 - 25.74
VWTEG Warburg Pincus Trust - - -
Emerging Growth Portfolio
(9/99)*
*(Commencement date of the fund)
**(Commencement of distribution of Class B shares)
1These numbers are YTD as of 12/31/98, not annualized.
2Performance information for Class IB shares are based on Class IA shares
adjusted to reflect payments made under the Class IB distribution Plan.
3Standardized performance for Class 2 shares reflects a blended figure,
combining: (a) for periods prior to Class 2's inception of 1/6/99, historical
results of Class 1 shares; and (b) for periods after 1/6/99, Class 2's results
reflecting an additional 12b-1 fee expense which also affects all future
performance. Blended figures assume reinvestment of dividends and capital gains.
The fixed account
You can allocate premiums to the fixed account or transfer policy value from the
subaccounts to the fixed account (with certain restrictions, explained in
"Transfers between the Fixed Account and Subaccounts").
The fixed account is the general investment account of American Enterprise Life.
It includes all assets owned by American Enterprise Life other than those in the
variable account and other separate accounts. Subject to applicable law,
American Enterprise Life has sole discretion to decide how assets of the fixed
account will be invested.
<PAGE>
Placing policy value in the fixed account does not entitle you to share in the
fixed account's investment experience, nor does it expose you to the account's
investment risk. Instead, American Enterprise Life guarantees that the policy
value you place in the fixed account will accrue interest at an effective annual
rate of at least 4.0%, independent of the actual investment experience of the
account. American Enterprise Life bears the full investment risk for amounts
allocated to the fixed account. American Enterprise Life is not obligated to
credit interest at any rate higher than 4.0%, although we may do so at our sole
discretion.
We will not credit interest in excess of 4.0% on any portion of policy value in
the fixed account against which you have a policy loan outstanding.
Because of exemptive and exclusionary provisions, interests in the fixed account
have not been registered under the Securities Act of 1933 and the fixed account
has not been registered as an investment company under the Investment Company
Act of 1940. Accordingly, neither the fixed account nor any interests in it are
subject to the provisions of these Acts and the staff of the SEC has not
reviewed the disclosures in this prospectus relating to the fixed account.
Disclosures regarding the fixed account may, however, be subject to certain
generally applicable provisions of the federal securities laws relating to the
accuracy and completeness of statements made in prospectuses.
Policy value
The value of your policy is the sum of values in the fixed account and each
subaccount of the variable account.
Fixed account value
The value in the fixed account on the policy date (when the policy is issued)
equals:
o the portion of your initial net premium allocated to the fixed account;
minus
o the portion of the monthly deduction for the first policy month
allocated to the fixed account.
On any later date, the value in the fixed account equals:
o the value on the previous monthly date; plus
o net premiums allocated to the fixed account since the last
monthly date; plus
o any transfers to the fixed account from the subaccounts, including
loan transfers, since the last monthly date; plus
o accrued interest on all of the above; plus
o any policy value credit allocated to the fixed account; minus
o any transfers from the fixed account to the subaccounts, including loan
repayment transfers, since the last monthly date; minus
o any partial surrenders or partial surrender fees allocated to the fixed
account since the last monthly date; minus
o interest on any transfers or partial surrenders, from the date of the
transfer or surrender to the date of calculation; minus
o any portion of the monthly deduction for the coming month allocated to
the fixed account if the date of calculation is a monthly date.
Subaccount values
The value in each subaccount changes daily, depending on the investment
performance of the funds in which that subaccount invests and on other factors
detailed below. There is no guaranteed minimum subaccount value. You as owner
bear the entire investment risk.
<PAGE>
Calculation of subaccount value: The value of each subaccount on the policy date
equals:
o the portion of your initial net premium allocated to the subaccount;
minus
o the portion of the monthly deduction for the first policy month
allocated to that subaccount.
The value on each subaccount on each valuation date equals:
o the value of the subaccount on the preceding valuation date, multiplied
by the net investment factor for the current valuation period
(explained below); plus
o net premiums received and allocated to the subaccount during the
current valuation period; plus
o any transfers to the subaccount (from the fixed account or other
subaccounts, including loan repayment transfers) during the period;
plus
o any policy value credit allocated to the subaccounts; minus
o any transfers from the subaccount including loan transfers during the
current valuation period; minus
o any partial surrenders and partial surrender fees allocated to the
subaccount during the period; minus
o any portion of the monthly deduction allocated to the subaccount
during the period.
The net investment factor measures the investment performance of a subaccount
from one valuation period to the next. Because performance may fluctuate, the
value of a subaccount may increase or decrease from day to day.
Accumulation units: We convert the policy value allocated to each subaccount
into accumulation units. Each time you direct a premium payment or transfer
policy value into one of the subaccounts, we credit a certain number of
accumulation units to your policy for that subaccount. Conversely, each time you
take a partial surrender or transfer value out of a subaccount, we subtract a
certain number of accumulation units.
Accumulation units are the true measure of investment value in each subaccount.
For subaccounts investing in the funds, they are related to, but not the same
as, the net asset value of the corresponding fund. The dollar value of each
accumulation unit can rise or fall daily, depending on the investment
performance of the underlying funds, and on certain charges. Here is how unit
values are calculated:
Number of units: To calculate the number of units for a particular subaccount,
we divide your investment (net premium or transfer amount) by the current
accumulation unit value.
Accumulation unit value: The current accumulation unit value for each subaccount
equals the last accumulation unit value times the current net investment factor.
Net investment factor: We determine the net investment factor at the end of each
valuation period. This factor equals
(a divided by b) - c
where:
(a) equals:
o net asset value per share of the fund; plus
o per-share amount of any dividend or capital gain distribution made by
the relevant fund to the subaccount; plus
o any credit or minus any charge for reserves to cover any tax liability
resulting from the investment operations of the subaccount.
<PAGE>
(b) equals:
o net asset value per share of the fund at the end of the
preceding valuation period; plus
o any credit or minus any charge for reserves to cover any tax
liability in the preceding valuation period.
(c) is a percentage factor representing the mortality and expense risk charge,
as described in "Loads, Fees and Charges" above.
Factors that affect subaccount accumulation units:
Accumulation units of each subaccount may change in two ways; in number and in
value. Here are the factors that influence those changes:
The number of accumulation units you own may fluctuate due to:
o additional premiums allocated to the subaccount;
o transfers into or out of the subaccount;
o partial surrenders and partial surrender fees;
o surrender charges;
o pro rata portions of the monthly deductions; and/or
o policy value credits.
Accumulation unit values will fluctuate due to:
o changes in underlying fund's net asset value;
o dividends distributed to the subaccount;
o capital gains or losses of underlying fund;
o fund operating expenses; and/or
o mortality and expense risk fees.
Policy Value Credits
Beginning in the 11th policy year and while this policy is in force, we will
periodically apply a policy value credit to your policy value.
On an annual basis, the policy value credit is an amount determined by
multiplying (a) times (b) where:
(a) is the policy value credit percentage at the time the calculation is
made; and
(b) is the policy value less indebtedness at the time the
calculation in made.
We reserve the right to calculate and apply the policy value credit on a
quarterly or monthly basis.
The policy value credit amount will be applied to the policy value on a pro-rata
basis.
Proceeds payable upon death
We will pay a benefit to the beneficiary of the policy when the insured dies.
If that death is prior to the insured's attained insurance age 100, the amount
payable is based on the specified amount and death benefit option (described
below) that you have selected, less any indebtedness.
If the insured's death is on or after the attained insurance age 100, the amount
payable is the cash surrender value.
<PAGE>
Option 1 (level amount): Under this option, the policy's value is part of the
specified amount. The Option 1 death benefit is the greater of:
o the specified amount on the date of the insured's death; or
o the applicable percentage of the policy value on the date of the
insured's death, if that death occurs on a valuation date, or on the
next valuation date following the date of death. (See table below.)
Applicable percentage table
Insured's attained Applicable Insured's attained Applicable
insurance age percentage of insurance age percentage of
policy value policy value
40 or younger 250% 61 128%
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-95 105
55 150 96 104
56 146 97 103
57 142 98 102
58 138 99 101
59 134 100 100
60 130
The percentage is designed to ensure that the policy meets the provisions of
federal tax law which require a minimum death benefit in relation to policy
value for your policy to qualify as life insurance.
<PAGE>
Option 2 (variable amount): Under this option, the policy value is added to the
specified amount. The Option 2 death benefit is the greater of:
o the policy value plus the specified amount; or
o the applicable percentage of policy value (from the preceding table) on
the date of the insureds death, if that death occurs on a valuation
date, or on the next valuation date following the date of death.
Examples: Option 1 Option 2
- --------- -------- --------
specified amount $100,000 $100,000
policy value $ 5,000 $ 5,000
death benefit $100,000 $105,000
policy value increases to $ 8,000 $ 8,000
death benefit $100,000 $108,000
policy value decreases to $ 3,000 $ 3,000
death benefit $100,000 $103,000
If you want to have premium payments and favorable investment performance
reflected partly in the form of an increasing death benefit, you should consider
Option 2. If you are satisfied with the specified amount of insurance protection
and prefer to have premium payments and favorable investment performance
reflected to the maximum extent in the policy value, you should consider Option
1. Under Option 1, the cost of insurance is lower because American Enterprise
Life's net amount at risk is generally lower; for this reason the monthly
deduction is less and a larger portion of your premiums and investment returns
is retained in the policy value.
Change in death benefit option
You may make a written request to change the death benefit option once per
policy year. A change in the death benefit option also will change the specified
amount. You do not need to provide additional evidence of insurability.
If you change from Option 1 to Option 2: The specified amount will decrease by
an amount equal to the policy value on the effective date of the change.
If you change from Option 2 to Option 1: The specified amount will increase by
an amount equal to the policy value on the effective date of the change.
An increase or decrease in specified amount resulting from a change in the death
benefit option will affect the following policy costs:
o Monthly deduction because the cost of insurance depends upon the
specified amount.
o Charges for certain optional insurance benefits.
The surrender charge will not be affected.
Changes in specified amount
Subject to certain limitations, you may make a written request to increase or
decrease the specified amount at any time. Changes in specified amount may have
tax implications, discussed in the section "Modified Endowment Contracts" under
"Federal Taxes."
<PAGE>
Increases: If you increase the specified amount, we may require additional
evidence of insurability that is satisfactory to us. The effective date of the
increase will be the monthly anniversary on or next following our approval of
the increase. The increase may not be less than $25,000, and we will not permit
an increase after the insured's attained insurance age 85.
An increase in the specified amount will have the following effect on policy
costs:
o Your monthly deduction will increase because the cost of insurance
charge depends upon the specified amount.
o Charges for certain optional insurance benefits may increase.
o The minimum monthly premium will increase if the NLG is in effect.
o The surrender charge will increase.
At the time of the increase in specified amount, the cash surrender value of
your policy must be sufficient to pay the monthly deduction on the next monthly
anniversary. The increased surrender charge will reduce the cash surrender
value. If the remaining cash surrender value is not sufficient to cover the
monthly deduction, we will require you to pay additional premiums within the
61-day grace period. If you do not, the policy will lapse unless the NLG is in
effect. Because the minimum monthly premium will increase, you may also have to
pay additional premiums to keep the NLG in effect.
Decreases: Any decrease in specified amount will take effect on the monthly
anniversary on or next following our receipt of your written request. The
specified amount remaining after the decrease may not be less than the minimum
amount shown in the policy. If, following a decrease in specified amount, the
policy would no longer qualify as life insurance under federal tax law, the
decrease may be limited to the extent necessary to meet these requirements. We
reserve the right to limit any specified amount decrease, in any policy year, to
no more than 25% of the specified amount in effect as of the date of your
request.
A decrease in specified amount will affect your costs as follows:
o Your monthly deduction will decrease because the cost of insurance
charge depends upon the specified amount.
o Charges for certain optional insurance benefits may decrease.
o The minimum monthly premium will decrease if the NLG is in effect.
o The surrender charge will not change.
No surrender charge is imposed when you request a decrease in the specified
amount.
We will deduct decreases in the specified amount from the current specified
amount in this order:
o First from the portion due to the most recent increase;
o Next from portions due to the next most recent increases
successively; and
o Then from the initial specified amount when the policy was issued.
This procedure may affect the cost of insurance if we have applied different
risk classifications to the current specified amount. We will eliminate the risk
classification applicable to the most recent increase in the specified amount
first, then the risk classification applicable to the next most recent increase,
and so on.
<PAGE>
Misstatement of age or sex
If the insured's age or sex has been misstated, the proceeds payable upon death
will be:
o the policy value on the date of death; plus
o the amount of insurance that would have been purchased by the cost of
insurance deducted for the policy month during which death occurred, if
that cost had been calculated using rates for the correct age and sex;
minus
o the amount of any outstanding indebtedness on the date of death.
Suicide
Suicide by the insured, whether sane or insane, within two years from the policy
date is not covered by the policy. If suicide occurs, the only amount payable to
the beneficiary will be the premiums paid, minus the amount of any outstanding
indebtedness and partial surrenders.
In Colorado and North Dakota, the suicide period is shortened to one year. In
Missouri, American Enterprise Life must prove that the insured intended to
commit suicide at the time he or she applied for coverage.
Beneficiary
Initially, the beneficiary will be the person you designate in your application
for the policy. You may change the beneficiary by giving written notice to
American Enterprise Life, subject to requirements and restrictions stated in the
policy. If you do not designate a beneficiary, or if the designated beneficiary
dies before the insured, the beneficiary will be you or your estate.
Transfers between the fixed account and subaccounts
You may transfer policy values from one subaccount to another or between
subaccounts and the fixed account. For most transfers, we will process your
transfer request at the end of the valuation period during which we receive your
request. There is no charge for transfers. Before transferring policy value, you
should consider the risks involved in switching investments.
We may suspend or modify the transfer privilege at any time with the necessary
approval of the SEC. Transfers involving the fixed account are subject to the
restrictions below.
Fixed account transfer policies
o You must make transfers from the fixed account during a 30-day period
starting on a policy anniversary, except for automated transfers, which
can be set up at any time for transfer periods of your choosing subject
to certain minimums.
o If we receive your request to transfer amounts from the fixed account
within 30 days before the policy anniversary, the transfer will become
effective on the anniversary.
o If we receive your request on or within 30 days after the policy
anniversary, the transfer will be effective on the day we receive it.
o We will not accept requests for transfers from the fixed account at
any other time.
o If you made a transfer from the fixed account to one or more
subaccounts, you may not make a transfer from any subaccount back to
the fixed account until the next policy anniversary. We will waive this
limitation once during the first two policy years if you exercise the
policy's right to exchange provision. (See "Exchange right" under
"Policy Surrenders").
<PAGE>
Minimum transfer amounts
From a subaccount to another subaccount or the fixed account:
o For mail and phone transfers--$250 or the entire subaccount balance,
whichever is less.
o For automated transfers--$50.
From the fixed account to a subaccount:
o $250 or the entire fixed account balance, minus any outstanding
indebtedness, whichever is less.
o For automated transfers--$50.
Maximum transfer amounts
From a subaccount to another subaccount or the fixed account:
o Entire subaccount balance.
From the fixed account to a subaccount:
o Entire fixed account balance, minus any outstanding indebtedness.
Maximum number of transfers per year
We reserve the right to limit mail and telephone transfers to 12 per policy
year. Twelve automated transfers per policy are allowed.
Two ways to request a transfer, loan or surrender
Provide your name, policy number, Social Security Number or Taxpayer
Identification Number when you request a transfer.
1 By letter
Regular mail:
American Enterprise Life Insurance Company
P.O. Box 290679
Wethersfield, CT 06129-0679
Express mail:
American Enterprise Life Insurance Company
Attention: AEL Service Center
1290 Silas Deane Highway
Suite 102
Wethersfield, CT 06109
2 By phone
Call between 8 a.m. and 6 p.m. Central Time:
1-800-333-3437 (toll free) or
(612) 671-7700 (Minneapolis area)
TTY service for the hearing impaired:
1-800-285-8846 (toll free)
<PAGE>
o We answer phone requests promptly, but you may experience delays when
call volume is unusually high. If you are unable to get through, use
mail procedure as an alternative.
o We will honor any telephone transfer or surrender request we believe is
authentic and we will use reasonable procedures to confirm that it is.
These procedures include asking identifying questions and tape
recording calls. As long as we follow these procedures, American
Enterprise Life and its affiliates will not be liable for any loss
resulting from fraudulent requests.
o We make telephone transfers available automatically. If you do not want
telephone transfers to be made from your account, please write to
American Enterprise Life and tell us.
Automated transfers
In addition to written and telephone requests, you can arrange to have policy
value transferred from one account to another automatically. Your financial
advisor can help you set up an automated transfer.
Automated transfer policies:
o Minimum automated transfer amount: $50
o Only one automated transfer arrangement can be in effect at any time.
You can transfer policy values to one or more subaccounts and the fixed
account, but you can transfer from only one account.
o You can start or stop this service by written request. You must allow
seven days for us to change any instructions that currently are in
place.
o You cannot make automated transfers from the fixed account in an amount
that, if continued, would deplete the fixed account within 12 months.
o If you made a transfer from the fixed account to one or more
subaccounts, you may not make a transfer from any subaccount back to
the fixed account until the next policy anniversary.
o If you submit your automated transfer request with an application for a
policy, automated transfers will not take effect until the policy is
issued.
o If the value of the account from which you are transferring policy
value is less than the $50 minimum, we will stop the transfer
arrangement automatically.
o Automated transfers are subject to all other policy provisions and
terms including provisions relating to the transfer of money between
the fixed account and the subaccounts.
Automated dollar-cost averaging
You can use automated transfers to take advantage of dollar-cost averaging --
investing a fixed amount at regular intervals. For example, you might have a set
amount transferred monthly from a relatively conservative subaccount to a more
aggressive one, or to several others.
This systematic approach can help you benefit from fluctuations in accumulation
unit value, caused by fluctuations in the market value of the underlying fund.
Since you invest the same amount each period, you automatically acquire more
units when the market value falls, fewer units when it rises. The potential
effect is to lower your average cost per unit. There is no charge for
dollar-cost averaging.
<PAGE>
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
Jan $100 $20 5.00
Feb 100 16 6.25
Mar 100 9 11.11
Apr 100 5 20.00
May 100 7 14.29
June 100 10 10.00
July 100 15 6.67
Aug 100 20 5.00
Sept 100 17 5.88
Oct 100 12 8.33
(footnotes to table) By investing an equal number of dollars each month...
(arrow in table pointing to April) you automatically buy more units when the per
unit market price is low...
(arrow in table pointing to August) and fewer units when the per unit market
price is high.
You have paid an average price of only $10.81 per unit over the 10 months, while
the average market price actually was $13.10.
Dollar-cost averaging does not guarantee that any variable subaccount will gain
in value, nor will it protect against a decline in value if market prices fall.
Because this strategy involves continuous investing, your success with
dollar-cost averaging will depend upon your willingness to continue to invest
regularly through periods of low price levels. Dollar-cost averaging can be an
effective way to help meet your long-term goals.
Asset rebalancing
You can ask us in writing to automatically rebalance the subaccount portion of
your policy value either quarterly, semi-annually or annually. The period you
select will start to run on the date we record your request. On the first
valuation date of each of these periods, we automatically will rebalance your
policy value so that the value in each subaccount matches your current
subaccount percentage allocations. These percentage allocations must be in whole
numbers. Asset rebalancing does not apply to the fixed account. There is no
charge for asset rebalancing.
You can change your percentage allocations or your rebalancing period at any
time by contacting us in writing. We will restart the rebalancing period you
selected as of the date we record your change. You also can ask us in writing to
stop rebalancing your policy value. You must allow 30 days for us to change any
instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
<PAGE>
Policy loans
You may borrow against your policy by written or telephone request. (See chart
under "Transfers between the Fixed Account and Subaccounts" for address and
telephone numbers for your requests.) We will process your loan request at the
end of the valuation period during which we receive your request. (Loans by
telephone are limited to $50,000.)
Interest rate: The interest rate for policy loans is 6% per year. After the 10th
anniversary we expect to reduce the loan interest to 4% per year. Interest is
charged daily and due at the end of the policy year.
Minimum loan:
o $500 ($200 for Connecticut residents).
Maximum loan:
o In Texas, 100% of the policy value in the fixed account, minus a pro
rata portion of surrender charges.
o In Alabama, 100% of the policy value minus surrender charges.
o In all other states, 90% of the policy value minus surrender charges.
We will compute the maximum loan value as of the end of the valuation period
during which we receive your loan request. The amount available at any time for
a new loan is the maximum loan value less any existing indebtedness. When we
compute the amount available, we reserve the right to deduct from the loan value
interest for the period until the next policy anniversary and monthly deductions
that we will take until the next policy anniversary.
Payment of loaned funds: Generally, we will pay loans within seven days after we
receive your request (with certain exceptions - see "Deferral of payments,"
under "Payment of Policy Proceeds.")
Allocation of loans to accounts: If you do not specify whether the loan is to
come from the fixed account or the subaccounts, we will take it from the
subaccounts and the fixed account on a pro rata basis minus indebtedness. When
we make a loan from a subaccount, we redeem accumulation units and transfer the
proceeds into the fixed account. We will credit the loaned amount with 4.0%
annual interest.
Repayments: We will allocate loan repayments to subaccounts and/or the fixed
account using the premium allocation percentages in effect unless you tell us
otherwise. Repayments must be in amounts of at least $25.
Overdue interest: If you do not pay accrued interest when it is due, we will
increase the amount of indebtedness in the fixed account to cover the amount
due. Interest added to a policy loan will be charged the same interest rate as
the loan itself. We will take the interest from the fixed account and
subaccounts on a pro rata basis.
Effects of policy loans: If you do not repay your loan, it will reduce the death
benefit and cash surrender value. Even if you do repay it, your loan can have a
permanent effect on death benefits and policy values, because money you borrow
against the subaccounts will not share in the investment results of the relevant
fund(s).
A loan may terminate the no lapse guarantee. We deduct the loan amount from the
total premiums you pay, which may reduce the total below the level required to
keep the NLG in effect.
Taxes: If your policy lapses or you surrender it with an outstanding
indebtedness, and the amount of outstanding indebtedness plus the cash surrender
value is more than the sum of premiums you paid, you generally will be liable
for taxes on the excess. (See "Federal Taxes.")
<PAGE>
Policy surrenders
You may surrender your policy in full or in part by written or telephone
request. (See chart under "Transfers between the Fixed Account and
Subaccounts.") We will process your surrender request at the end of the
valuation period during which we receive your request. We may require you to
return your policy.
We normally will process your payment within seven days; however, we reserve the
right to defer payment. (See "Deferral of payments," under "Payment of Policy
Proceeds.")
Total surrenders
If you totally surrender your policy, you receive its cash surrender value--the
policy value minus outstanding indebtedness and applicable surrender charges.
(See "Loads, Fees and Charges.") We will compute the value of each subaccount as
of the end of the valuation period during which we receive your request.
Partial surrenders
After the first policy year, you may surrender any amount from $500 up to 90% of
the policy's cash surrender value. (Partial surrenders by telephone are limited
to $50,000.) We will charge you a partial surrender fee, described under "Loads,
Fees and Charges."
Allocation of partial surrenders
Unless you specify otherwise, American Enterprise Life will make partial
surrenders from the fixed account and subaccounts on a pro-rata basis at the end
of the valuation period during which we receive your request. In determining
these proportions, we first subtract the amount of any outstanding indebtedness
from the fixed account value.
Effects of partial surrenders
o A partial surrender will reduce the policy value by the amount of the
partial surrender and fee.
o A partial surrender may terminate the no lapse guarantee. We deduct the
surrender amount from total premiums you paid, which may reduce the
total below the level required to keep the no lapse guarantee in
effect.
o If Option 1 is in effect, a partial surrender will reduce the specified
amount by the amount of the partial surrender and fee. American
Enterprise Life will deduct this decrease from the current specified
amount in this order:
o First from the portion due to the most recent increase;
o Next from portions due to the next most recent increases
successively; and
o Then from the initial specified amount when the policy was
issued.
(See "Decreases" under "Proceeds Payable Upon Death.")
o If Option 2 is in effect, a partial surrender does not affect
the specified amount.
Taxes
Upon surrender, you generally will be liable for taxes on any excess of the cash
surrender value plus outstanding indebtedness over the premium paid. (See
"Federal Taxes.")
Exchange right
For two years after we issue the policy, you can exchange it for one that
provides benefits that do not vary with the investment return of the
subaccounts. Because the policy itself offers a fixed return option, all you
need to do is transfer all of the policy value in the subaccounts to the fixed
account. We automatically will credit all future premium payments to the fixed
account unless you request a different allocation.
<PAGE>
A transfer for this purpose will not count against the 12-transfers-per-year
limit. Also, we will waive any restrictions on transfers into the fixed account
for this type of transfer.
There is no effect on the policy's death benefit, specified amount, net amount
at risk, risk classification or issue age. Only the method of funding the policy
value will be affected.
In Connecticut, during the first 18 months after the policy is issued, you have
the right to exchange the policy for a policy of permanent fixed benefit life
insurance we are then offering.
We will not require evidence of insurability. We will require that:
1. this policy is in force; and
2. your request is in writing; and
3. you repay any existing indebtedness.
The new policy will have the same initial death benefit, policy date and issue
age as this policy. The premium for the new policy will be based on our rates in
effect on its policy date for the same class of risk as under this policy.
We will inform you of the premium for the new policy and any extra sum required
or allowance to be made for a cash surrender value adjustment that takes
appropriate account of the values under both this policy and the new policy if
the cash surrender value of this policy exceeds the cash surrender value of the
new policy, the excess will be sent to you. If the cash surrender value of this
policy is less than the cash surrender value of the new policy, you will be
required to send us the shortage amount for this exchange to be completed.
Optional insurance benefits
You may choose to add the following benefits to your policy at an additional
cost, in the form of riders (if you meet certain requirements). More detailed
information on these benefits is in your policy.
Waiver of monthly deduction (WMD): Under WMD, we will waive the monthly
deduction if the insured becomes totally disabled.
Accidental death benefit (ADB): ADB provides an additional death benefit if the
insured's death is caused by accidental injury.
Term insured rider (TIR): TIR provides an additional level, adjustable death
benefit on the base insured.
Additional insured rider (AIR): AIR provides a level, adjustable death benefit
on the life of each additional insured covered.
Children's insurance rider (CIR): CIR provides level term coverage on each
eligible child.
Payment of policy proceeds
We will pay policy proceeds when:
o you surrender the policy; or
o the insured dies.
We will pay all proceeds by check. We will compute the amount of the death
proceeds and pay it in a single sum unless you select one of the payment options
below. We will pay interest at a rate of at least 4% per year (8% in Arkansas,
11% in Florida) on single sum death proceeds, from the date of the insured's
death to the settlement date (the date on which we pay the proceeds in a lump
sum or first place them under a payment option).
<PAGE>
Payment options:
During the insured's lifetime, you may request in writing that we pay policy
proceeds under one or more of the three payment options below. (The beneficiary
also may select a payment option, unless you say that he or she cannot.) You
decide how much of the proceeds to place under each option (minimum: $5,000). We
will transfer any such amount to American Enterprise Life's general account.
Unless we agree otherwise, we must make payments under all options to a natural
person.
You also may make a written request to us to change a prior choice of payment
option or, if we agree, to elect a payment option other than the three below.
If you elect a payment option for pre-death proceeds, payments under this option
may be subject to federal income tax as ordinary income. If you elect Option A,
the full pre-death proceeds will be taxed as a full surrender or maturity as
described in "Taxation of policy proceeds" and also may be subject to an
additional 10% penalty tax if the policy is a modified endowment. The interest
paid under Option A will be ordinary income subject to income tax in the year
earned. The interest payments will not be subject to the 10% penalty tax.
If you elect Option B or Option C for payment of pre-death proceeds, any
indebtedness at the time of election will be taxed as a partial surrender as
described in "Taxation of policy proceeds" and also may be subject to an
additional 10% penalty tax if the policy is a modified endowment. We will use
the remainder of the proceeds to make payments under the option elected. A
portion of each payment will be taxed as ordinary income and a portion of each
payment will be considered a return of the investment in the policy and will not
be taxed. We describe an owner's investment in the policy. (See "Taxation of
policy proceeds" under "Federal Taxes"). All payments we make after the
investment in the policy is fully recovered will be subject to tax. Amounts we
pay under Option B or Option C that are subject to tax also may be subject to an
additional 10% penalty tax. (See "Penalty tax" under "Federal Taxes").
Death benefit proceeds applied to any payment option are not considered part of
the beneficiary's income and therefore are not subject to federal income tax.
Payments of interest under Option A will be ordinary income subject to tax.
Under Option B or Option C, a portion of each payment will be ordinary income
subject to tax and a portion of each payment will be considered a return of the
beneficiary's investment in the policy which is not subject to tax. The
beneficiary's investment in the policy is the death benefit proceeds we apply to
the payment option. All payments we make after the investment in the policy is
fully recovered will be subject to tax.
Option A -- Interest payments: We will pay interest on any proceeds placed under
this option at a rate of 3% per year compounded annually, at regular intervals
and for a period that is agreeable to both you and us. At the end of any payment
interval, you may withdraw proceeds in amounts of at least $100. At any time,
you may withdraw all of the proceeds that remain or you may place them under a
different payment option approved by us.
Option B -- Payments for a specified period: We will make fixed monthly payments
for any number of years you specify. Here are examples of monthly payments for
each $1,000 placed under this option:
Payment period Monthly payment per $1,000
(years) placed under Option B
10 $ 9.61
15 6.87
20 5.51
25 4.71
30 4.18
We will furnish monthly amounts for other payment periods at your request,
without charge.
<PAGE>
Option C -- Lifetime income: We will make monthly payments for the life of the
person (payee) who is to receive the income. We will guarantee payment for 5, 10
or 15 years.
We will base the amount of each monthly payment per $1,000 placed under this
option on the table of settlement rates in effect at the time of the first
payment. The amount depends on the sex and age of the payee on that date.
The amount of each monthly payment per $1,000 placed under this option will be
at least the amounts shown in the following table.
We will furnish monthly amounts for any adjusted age not shown at your request,
without charge.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Life Income per $1,000 with Payments Guaranteed for 5, 10 and 15 Years
- -------------------------------------------------------------------------------------------------------------
- --------------- ------------- ------------------------- -------------------------- --------------------------
Age Payee Settlement 5 Years 10 Years 15 Years
- --------- ----------- ------- -------- --------
Beginning
---------
in Year Male Female Male Female Male Female
------- ----------- ----------- -----------
- --------------- ------------- ------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
65 2005 5.26 4.66 5.15 4.62 4.95 4.53
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2010 5.17 4.60 5.07 4.55 4.89 4.48
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2015 5.09 4.53 4.99 4.49 4.83 4.42
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2020 5.01 4.47 4.92 4.44 4.77 4.38
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2025 4.94 4.42 4.86 4.39 4.72 4.33
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2030 4.87 4.37 4.79 4.34 4.67 4.29
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
70 2005 6.12 5.35 5.87 5.24 5.48 5.05
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2010 6.01 5.26 5.77 5.16 5.41 4.99
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2015 5.89 5.17 5.68 5.08 5.35 4.93
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2020 5.79 5.09 5.59 5.01 5.29 4.87
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2025 5.69 5.01 5.51 4.94 5.23 4.82
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2030 5.59 4.94 5.43 4.88 5.17 4.76
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
75 2005 7.27 6.33 6.72 6.07 6.00 5.65
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2010 7.11 6.20 6.61 5.97 5.94 5.59
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2015 6.96 6.08 6.50 5.87 5.88 5.52
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2020 6.82 5.97 6.40 5.78 5.83 5.46
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2025 6.68 5.86 6.30 5.69 5.77 5.40
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
2030 6.55 5.76 6.21 5.60 5.72 5.34
- --------------- ------------- ------------ ------------ ------------- ------------ ------------- ------------
</TABLE>
Deferral of payments:
We reserve the right to defer payments of cash surrender value, policy loans or
variable death benefits in excess of the specified amount if:
o the payments derive from a premium payment made by a check that has not
cleared the banking system (we have not collected good payment);
o the New York Stock Exchange (NYSE) is closed (other than customary
weekend and holiday closings);
o in accordance with SEC rules, trading on the NYSE is restricted or,
because of an emergency, it is not practical to dispose of securities
held in the subaccount or determine the value of the subaccount's net
assets.
<PAGE>
We may delay the payment of any loans or surrenders from the fixed account up to
six months from the date we receive the request. If we postpone the payment of
surrender proceeds more than 30 days, we will pay you interest on the amount
surrendered at an annual rate of 3% for the period of postponement.
Federal taxes
The following is a general discussion of the policy's federal income tax
implications. It is not intended as tax advice. Because the effect of taxes on
the value and benefits of your policy depends on your individual situation as
well as American Enterprise Life's tax status, YOU SHOULD CONSULT A TAX ADVISOR
TO FIND OUT HOW THESE GENERAL CONSIDERATIONS APPLY TO YOU. The discussion is
based on our understanding of federal income tax laws as the Internal Revenue
Service (IRS) currently interprets them; both the laws and their interpretation
may change.
We intend the policy to qualify as a life insurance policy for federal income
tax purposes. To that end, the provisions of the policy are to be interpreted to
ensure or maintain this tax qualification. American Enterprise Life reserves the
right to change the policy in order to ensure that it will continue to qualify
as life insurance for tax purposes. We will send you a copy of any changes.
American Enterprise Life's tax status
The IRS taxes American Enterprise Life as a life insurance company under the
Code. For federal income tax purposes, we consider the subaccounts to be a part
of American Enterprise Life, although we treat their operations separately in
accounting and financial statements. We reinvest the investment income from the
subaccounts and it becomes part of the subaccounts' value. The IRS does not tax
American Enterprise Life on this investment income, including realized capital
gains. Therefore, American Enterprise Life does not charge the subaccounts for
our federal income taxes. American Enterprise Life reserves the right to make
such a charge in the future if there is a change in the tax treatment of
subaccounts or variable life insurance contracts or in American Enterprise
Life's tax status as we currently understand it.
Taxation of policy proceeds
The IRS does not consider the death benefit to be part of the beneficiary's
income and therefore it is not subject to federal income taxes. When we pay the
proceeds after the insured has attained insurance age 100 and the amount
received plus any indebtedness exceeds your investment in the policy, the IRS
may tax the excess as ordinary income.
The IRS may tax part or all of any pre-death proceeds that you receive through
full surrender or maturity, lapse, partial surrender, policy loan or assignment
of policy value or payment options as ordinary income. (See the following
table.) In some cases, the tax liability depends on whether the policy is a
modified endowment (explained following the table). The taxable amount also may
be subject to an additional 10% penalty tax if the policy is a modified
endowment.
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Source of proceeds Taxable portion of pre-death proceeds
Full surrender: Amount you receive plus any indebtedness,
minus your investment in the policy.*
Lapse: Any outstanding indebtedness minus your
investment in the policy.*
Partial surrenders Lesser of:
(modified endowments): the amount you receive or policy value minus
your investment in the policy.*
Policy loans and assignments Lesser of:
(modified endowments) the amount of the loan/assignment or policy
value minus your investment in the policy.*
Partial surrenders Generally, if the amount you receive is
(other policies): greater than your investment in the policy,*
the amount in excess of your investment is taxable.
However, during the first 15 policy years, a
different amount may be taxable if the partial
surrender results in or is caused by a reduction
in benefits.
Policy loans and assignments None
(other policies):
Payment options: If we pay the proceeds of the policy
under one of the payment options, See the "Payment
option" under "Payment of Policy Proceeds" section
for tax information.
</TABLE>
* The owner's investment is equal to premiums paid, minus the nontaxable portion
of any previous partial surrenders, plus the taxable portion of any previous
policy loans.
Modified endowment contracts
In 1988, Congress created a new class of life insurance policies called
"Modified Endowment Contracts." The IRS taxes these policies differently from
conventional life insurance contracts.
Your policy is a modified endowment contract if:
o you apply for it or materially change it on or after June 21, 1988 and
o the premiums you pay in the first seven years of the policy, or the
first seven years following a material change, exceed certain limits.
Also, any life insurance policy you receive in exchange for a modified endowment
is itself a modified endowment.
We have procedures for monitoring whether your policy may become a modified
endowment contract. We calculate modified endowment limits when we issue the
policy. We base these limits on the benefits we provide under the policy and on
the risk classification of the insured. We recalculate these limits later if
certain increases or reductions in benefits occur.
<PAGE>
Increases in benefits: We recalculate limits when an increase is a "material
change." Almost any increase you request, such as an increase in specified
amount, the addition of a rider benefit or an increase in an existing rider
benefit, is a material change. An automatic increase under the terms of your
policy, such as an increase in death benefit due to operation of the applicable
percentage table described in the "Proceeds Payable upon Death" section or an
increase in policy value growth under Option 2, generally is not a material
change. A policy becomes a modified endowment if premiums you pay in the early
years following a material change exceed the recalculated limits.
Reductions in benefits: When you reduce benefits within seven years after we
issue the policy or after the most recent material change, we recalculate the
limits as if the reduced level of benefits had always been in effect. In most
cases, this recalculation will further restrict the amount of premiums that you
can pay without exceeding modified endowment limits. If the premiums you have
already paid exceed the recalculated limits, the policy becomes a modified
endowment even if you do not pay any further premiums.
Distributions affected: Modified endowment rules apply to distributions in the
year the policy becomes a modified endowment and in all subsequent years. In
addition, the rules apply to distributions taken two years before the policy
becomes a modified endowment because the IRS presumes that you took a
distribution in anticipation of that event.
Serial purchase of modified endowments: The IRS treats all modified endowments
issued by the same insurer (or affiliated companies of the insurer) to the same
owner during any calendar year as one policy for purposes of determining the
amount of any loan or distribution that is taxable.
Penalty tax: If a policy is a modified endowment, the taxable portion of
pre-death proceeds from a full surrender, maturity, lapse, partial surrender,
policy loan or assignment of policy value or certain payment options may be
subject to a 10% penalty tax unless:
o the distribution occurs after the owner attains age 59-1/2;
o the distribution is attributable to the owner becoming disabled
(within the meaning of Code Section 72(m)(7); or
o the distribution is part of a series of substantially equal periodic
payments made at least once a year over the life (or life expectancy)
of the owner or over the joint lives (or life expectancies) of the
owner and the owner's beneficiary.
Other tax considerations
Interest paid on policy loans: If you use a policy loan for personal purposes,
interest paid on the loan is not tax-deductible. Other rules apply if you use
the loan for trade or business or investment purposes or if a business or
corporation owns the policy from which the loan is taken.
Policy changes: Changing ownership, exchanging or assigning the policy may have
tax consequences, depending on the circumstances.
Other taxes: Federal estate tax, state and local estate tax, inheritance tax,
gift tax and other tax consequences of ownership or receipt of policy proceeds
also will depend on the circumstances.
Qualified retirement plans: The policy may be used in conjunction with certain
qualified plans. Since the rules governing such use are complex, a purchaser
should consult a competent pension consultant.
On July 6, 1983, the Supreme Court held in Arizona Governing Committee v. Norris
that optional annuity benefits provided under an employee's deferred
compensation plan could not, under Title VII of the Civil Rights Act of 1964,
vary between men and women on the basis of sex. Since the policy's cost of
insurance rates and purchase rates for certain settlement options distinguish
between men and women, employers and employee organizations should consult with
legal counsel before purchasing the policy for any employment-related insurance
or benefit program.
<PAGE>
American Enterprise Life
American Enterprise Life is a stock life insurance company organized under the
laws of the State of Indiana in 1981. Its administrative offices are located at
80 South Eighth Street, Minneapolis, MN 55402. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
American Enterprise Life issues the life insurance policies.
Ownership
American Enterprise Life is a wholly owned subsidiary of IDS Life Insurance
Company (IDS Life), which is a wholly owned subsidiary of American Express
Financial Corporation (AEFC). AEFC, a Delaware corporation, is a wholly owned
subsidiary of American Express Company.
The AEFC family of companies offers not only insurance and annuities, but also
mutual funds, investment certificates and a broad range of financial management
services.
Besides managing investments for all funds in the American Express(R) Funds,
AEFC also manages investments for itself and its subsidiaries, IDS Certificate
Company and IDS Life Insurance Company. Total assets under management as of the
most recent fiscal year were more than $227 billion.
State regulation
American Enterprise Life is subject to the laws of Indiana governing insurance
companies and to regulation by the Indiana Department of Insurance. In addition,
American Enterprise Life is subject to regulation under the insurance laws of
other jurisdictions in which it operates. American Enterprise Life files an
annual statement in a prescribed form with Indiana's Department of Commerce and
in each state in which American Enterprise Life does business. American
Enterprise Life's books and accounts are subject to review by the Indiana
Department of Commerce at all times and a full examination of its operations is
conducted periodically. Such regulation does not, however, involve any
supervision of management or investment practices or policies.
Distribution of the policy
American Express Financial Advisors Inc. (AEFA), a registered broker/dealer,
serves as the principal underwriter for the life insurance policy. AEFA is a
wholly owned subsidiary of AEFC, which is a wholly owned subsidiary of American
Express Company. Broker-dealers who have entered into distribution agreements
with AEFA and American Enterprise Life will distribute the life insurance
policies.
American Enterprise Life will pay commissions for sales of policies to insurance
agencies or broker-dealers that are also insurance agencies. These commissions
will be up to 95% of the initial target premium (annualized), plus up to 2% of
all premiums in excess of the target premium. In addition, American Enterprise
Life may pay certain sellers additional compensation for selling and
distribution activities under certain circumstances. From time to time, American
Enterprise Life will pay or permit other promotional incentives, in cash or
credit or other compensation.
<PAGE>
Legal proceedings
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and AEFC do business involving
insurers' sales practices, alleged agent misconduct, failure to properly
supervise agents, and other matters. American Enterprise Life and AEFC, like
other life and health insurers, from time to time are involved in such
litigation. On October 13, 1998 an action entitled Richard Thoresen and
Elizabeth Thoresen vs. AEFC, American Partners Life Insurance Company, American
Enterprise Life Insurance Company, American Centurion Life Assurance Company,
IDS Life Insurance Company and IDS Life Insurance Company of New York was
commenced in Minnesota State Court. The action was brought by individuals who
purchased an annuity in a qualified plan. They allege that the sale of annuities
in tax-deferred contributory retirement investment plans (e.g. IRAs) is never
appropriate. The plaintiffs purport to represent a class consisting of all
persons who made similar purchases. The plaintiffs seek damages in an
unspecified amount. American Enterprise Life also is a defendant in various
other lawsuits. In American Enterprise Life's opinion, none of these lawsuits
will have a material adverse effect on our financial condition.
Year 2000
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 Enterprise Life
and the variable account. American Enterprise Life and the variable account are
utilized by multiple subsidiaries maintained by AEFC and affiliates of AEFC.
American Enterprise Life's and the variable account'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 has
been conducted to identify the major systems that could be affected by the Year
2000 issue. Steps are being taken to resolve potential problems including
modification to existing software and the purchase of new software. AEFC's
target date for substantially completing corrective measures on internal
business critical systems was Dec. 31, 1998. As of June 30, 1999, AEFC completed
its program of corrective measures on its internal systems and applications,
including Year 2000 compliance testing. The Year 2000 readiness of unaffiliated
investment managers and other third parties whose system failures could have an
impact on American Enterprise Life's and the variable account's operations
continues to be evaluated.
AEFC's Year 2000 project includes 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. These plans are being amended to include specific Year 2000
considerations and will continue to be refined throughout 1999 as additional
information related to potential Year 2000 exposure is gathered.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1998 and 1997, and for
each of the three years in the period ended Dec. 31, 1998, as set forth in their
report. We've included our financial statements in the prospectus in reliance on
Ernst & Young LLP's report, given on their authority as experts in accounting
and auditing.
Actuarial matters included in the prospectus have been examined by Mark Gorham,
F.S.A., M.A.A.A., Actuarial Director, Insurance Product Development, as stated
in his opinion filed as an exhibit to the Registration Statement.
<PAGE>
Management of American Enterprise Life
Directors
James E. Choat
Director, president and chief executive officer since 1996; senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Director and chairman of the board since March 1994.
Paul S. Mannweiler*
Director since 1986. Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Director and executive vice president, Assured Assets since 1998; vice
president, AEFC since 1998; Piper Capital Management (PCM) President from
October 1997 to May 1998; PCM Director of Marketing from June 1995 to October
1997; PCM Director of Retail from December 1993 to June 1995.
William A. Stoltzmann
Director since September 1989; vice president, general counsel and secretary
since 1985.
Officers other than directors
Jeffrey S. Horton
Vice president and treasurer since December 1997; vice president and corporate
treasurer, AEFC, since December 1997; controller, American Express
Technologies-Financial Services, AEFC, from July 1997 to December 1997;
controller, Risk Management Products, AEFC, from May 1994 to July 1997; director
of finance and analyses, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Vice president and controller since 1998. Vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analyses from 1992 to 1997.
The address for all of the directors and principal officers is: IDS Tower 10,
Minneapolis, MN 55440-0010 (except for Paul S. Mannweiler). *Mr. Mannweiler is
an independent director whose address is: 201 No. Illinois Street, Indianapolis,
IN 46204.
The officers, employees and sales force of IDS Life are bonded, in the amount of
$100 million, by virtue of a blanket fidelity bond issued to American Express
Company by Saint Paul Fire and Marine, the lead underwriter.
Other information
The variable account has filed a registration statement with the SEC. For
further information concerning the policy, the variable account and American
Enterprise Life, please refer to the registration statement. You can find the
registration statement on the SEC's web site at http://www.sec.gov.
Substitution of investments
We may change the funds from which the subaccounts buy shares if:
o the existing funds become unavailable, or
o in the judgment of American Enterprise Life, or
o the funds are no longer suitable for the subaccounts.
<PAGE>
If these situations occur, we have the right to substitute the funds held in the
subaccounts for other registered, open-end management investment companies as
long as we believe it would be in the best interest of persons having voting
rights under the policies.
In the event of any such substitution or change, American Enterprise Life may,
without the consent or approval of owners, amend the policy and take whatever
action is necessary and appropriate. However, we will not make any substitution
or change without any necessary approval of the SEC or state insurance
departments. American Enterprise Life will notify owners within five days of any
substitution or change.
Voting rights
As a policy owner with investments in any subaccount, you may vote on important
fund matters. Each share of a fund has one vote.
American Enterprise Life is the owner of all fund shares and therefore holds all
voting rights. However, American Enterprise Life will vote the shares of each
fund according to instructions we receive from owners. If we do not receive
timely instructions from you, we will vote your shares in the same proportion as
the shares for which we do receive instructions. American Enterprise Life also
will vote fund shares that are not otherwise attributable to owners in the same
proportion as those shares in that subaccount for which we receive instructions.
We determine the number of fund shares in each subaccount for which you may give
instructions by applying your percentage interest in the subaccount to the total
number of votes attributable to the subaccount. We will determine that number as
of a date we choose that is 60 days or less before the meeting of the fund. We
will send you notice of each shareholder meeting, together with any proxy
solicitation materials and a statement of the number of votes for which you are
entitled to give instructions.
Under certain conditions, American Enterprise Life may disregard voting
instructions that would change the goals of one or more of the funds or would
result in approval or disapproval of an investment advisory contract. If
American Enterprise Life does disregard voting instructions, we will advise you
of that action and the reasons for it in our next report to owners.
Reports
At least once a year American Enterprise Life will mail to you, at your last
known address of record, a report containing all information required by law or
regulation, including a statement showing the current policy value.
Policy illustrations
The following tables illustrate how policy values, cash surrender values and
death benefits may change with the investment experience of the subaccount. The
tables show how these amounts might vary, for a 35-year-old male nonsmoker,
under Death Benefit Option 1, if:
o the annual rate of return of the fund is 0%, 6% or 12%.
o the cost of insurance rates and policy fees are current rates or
guaranteed rates and fees.
This type of illustration involves a number of detailed assumptions. (See chart,
"Understanding the illustrations.") To the extent that your own circumstances
differ from those assumed in the illustrations, your expected results also would
differ.
Upon request, we will furnish you with comparable tables illustrating death
benefits, policy values and cash surrender values based on the actual age of the
person you propose to insure and on an initial specified amount and premium
payment schedule. In addition, after you have purchased a policy, you may
request illustrations based on policy values at the time of request.
<PAGE>
Understanding the illustrations:
Rates of return: assumes uniform, gross, after-tax, annual rates of 0%, 6% or
12% for the fund. Results would differ depending on allocations among the
subaccounts, if returns averaged 0%, 6% and 12% for the fund as a whole but
differed across portfolios.
Insured: assumes a male insurance age 35, in a standard risk classification,
qualifying for the nonsmoker rate. Results would be lower if the insured were in
a substandard risk classification or did not qualify for the non-smoker rate.
Premiums: assumes a $900 premium is paid in full at the beginning of each policy
year. Results would differ if premiums were paid on a different schedule.
Policy loans and partial withdrawals: assumes that none have been made. (Since
we assume indebtedness is zero, the cash surrender value in all cases equals the
policy value minus the surrender charge.)
Effect of expenses, charges, and credits
The death benefit, policy value and cash surrender value reflect the following
charges:
o Premium expense charge: 3% of each premium payment.
o Cost of insurance charge for the sex, age and rate classification for
the assumed insured.
o Administrative charge: $7 per month
o Policy value credit: 0.45% for years 11+ on the end of the year asset
value.
o The expenses paid by the fund and charges made against the
subaccounts as described below:
The net investment return of the subaccounts, shown in the tables, is lower than
the gross, after-tax return of the fund or trust because we deducted the
expenses paid by the fund and charges made against the subaccounts. These
include:
o the daily investment management fee paid by the fund, assumed to be
equivalent to an annual rate of 0.73% of the fund's average daily net
assets; the assumed investment management fee is approximately equal to a
simple average of the investment management fees, based on assets of the
subaccounts, of the funds available under the policy. The actual charges
you incur will depend on how you choose to allocate policy value. See Fund
expenses in the "Loads, Fees and Charges" section of this prospectus for
additional information.
o the daily mortality and expense risk charge, equivalent to 0.9% of the
daily net asset value of the subaccounts annually.
o the 12b-1 fee, assumed to be equivalent to an annual rate of 0.1% of the
fund's average daily net assets.
o a nonadvisory expense charge, assumed to be equivalent to an annual rate of
0.21% of each fund's average daily net assets for direct expenses incurred
by the fund. The actual charges you incur will depend on how you choose to
allocate policy value. See "Fund expenses" in the "Loads, Fees, and
Charges," section of this prospectus for additional information.
<PAGE>
After deduction of the expenses and charges described above, the illustrated
gross annual investment rates of return correspond to the following approximate
net annual rates of return:
Net annual rate of
Gross annual investment return for Guaranteed
rate of return and Current illustrations
0% -1.92%
6 3.96%
12 9.85%
Taxes: Results shown in the tables reflect the fact that American Enterprise
Life does not currently charge the subaccounts for federal income tax. If we
take such a charge in the future, the portfolios will have to earn more than
they do now in order to produce the death benefits and policy values
illustrated.
<PAGE>
<TABLE>
<CAPTION>
Illustration
- -----------------------------------------------------------------------------------------------------------------------------
Initial specified amount $100,000 Male age 35 Current costs assumed
Death benefit Option 1 nonsmoker Annual premium $900
- -----------------------------------------------------------------------------------------------------------------------------
Premium Death benefit (1)(2) Policy value (1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return annual investment return of
of interest at
policy
year 5% 0% 6% 12% 0 %6% 12% 0% 6% 12%
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $945 $100,000 $100,000 $100,000 $609 $652 $696 $--- $--- $---
2 $1,537 $100,000 $100,000 $100,000 $1,207 $1,331 $1,461 $86 $210 $340
3 $2,979 $100,000 $100,000 $100,000 $1,782 $2,026 $2,291 $742 $986 $1,250
4 $4,073 $100,000 $100,000 $100,000 $2,337 $2,739 $3,192 $1,376 $1,778 $2,232
5 $5,222 $100,000 $100,000 $100,000 $2,876 $3,475 $4,178 $1,995 $2,594 $3,297
6 $6,428 $100,000 $100,000 $100,000 $3,397 $4,232 $5,254 $2,596 $3,432 $4,454
7 $7,694 $100,000 $100,000 $100,000 $3,903 $5,016 $6,433 $3,182 $4,296 $5,712
8 $9,024 $100,000 $100,000 $100,000 $4,389 $5,821 $7,719 $3,749 $5,181 $7,098
9 $10,420 $100,000 $100,000 $100,000 $4,859 $6,651 $9,126 $4,299 $6,091 $8,565
10 $11,886 $100,000 $100,000 $100,000 $5,301 $7,497 $10,655 $4,821 $7,016 $10,175
11 $13,425 $100,000 $100,000 $100,000 $5,751 $8,404 $12,384 $5,350 $8,004 $11,983
12 $15,042 $100,000 $100,000 $100,000 $6,169 $9,330 $14,272 $5,849 $9,010 $13,951
13 $16,739 $100,000 $100,000 $100,000 $6,556 $10,271 $16,334 $6,315 $10,031 $16,094
14 $18,521 $100,000 $100,000 $100,000 $6,924 $11,244 $18,605 $6,763 $11,084 $18,445
15 $20,392 $100,000 $100,000 $100,000 $7,249 $12,226 $21,083 $7,169 $12,146 $21,003
16 $22,356 $100,000 $100,000 $100,000 $7,540 $13,225 $23,801 $7,540 $13,225 $23,801
17 $24,419 $100,000 $100,000 $100,000 $7,790 $14,237 $26,780 $7,790 $14,237 $26,780
18 $26,585 $100,000 $100,000 $100,000 $7,996 $15,259 $30,049 $7,996 $15,259 $30,049
19 $28,859 $100,000 $100,000 $100,000 $8,163 $16,295 $33,643 $8,163 $16,295 $33,643
20 $31,247 $100,000 $100,000 $100,000 $8,276 $17,335 $37,592 $8,276 $17,335 $37,592
age 60 $45,102 $100,000 $100,000 $100,000 $7,953 $22,541 $64,342 $7,953 $22,541 $64,342
age 65 $62,785 $100,000 $100,000 $132,571 $5,521 $27,309 $108,664 $5,521 $27,309 $108,664
</TABLE>
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $900 premium is paid at the beginning of each policy year. Values
will be different if premiums are paid in different amounts or with a different
frequency.
The above hypothetical investment results are illustrative only and you should
not consider them to be a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy value and cash surrender value would be different from those
shown if returns averaged 0%, 6% and 12% over a period of years, but fluctuated
above and below those averages for individual policy years. We cannot represent
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
<PAGE>
<TABLE>
<CAPTION>
Illustration
- ---------------------------------------------------------------------------------------------------------------------------
Initial specified amount $100,000 Male age 35 Guaranteed costs assumed
Death benefit Option 1 nonsmoker Annual premium $900
- ----------------------------------------------------------------------------------------------------------------------------
Premium Death benefit (1)(2) Policy value(1)(2) Cash surrender value (1)(2)
accumulated assuming hypothetical gross assuming hypothetical gross assuming hypothetical gross
End of with annual annual investment return of annual investment return annual investment return of
of interest at
policy
year 5% 0% 6% 12% 0% 6% 12% 0% 6% 12%
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 $945 $100,000 $100,000 $100,000 $606 $649 $693 $--- $--- $---
2 $1,937 $100,000 $100,000 $100,000 $1,192 $1,316 $1,445 $71 $195 $324
3 $2,979 $100,000 $100,000 $100,000 $1,756 $1,999 $2,261 $716 $958 $1,221
4 $4,073 $100,000 $100,000 $100,000 $2,297 $2,695 $3,144 $1,336 $1,734 $2,184
5 $5,222 $100,000 $100,000 $100,000 $2,816 $3,408 $4,104 $1,935 $2,528 $3,223
6 $6,428 $100,000 $100,000 $100,000 $3,310 $4,134 $5,143 $2,509 $3,333 $4,342
7 $7,694 $100,000 $100,000 $100,000 $3,778 $4,873 $6,269 $3,057 $4,152 $5,548
8 $9,024 $100,000 $100,000 $100,000 $4,221 $5,626 $7,491 $3,580 $4,985 $6,851
9 $10,420 $100,000 $100,000 $100,000 $4,637 $6,391 $8,818 $4,077 $5,830 $8,257
10 $11,886 $100,000 $100,000 $100,000 $5,024 $7,166 $10,256 $4,544 $6,685 $9,776
11 $13,425 $100,000 $100,000 $100,000 $5,380 $7,948 $11,817 $4,979 $7,548 $11,416
12 $15,042 $100,000 $100,000 $100,000 $5,705 $8,740 $13,512 $5,384 $8,420 $13,192
13 $16,739 $100,000 $100,000 $100,000 $5,997 $9,538 $15,354 $5,756 $9,298 $15,114
14 $18,521 $100,000 $100,000 $100,000 $6,254 $10,341 $17,357 $6,094 $10,181 $17,197
15 $20,392 $100,000 $100,000 $100,000 $6,474 $11,147 $19,536 $6,394 $11,067 $19,456
16 $22,356 $100,000 $100,000 $100,000 $6,652 $11,951 $21,906 $6,652 $11,951 $21,906
17 $24,419 $100,000 $100,000 $100,000 $6,784 $12,749 $24,484 $6,784 $12,749 $24,484
18 $26,585 $100,000 $100,000 $100,000 $6,865 $13,536 $27,291 $6,865 $13,536 $27,291
19 $28,859 $100,000 $100,000 $100,000 $6,886 $14,303 $30,346 $6,886 $14,303 $30,346
20 $31,247 $100,000 $100,000 $100,000 $6,845 $15,047 $33,675 $6,845 $15,047 $33,675
age 60 $45,102 $100,000 $100,000 $100,000 $5,455 $18,162 $55,635 $5,455 $18,162 $55,635
age 65 $62,785 $100,000 $100,000 $111,378 $1,075 $19,208 $91,293 $1,075 $19,208 $91,293
</TABLE>
(1) Assumes no policy loans or partial withdrawals have been made.
(2) Assumes a $900 premium is paid at the beginning of each policy year. Values
will be different if premiums are paid in different amounts or with a
different frequency.
The above hypothetical investment results are illustrative only and you should
not consider them to be a representation of past or future investment results.
Actual investment results may be more or less than those shown. The death
benefit, policy value and cash surrender value would be different from those
shown if returns averaged 0%, 6% and 12% over a period of years, but fluctuated
above and below those averages for individual policy years. We cannot represent
that these hypothetical rates of return can be achieved for any one year or
sustained over any period of time.
<PAGE>
Key terms
These terms can help you understand details about your policy.
Accumulation unit: An accounting unit used to calculate the policy value of the
subaccounts prior to the insured's death.
Attained insurance age: The insured's insurance age plus the number of policy
anniversaries since the policy date. Attained insurance age changes only on a
policy anniversary.
Cash surrender value: Proceeds received if you surrender the policy in full, or
the amount payable if the insured's death occurs on or after the insured has
attained insurance age 100. The cash surrender value equals the policy value
minus indebtedness and any applicable surrender charges.
Close of business: Closing time of the New York Stock Exchange, normally 3 p.m.,
Central time.
Code: The Internal Revenue Code of 1986, as amended.
Fixed account: The general investment account of American Enterprise Life. The
fixed account is made up of all of American Enterprise Life's assets other than
those held in any separate account.
Fixed account value: The portion of the policy value that you allocate to the
fixed account, including indebtedness.
Funds: Mutual funds or portfolios, each with a different investment objective.
(See "The funds.") Each of the subaccounts of the variable account invests in a
specific one of these funds.
American Enterprise Life: In this prospectus, "we", "us", "our" and "American
Enterprise Life" refer to American Enterprise Life Insurance Company.
Indebtedness: All existing loans on the policy plus interest that has either
been accrued or added to the policy loan.
Insurance age: The insured's age, based upon his or her last birthday on the
policy date.
Insured: The person whose life is insured by the policy.
Minimum monthly premium: The premium required to keep the NLG in effect. We show
the minimum monthly premium in your policy.
Monthly date: The same day each month as the policy date. If there is no monthly
date in a calendar month, the monthly date is the first day of the next calendar
month.
Net amount at risk: A portion of the death benefit, equal to the total current
death benefit minus the policy value. This is the amount to which we apply cost
of insurance rates in determining the monthly cost of insurance.
Net premium: The premium paid minus the premium expense charge.
No lapse guarantee (NLG): A feature of the policy guaranteeing that the policy
will not lapse before five policy years. The guarantee is in effect if you meet
certain premium payment requirements.
Owner: The entity(ies) to which, or individual(s) to whom, we issue the policy
or to whom you subsequently transfer ownership. In the prospectus "you" and
"your" refer to the owner.
<PAGE>
Policy anniversary: The same day and month as the policy date each year the
policy remains in force.
Policy date: The date we issue the policy and from which we determine policy
anniversaries, policy years and policy months.
Policy value: The sum of the fixed account value plus the variable account
value.
Proceeds: The amount payable under the policy as follows:
o Upon death of the insured prior to the date the insured has attained
insurance age 100, proceeds will be the death benefit in effect as of
the date of the insured has death, minus any indebtedness.
o Upon the death of the insured on or after the insured has attained
insurance age 100, proceeds will be the cash surrender value.
o On surrender of the policy, the proceeds will be the cash surrender
value.
Pro-rata basis: Allocation to the fixed account and each of the subaccounts. It
is proportionate to the value (minus any indebtedness in the fixed account) that
each bears to the policy value, minus indebtedness.
Risk classification: A group of insureds that American Enterprise Life expects
will have similar mortality experience.
Scheduled premium: A premium you select at the time of application, of a level
amount, at a fixed interval of time.
Specified amount: An amount we use to determine the death benefit and the
proceeds payable upon death of the insured prior to the insured's attained
insurance age 100. We show the initial specified amount in your policy.
Subaccount(s): One or more of the investment divisions of the variable account,
each of which invests in a particular fund.
Surrender charge: A charge we assess against the policy value at the time of
surrender, or if the policy lapses, during the first 15 years of the policy and
for 15 years after an increase in coverage.
Valuation date: A normal business day, Monday through Friday, on which the New
York Stock Exchange is open. We set the value of each subaccount at the close of
business on each valuation date.
Valuation period: The interval commencing at the close of business on each
valuation date and ending at the close of business on the next valuation date.
Variable account: American Enterprise Variable Life Account consisting of
subaccounts, each of which invests in a particular fund. The policy value in
each subaccount depends on the performance of the particular fund.
Variable account value: The sum of the values that you allocate to the
subaccounts of the variable account.
American Enterprise Life Financial Information
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEET
September 30, 1999
(unaudited)
($ thousands, except share amounts)
ASSETS
<S> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $1,023,281) $1,027,976
Available for sale, at fair value (amortized cost:
1999, $2,549,548) 2,480,649
-----------
3,508,625
Mortgage loans on real estate 794,117
Other investments 9,148
Total investments 4,311,890
Accounts receivable 914
Accrued investment income 57,967
Deferred policy acquisition costs 186,723
Deferred income taxes 25,420
Other assets 32
Separate account assets 174,567
------------
Total assets $4,757,513
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $4,049,397
Policy claims and other policyholders' funds 8,304
Amounts due to brokers 76,928
Other liabilities 22,069
Separate account liabilities 174,567
-----------
Total liabilities 4,331,265
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000
Additional paid-in capital 282,872
Accumulated other comprehensive income:
Net unrealized securities (losses) gains (44,784)
Retained earnings 186,160
Total stockholder's equity 426,248
Total liabilities and stockholder's equity $4,757,513
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Nine months ended September 30,
(unaudited)
($ thousands)
1999 1998
--------- -------
<S> <C> <C>
Revenues:
Net investment income $243,525 $258,163
Contractholder charges 4,317 5,018
Mortality and expense risk fees 1,581 872
Net realized gain (loss) on investments 4,897 (1,526)
---------- ----------
Total revenues 254,320 262,527
--------- --------
Benefits and expenses:
Interest credited on investment contracts 157,155 173,709
Amortization of deferred policy acquisition costs 30,637 43,051
Other operating expenses 23,299 16,902
---------- -----------
Total benefits and expenses 211,091 233,662
--------- --------
Income before income taxes 43,229 28,865
Income taxes 14,051 10,390
---------- ------------
Net income $ 29,178 $ 18,475
========= =========
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Nine months ended September 30,
(unaudited)
($ thousands)
1999 1998
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,178 $18,475
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 3,773 (1,802)
Change in accounts receivable (82) 44
Change in deferred policy acquisition costs, net 9,756 23,054
Change in other assets 10 84
Change in policy claims and other policyholders' funds 915 (3,220)
Deferred income tax benefit (448) (10,539)
Change in other liabilities (2,430) 8,960
Amortization of premium 1,394 158
Net realized gain on investments (4,897) 1,526
Other, net (1,772) (302)
--------------- ----------
Net cash provided by operating activities 35,397 36,438
Cash flows from investing activities: Fixed maturities held to maturity:
Maturities 47,277 61,786
Sales 5,681 30,468
Fixed maturities available for sale:
Purchases (589,946) (298,885)
Maturities 216,467 239,612
Sales 359,677 43,579
Other investments:
Purchases (20,766) (145,374)
Sales 41,705 53,043
Change in amounts due from brokers (619) --
Change in amounts due to brokers 22,581 94,129
---------- --------
Net cash provided by investing activities 82,057 78,358
Cash flows from financing activities: Activity related to investment contracts:
Considerations received 244,670 237,037
Surrenders and other benefits (519,255) (525,542)
Interest credited to account balances 157,131 173,709
---------- ----------
Net cash used in financing activities (117,454) (114,796)
------------ ------------
Net increase (decrease) in cash and cash equivalents -- --
Cash and cash equivalents at beginning of period -- --
-------------- --------------
Cash and cash equivalents at end of year $ -- $ --
============== ==============
See accompanying notes.
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
(unaudited)
1. General
In the opinion of the management of American Enterprise Life Insurance Company
(the Company), the accompanying unaudited financial statements contain all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly its balance sheet as of September 30, 1999 and the related statements of
income and cash flows for the nine month periods ended September 30, 1999 and
1998.
2. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 133 (FAS 133), Accounting for Derivative
Instruments and Hedging Activities. In July 1999, The FASB issued FAS 137, which
defers the effective date for implementation of FAS 133 by one year, making FAS
133 effective no later than January 1, 2001 for the Company's financial
statements. FAS 133 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 of 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. Earlier application of all of the provisions of FAS 133
is encouraged, but is permitted only as of the beginning of any fiscal quarter
that begins after issuance of FAS 133. This Statement cannot be applied
retroactively. The Company has not yet determined when it will implement FAS
133. The ultimate financial impact of the new rule will be measured based on the
derivatives in place at adoption and cannot be estimated at this time.
3. Comprehensive Loss
For the nine months ending September 30, 1999 comprehensive loss is as follows:
Net income $29,178
Net unrealized loss on investments (89,079)
Comprehensive loss $(59,901)
<PAGE>
Report of Independent Auditors
The Board of Directors
American Enterprise Life Insurance Company
We have audited the accompanying balance sheets of American Enterprise Life
Insurance Company (a wholly owned subsidiary of IDS Life Insurance Company) as
of December 31, 1998 and 1997, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 4, 1999
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<CAPTION>
ASSETS 1998 1997
<S> <C> <C>
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1998, $1,126,732 ; 1997, $1,223,108) $1,081,193 $1,186,682
Available for sale, at fair value (amortized cost:
1998, $2,526,712; 1997, $2,609,621) 2,594,858 2,685,799
----------- -----------
3,676,051 3,872,481
Mortgage loans on real estate 815,806 738,052
Other investments 12,103 16,024
---------- ----------
Total investments 4,503,960 4,626,557
Accounts receivable 214 563
Accrued investment income 61,740 59,588
Deferred policy acquisition costs 196,479 224,501
Other assets 43 117
Separate account assets 123,185 62,087
------------ -------------
Total assets $4,885,621 $4,973,413
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $4,166,852 $4,343,213
Policy claims and other policyholders' funds 7,389 11,328
Deferred income taxes 23,199 35,601
Amounts due to brokers 54,347 34,935
Other liabilities 24,500 16,905
Separate account liabilities 123,185 62,087
----------- ------------
Total liabilities 4,399,472 4,504,069
Stockholder's equity:
Capital stock, $100 par value per share;
100,000 shares authorized,
20,000 shares issued and outstanding 2,000 2,000
Additional paid-in capital 282,872 282,872
Accumulated other comprehensive income:
Net unrealized securities gains 44,295 49,516
Retained earnings 156,982 134,956
------------ ------------
Total stockholder's equity 486,149 469,344
------------ ------------
Total liabilities and stockholder's equity $4,885,621 $4,973,413
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Revenues:
Net investment income $340,219 $332,268 $271,719
Contractholder charges 6,387 5,688 5,450
Mortality and expense risk fees 1,275 641 303
Net realized loss on investments (4,788) (509) (5,258)
---------- ---------- -----------
Total revenues 343,093 338,088 272,214
--------- --------- ----------
Benefits and expenses:
Interest credited on investment contracts 228,533 231,437 191,672
Amortization of deferred policy acquisition costs 53,663 36,803 30,674
Other operating expenses 24,476 24,890 14,133
---------- ---------- --------
Total benefits and expenses 306,672 293,130 236,479
--------- --------- -------
Income before income taxes 36,421 44,958 35,735
Income taxes 14,395 16,645 12,912
---------- ---------- ---------
Net income $ 22,026 $ 28,313 $ 22,823
========= ========= ========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1998
($ thousands)
<TABLE>
<CAPTION> Accumulated Other
Comprehensive
Total Additional
Stockholder's Capital Paid-In Income, Retained
Equity Stock Capital Net of Tax Earnings
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $296,816 $2,000 $177,872 $ 33,124 $83,820
Comprehensive income:
Net income 22,823 -- -- -- 22,823
Unrealized holding losses arising
during the year, net of taxes of
$12,282 (22,810) -- -- (22,810) --
Reclassification adjustment for losses
included in net income, net of tax
of $(1,093) 2,029 -- -- 2,029 --
-------------------
-----------------
Other comprehensive loss (20,781) -- -- (20,781) --
-----------------
Comprehensive income 2,042
Capital contribution from parent 65,000 -- 65,000 -- --
---------------------------------------------------------------------------
Balance, December 31, 1996 363,858 2,000 242,872 12,343 106,643
Comprehensive income:
Net income 28,313 -- -- -- 28,313
Unrealized holding gains arising
during the year, net of taxes of
$(19,891) 36,940 -- -- 36,940 --
Reclassification adjustment for losses
included in net income, net of tax
of $(126) 233 -- -- 233 --
-------------------
-----------------
Other comprehensive income 37,173 -- -- 37,173 --
-----------------
Comprehensive income 65,486
Capital contribution from parent 40,000 40,000
---------------------------------------------------------------------------
Balance, December 31, 1997 469,344 2,000 282,872 49,516 134,956
Comprehensive income:
Net income 22,026 -- -- -- 22,026
Unrealized holding losses arising
during the year, net of taxes of $3,400 (6,314) -- -- (6,314) --
Reclassification adjustment for losses
included in net income, net of tax 1,093
of $(588) -- -- 1,093 --
----------------- -------------------
-------------------
Other comprehensive loss (5,221) -- -- (5,221) --
-----------------
-----------------
Comprehensive income 16,805
---------------------------------------------------------------------------
Balance, December 31, 1998 $486,149 $2,000 $282,872 $44,295 $156,982
===========================================================================
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<TABLE>
<CAPTION>
1998 1997 1996__
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 22,026 $ 28,313 $ 22,823
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income (2,152) (8,017) (9,692)
Change in accounts receivable 349 9,304 --
Change in deferred policy acquisition costs, net 28,022 (21,276) (32,651)
Change in other assets 74 4,840 (10,007)
Change in policy claims and other policyholders' funds (3,939) (16,099) 15,786
Deferred income tax (benefit) provision (9,591) (2,485) 5,084
Change in other liabilities 7,595 1,255 8,621
Amortization of premium (accretion of discount), net 122 (2,316) (2,091)
Net realized loss on investments 4,788 509 5,258
Other, net 2,544 959 (129)
------------- --------- ----------
Net cash provided by (used in) operating activities 49,838 (5,013) 3,002
Cash flows from investing activities: Fixed maturities held to maturity:
Purchases -- (1,996) (16,967)
Maturities 73,601 41,221 26,190
Sales 31,117 30,601 27,944
Fixed maturities available for sale:
Purchases (298,885) (688,050) (921,914)
Maturities 335,357 231,419 212,212
Sales 48,492 73,366 47,542
Other investments:
Purchases (161,252) (199,593) (212,182)
Sales 78,681 29,139 19,850
Change in amounts due to brokers 19,412 (53,796) 88,568
---------- ----------- ----------
Net cash provided by (used in) investing activities 126,523 (537,689) (728,757)
Cash flows from financing activities: Activity related to investment contracts:
Considerations received 302,158 783,339 846,378
Surrenders and other benefits (707,052) (552,903) (312,362)
Interest credited to account balances 228,533 231,437 191,672
Change in securities sold under repurchase agreements -- -- (67,000)
Capital contribution from parent -- 40,000 65,000
--------------- ---------- ---------
Net cash (used in) provided by financing activities (176,361) 501,873 723,688
----------- --------- --------
Net decrease in cash and cash equivalents -- (40,829) (2,067)
Cash and cash equivalents at beginning of year -- 40,829 42,896
--------------- ---------- ---------
Cash and cash equivalents at end of year $ -- $ -- $ 40,829
============== ============== ==========
</TABLE>
See accompanying notes.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
($ thousands)
1. Summary of significant accounting policies
Nature of business
American Enterprise Life Insurance Company (the Company) is a stock life
insurance company that is domiciled in Indiana and is licensed to transact
insurance business in 48 states. The Company's principal product is
deferred annuities, which are issued primarily to individuals. It offers
single premium and annual 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). AEFC is a wholly owned subsidiary of American Express
Company. The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles which vary in
certain respects from reporting practices prescribed or permitted by the
Indiana Department of Insurance (see Note 4).
The preparation of financial statements in conformity with generally
accepted accounting principles 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 income, net of 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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.
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>
1998 1997 1996
---- ----- ----
<S> <C> <C> <C>
Cash paid during the year for:
Income taxes $19,035 $19,456 $10,317
Interest on borrowings 5,437 1,832 998
</TABLE>
Contractholder charges
Contractholder charges include surrender charges and fees collected
regarding the issue and administration of annuity contracts.
<PAGE>
1. Summary of significant accounting policies (continued)
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.
Liabilities for future policy benefits
Liabilities for deferred annuities are accumulation values. Liabilities for
fixed annuities in a benefit status are based on the established industry
mortality tables with various interest rates ranging from 5.5 percent to
8.75 percent, depending on year of issue.
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, 1998 and 1997 are $3,504
payable to and $1,289, receivable from, respectively, IDS Life for federal
income taxes.
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 beneficiaries from the mortality assumptions implicit in
the annuity contracts. The Company makes periodic fund transfers to, or
withdrawals from, the separate account assets 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
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS
No. 130 requires the reporting and display of comprehensive income and its
components. Comprehensive income is defined as the aggregate change in
stockholder's equity excluding changes in ownership interests. For the
Company, it is net income and the unrealized gains or losses on
available-for-sale securities net of taxes and reclassification adjustment.
<PAGE>
1. Summary of significant accounting policies (continued)
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for Costs of
Computer Software Developed or obtained for Internal Use." The SOP, which
is effective January 1, 1999, 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 will be
capitalized on AEFC's financial statements. As a result, the new rule will
not have a material impact on the Company's results of operations or
financial condition.
In December 1997, the AICPA issued 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. The Company will adopt the SOP on January 1, 1999. The Company
has historically carried a balance in other liabilities on the balance
sheet for potential guaranty fund assessment exposure. Adoption of the SOP
will not have a material impact on the Company's results of operations or
financial condition
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
effective January 1, 2000. 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. Earlier application of all of the provisions of this Statement
is encouraged, but it is permitted only as of the beginning of any fiscal
quarter that begins after issuance of the Statement. This Statement cannot
be applied retroactively. The ultimate financial impact of the new rule
will be measured based on the derivatives in place at adoption and cannot
be estimated at this time.
Reclassification
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
<PAGE>
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, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- -------------- ------- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 8,652 $ 423 $ -- $ 9,075
State and municipal obligations 3,003 149 -- 3,152
Corporate bonds and obligations 877,140 48,822 6,670 919,292
Mortgage-backed securities 192,398 2,844 29 195,213
------------ ---------- ---------- -----------
$1,081,193 $ 52,238 $ 6,699 $1,126,732
========== ======== ======= ==========
Available for sale
U.S. Government agency obligations $ 2,062 $ 116 $ -- $ 2,178
Corporate bonds and obligations 1,472,814 69,990 34,103 1,508,701
Mortgage-backed securities 1,051,836 32,232 89 1,083,979
----------- ---------- ----------- ---------
$2,526,712 $102,338 $34,192 $2,594,858
========== ======== ======= ==========
</TABLE>
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- -------------- ---- ------- -- ------ ---- -----
<S> <C> <C> <C> <C>
U.S. Government agency obligations $ 11,120 $ 710 $ -- $ 11,830
State and municipal obligations 3,003 173 -- 3,176
Corporate bonds and obligations 970,498 38,176 2,763 1005,911
Mortgage-backed securities 202,061 1,497 1,367 202,191
-------------- ---------- -------- ------------
$1,186,682 $ 40,556 $ 4,130 $1,223,108
========== ======== ======= ==========
Available for sale
U.S. Government agency obligations $ 2,077 $ 13 $ -- $ 2,090
Corporate bonds and obligations 1,273,217 52,207 8,020 1,317,404
Mortgage-backed securities 1,334,327 33,017 1,039 1,366,305
----------- -------- ------- ---------
$2,609,621 $85,237 $9,059 $2,685,799
========== ======= ====== ==========
</TABLE>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1998 by contractual maturity are shown below. Expected
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 $ 33,208 $ 33,499
Due from one to five years 215,010 227,139
Due from five to ten years 539,917 562,708
Due in more than ten years 100,660 108,173
Mortgage-backed securities 192,398 195,213
------------ ------------
$1,081,193 $1,126,732
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 350 $ 358
Due from one to five years 96,412 101,441
Due from five to ten years 981,556 1,021,961
Due in more than ten years 396,558 387,119
Mortgage-backed securities 1,051,836 1,083,979
--------- ---------
$2,526,712 $2,594,858
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, fixed maturities
classified as held to maturity were sold with amortized cost of $31,117,
$29,561 and $27,969, respectively. Net gains and losses on these sales were
not significant. The sales of these fixed maturities were due to
significant deterioration in the issuers' creditworthiness.
In addition, fixed maturities available for sale were sold during 1998 with
proceeds of $48,492 and gross realized gains and losses of $2,835 and
$4,516, respectively. Fixed maturities available for sale were sold during
1997 with proceeds of $73,366 and gross realized gains and losses of $1,081
and $1,440, respectively. Fixed maturities available for sale were sold
during 1996 with proceeds of $47,542 and gross realized gains and losses of
$17 and $3,139, respectively.
At December 31, 1998, bonds carried at $3,292 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1998, investments in fixed maturities comprised 82 percent
of the Company's total invested assets. These securities are rated by
Moody's and Standard & Poor's (S&P), except for securities carried at
approximately $480 million which are rated by AEFC 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 1998 1997
<S> <C> <C>
Aaa/AAA $1,242,301 $1,531,588
Aa/AA 45,526 34,167
Aa/A 60,019 69,775
A/A 422,725 421,733
A/BBB 228,656 222,022
Baa/BBB 1,030,874 954,962
Baa/BB 79,687 84,053
Below investment grade 498,117 478,003
------------ ------------
$3,607,905 $3,796,303
</TABLE>
At December 31, 1998, approximately 94 percent of the securities rated
Aaa/AAA are GNMA, FNMA and FHLMC mortgage-backed securities. No holdings of
any other issuer are greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1998, approximately 18 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, 1998 December 31, 1997
----------------------- ---------------------
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
----------------------------------
----------------------------------
<S> <C> <C> <C> <C>
South Atlantic $198,552 $ 651 $186,714 $ 9,199
Middle Atlantic 129,284 520 128,239 10,167
East North Central 134,165 2,211 125,018 6,294
Mountain 113,581 -- 94,061 11,620
West North Central 119,380 9,626 96,701 11,135
New England 46,103 -- 50,932 --
Pacific 43,706 -- 33,052 --
West South Central 32,086 -- 19,573 --
East South Central 7,449 -- 7,480 --
--------- ------------ --------- ------------
824,306 13,008 741,770 48,415
Less allowance for losses 8,500 -- 3,718 --
---------- ------------ ---------- ------------
$815,806 $13,008 $738,052 $48,415
======== ======= ======== =======
</TABLE>
<PAGE>
2. Investments (continued)
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
----------------------------------
----------------------------------
<S> <C> <C> <C> <C>
Department/retail stores $253,380 $ 781 $242,307 $ 9,683
Apartments 186,030 2,211 189,752 10,167
Office buildings 206,285 9,496 169,177 7,262
Industrial buildings 82,857 520 60,195 17,430
Hotels/Motels 45,552 -- 33,508 --
Medical buildings 33,103 -- 30,103 3,873
Nursing/retirement homes 6,731 -- 9,552 --
Mixed Use 10,368 -- 7,176 --
---------- ------------ --------- ------------
824,306 13,008 741,770 48,415
Less allowance for losses 8,500 -- 3,718 --
----------- ----------- ---------- -----------
$815,806 $13,008 $738,052 $48,415
======== ======= ======== =======
</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, 1998, the Company's recorded investment in impaired loans
was $1,932 with an allowance of $500. At December 31, 1997, the Company's
recorded investment in impaired loans was $4,443 with an allowance of $718.
During 1998 and 1997, the average recorded investment in impaired loans was
$2,736 and $6,473, respectively.
The Company recognized $251, $nil and $nil of interest income related to
impaired loans for the years ended December 31, 1998, 1997 and 1996,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, January 1 $3,718 $2,370 $ --
Provision for investment losses 4,782 1,805 2,370
Loan payoffs -- (457) --
---------- ------- ---------
Balance, December 31 $8,500 $3,718 $2,370
====== ====== ======
</TABLE>
Net investment income for the years ended December 31 is summarized as
Follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ----
<S> <C> <C> <C>
Interest on fixed maturities $285,260 $278,736 $230,559
Interest on mortgage loans 65,351 55,085 41,010
Interest on cash equivalents 137 704 1,402
Other (2,493) 1,544 1,194
----------- ------------- -----------
348,255 336,069 274,165
Less investment expenses 8,036 3,801 2,446
----------- ----------- -----------
$340,219 $332,268 $271,719
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 863 $ 1,638 $(2,888)
Mortgage loans (4,816) (1,348) (2,370)
Other investments (835) (799) --
-------- ------ ----------
$(4,788) $ (509) $(5,258)
======= ======= =======
</TABLE>
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Fixed maturities available for sale $(8,032) $57,188 $(31,970)
</TABLE>
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, c onsists
of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income taxes:
Current $ 23,227 $17,668 $7,124
Deferred (9,591) (2,485) 5,084
--------- -------- -------
13,636 15,183 12,208
State income taxes-current 759 1,462 704
----------- --------- --------
Income tax expense $ 14,395 $16,645 $12,912
======== ======= =======
</TABLE>
Increases (decreases) to the federal income tax provision applicable to
pretax income based on the statutory rate, for the years ended December 31,
are attributable to:
<TABLE>
<CAPTION>
1998 1997 1996
----------- -------- -------
Provision Rate Provision Rate Provision Rate
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $13,972 35.0% $15,735 35.0% $12,507 35.0%
Increases (decreases) are attributable to :
Tax-excluded interest (35) (0.1) (41) (0.1) (53) (0.1)
State tax, net of federal benefit 493 1.2 956 2.1 459 1.3
Other, net (35) -- (5) -- (1) --
------ ------ ------- ------ ------ ------
Federal income taxes $14,395 36.1% $16,645 37.0% $12,912 36.2%
======= ==== ======= ==== ======= ====
</TABLE>
<PAGE>
3. Income taxes (continued)
Significant components of the Company's deferred income tax assets and
liabilities as of December 31 are as follows:
<TABLE>
<CAPTION>
Deferred income tax assets: 1998 1997
<S> <C> <C>
Policy reserves $51,298 $54,468
Other 2,214 1,736
--------- -------
Total deferred income tax assets 53,512 56,204
-------- ------
Deferred income tax liabilities:
Deferred policy acquisition costs 52,908 63,630
Investments 23,803 28,175
-------- ------
Total deferred income tax liabilities 76,711 91,805
------- --------
Net deferred income tax liabilities $23,199 $35,601
======= =======
</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 IDS Life are
limited to the Company's surplus as determined in accordance with
accounting practices prescribed by state insurance regulatory authorities.
Statutory unassigned surplus aggregated $45,716 and $17,392 as of December
31, 1998 and 1997, respectively. In addition, dividends in excess of
$37,902 would require approval by the Insurance Department of the state of
Indiana.
Statutory net income and stockholder's equity as of December 31, are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
Statutory net income $ 37,902 $ 23,589 $ 9,138
Statutory stockholder's equity 330,588 302,264 250,975
</TABLE>
5. Related party transactions
On December 31, 1998, the Company purchased interest rate floors from IDS
Life and entered into an interest rate swap with IDS Life to manage its
exposure to interest rate risk. The interest rate floors had a carrying
amount of $6,651 and $8,400 at December 31, 1998 and 1997, respectively.
The interest rate swap is an off balance sheet transaction.
The Company has no employees. Charges by IDS Life for services and use of
other joint facilities aggregated $28,482, $24,535 and $17,936 for the
years ended December 31, 1998, 1997 and 1996, respectively. Certain of
these costs are included in deferred policy acquisition costs.
<PAGE>
6. Lines of credit
The Company has an available line of credit with AEFC aggregating $50,000.
The rate for the line of credit is the parent's cost of funds, established
by reference to various indices plus 20 to 45 basis points, depending on
the term. There were no borrowings outstanding under this agreement at
December 31, 1998 or 1997.
7. Derivative financial instruments
The Company enters into transactions involving derivative financial
instruments to manage its exposure to interest rate risk, including hedging
specific transactions. The Company does not hold derivative instruments for
trading purposes. The Company manages risks associated with these
instruments as described below.
Market risk is the possibility that the value of the derivative financial
instruments will change due to fluctuations in a factor from which the
instrument derives its value, primarily an interest rate. The Company is
not impacted by market risk related to derivatives held for non-trading
purposes beyond that inherent in cash market transactions. Derivatives are
largely used to manage risk and, therefore, the cash flow and income
effects of the derivatives are inverse to the effects of the underlying
transactions.
Credit risk is the possibility that the counterparty will not fulfill the
terms of the contract. The Company monitors credit risk related to
derivative financial instruments through established approval procedures,
including setting concentration limits by counterparty, and requiring
collateral, where appropriate. A vast majority of the Company's
counterparties are rated A or better by Moody's and Standard & Poor's.
Credit risk related to interest rate caps and floors is measured by
replacement cost of the contracts. The replacement cost represents the fair
value of the instruments.
The notional or contract amount of a derivative financial instrument is
generally used to calculate the cash flows that are received or paid over
the life of the agreement. Notional amounts are not recorded on the balance
sheet. Notional amounts far exceed the related credit exposure.
The Company's holdings of derivative financial instruments are as follows:
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- ------ ------ ----- --------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Interest rate swaps 1,000,000 -- -- --
------------- ------------ -------------
$12,103 $19,316 $19,316
= ======= ======= =======
</TABLE>
<PAGE>
7. Derivative financial instruments (continued)
<TABLE>
<CAPTION>
Notional Carrying Fair Total Credit
December 31, 1997 Amount Amount Value Exposure
----------------- ------ ------ ----- --------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 7,624 $ 5,340 $ 5,340
Interest rate floors 1,000,000 8,400 8,400 8,400
Interest rate swaps 1,000,000 -- -- --
------------- ------------ ------------
$16,024 $13,740 $13,740
======= ======= =======
</TABLE>
The fair values of derivative financial instruments are based on market
values, dealer quotes or pricing models. All interest rate caps, floors and
swaps will expire on various dates from 2000 to 2003.
Interest rate caps, floors and swaps are used to manage the Company's
exposure to interest rate risk. These instruments are used primarily to
protect the margin between interest rates earned on investments and the
interest rates credited to related annuity contract holders.
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,
1998 1997
-------- --------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,081,193 $1,126,732 $1,186,682 $1,223,108
Available for sale 2,594,858 2,594,858 2,685,799 2,685,799
Mortgage loans on real estate (Note 2) 815,806 874,064 738,052 775,869
Derivative financial instruments (Note 7) 12,103 19,316 16,024 13,740
Separate account assets (Note 1) 123,185 123,185 62,087 62,087
Financial Liabilities
Future policy benefits for fixed annuities $4,152,059 $4,000,789 $4,330,173 $4,152,471
Separate account liabilities 123,185 115,879 62,087 58,116
</TABLE>
At December 31, 1998 and 1997, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $14,793 and $13,040, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1998
and 1997.
<PAGE>
Fair values of financial instruments (continued)
8. 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 1998 and 1997.
9. Commitments and contingencies
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which the Company conducts business involving insurers'
sales practices, alleged agent misconduct, failure to properly supervise
agents, and other matters. The Company, along with AEFC and its insurance
subsidiaries, has been named as a defendant in one of these types of
actions.
The plaintiffs purport to represent a class consisting of all persons who
purchased policies or contracts from IDS Life and its subsidiaries. The
complaint puts at issue various alleged sales practices and
misrepresentations, alleged breaches of fiduciary duties and alleged
violations of consumer fraud statutes. IDS Life and its subsidiaries
believe they have meritorious defenses to the claims raised in this
lawsuit.
The outcome of any litigation cannot be predicted with certainty. In the
opinion of management, however, the ultimate resolution of this lawsuit
should not have a material adverse effect on the Company's financial
position.
<PAGE>
PART II
UNDERTAKINGS TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission hereto or hereafter duly adopted pursuant to authority conferred in
that section.
RULE 484 UNDERTAKING
The By-Laws of the depositor provide that the Corporation shall have
the power to indemnify a director, officer, agent or employee of the Corporation
pursuant to the provisions of applicable statues or pursuant to contract.
The Corporation may purchase and maintain insurance on behalf
of any director, officer, agent or employee of the Corporation against any
liability asserted against or incurred by the director, officer, agent or
employee in such capacity or arising out of the director's, officer's, agent's
or employee's status as such, whether or not the Corporation would have the
power to indemnify the director, officer, agent or employee against such
liability under the provisions of applicable law.
The By-Laws of the depositor provide that it shall indemnify a
director, officer, agent or employee of the depositor pursuant to the provisions
of applicable statutes or pursuant to contract.
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e) OF THE INVESTMENT COMPANY ACT OF 1940
The sponsoring insurance company represents that the fees and charges deducted
under the contract, in the aggregate, are reasonable in relation to the services
rendered, the expenses expected to be incurred, and the risks assumed by the
insurance company.
REPRESENTATIONS PURSUANT TO RULE 6E-3(T)
This filing is made pursuant to Rule 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
<PAGE>
CONTENTS OF THE REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 69 pages.
The undertakings to file reports.
The signatures.
The following exhibits:
1. A. Copies of all exhibits required by paragraph A of instructions for
Exhibits in Form N-8B-2 to the Registration Statement.
(1) (a) Resolution of the Executive Committee of the
Board of Directors of American Enterprise Life
Insurance Company establishing the Trust, dated July
15, 1987, filed electronically as Exhibit 1 to the
Initial Registration Statement No. 33-54471, filed on
or about July 5, 1994, is incorporated herein by
reference.
(b) Resolution of the Board of Directors of American
Enterprise Life Insurance Company establishing the
Separate Account, dated November 3, 1999 is filed
electronically herewith.
(2) Not applicable.
(3) (a) Not applicable.
(b) (1) Form of Distribution Agreement for Variable Annuities
and Variable Universal Life to be filed by amendment.
(c) Schedules of Sales Commissions is filed
electronically herewith.
(4) Not applicable.
(5) (a) Flexible Premium Variable Life Insurance Policy
(SIG-VUL) is filed electronically herewith.
(b) Accidental Death Benefit Rider is filed
electronically herewith.
(c) Additional Insured Rider (Term Insurance) is
filed electronically herewith.
(d) Children's Level Term Insurance Rider is
filed electronically herewith.
(e) Term Insurance Rider is filed electronically herewith.
(f) Waiver of Monthly Deduction Rider for Total
Disability is filed electronically herewith.
(6) (a) Amendment and Restatement of Articles of
Incorporation of American Enterprise Life dated July
29, 1986, filed electronically as Exhibit 6.1 to the
Initial Registration Statement No. 33-54471, filed on
or about July 5, 1994, is incorporated herein by
reference.
<PAGE>
(b) Amended By-Laws of American Enterprise Life filed
electronically as Exhibit 6.2 to the Initial
Registration Statement No. 33-54471, filed on or
about July 5, 1994, is incorporated herein by
reference.
(7) Not applicable.
(8) (a) Copy of Participation Agreement between American
Enterprise Life Insurance Company and the Variable
Insurance Products Fund, Fidelity Distributors
Corporation, dated September 1, 1999 is filed
electronically herewith.
(b) Copy of Participation Agreement between American
Enterprise Life Insurance Company and the Variable
Insurance Products Fund III, Fidelity Distributors
Corporation, dated September 1, 1999 is filed
electronically herewith.
(c) Form of Participation Agreement between American
Enterprise Life Insurance Company and Royce Capital
Fund, Royce & Associates, Inc., dated September 1,
1999 is filed electronically herewith.
(d) Form of Participation Agreement between American
Enterprise Life Insurance Company and Warburg Pincus
Trust, Credit Suisse Asset Management, LLC and Credit
Suisse Asset Management Securities, Inc., dated
September 1, 1999 is filed electronically herewith.
(e) Form of Participation Agreement between American
Enterprise Life Insurance Company and MFS Variable
Insurance Trust, Massachusetts Financial Services
Company, dated September 1, 1999 is filed
electronically herewith.
(f) Form of Participation Agreement between American
Enterprise Life Insurance Company and Lazard Asset
Management, Lazard Retirement Series, Inc., dated
September 1, 1999 is filed electronically herewith.
(g) Form of Participation Agreement between American
Enterprise Life Insurance Company and Baron Capital
Funds, BAMCO Inc., dated September 1, 1999 is filed
electronically herewith.
(h) Form of Participation Agreement between American
Enterprise Life Insurance Company and Putnam Capital
Manager Trust, Putnam Mutual Funds Corp., dated
January 16, 1995, filed electronically as Exhibit 8.2
to Post-Effective Amendment No. 2 to Registration
Statement No. 33-54471, is incorporated herein by
reference.
(9) None.
(10) Form of Application for the Flexible Premium Variable
Life Insurance Policy is filed electronically
herewith.
<PAGE>
(11) American Enterprise Life Insurance Company's
Description of Transfer and Redemption Procedures and
Method of Conversion to Fixed Benefit Policies is
filed electronically herewith.
B. (1) Not applicable.
(2) Not applicable.
C. Not applicable.
2. Opinion of counsel is filed electronically herewith.
3. Not applicable.
4. Not applicable.
5. Not applicable.
6. Actuarial opinion of Mark Gorham is filed electronically herewith.
7. (a) Written actuarial consent of Mark Gorham is filed
electronically herewith.
(b) Written auditor consent of Ernst & Young LLP
is filed electronically herewith.
(c) Power of Attorney to sign amendments to this
Registration Statement dated July 29, 1999 filed
electronically as Exhibit 7 (c) to its Initial
Registration Statement on Form S-6 is incorporated by
reference.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940 American Enterprise Life Insurance Company, on behalf of the
Registrant, certifies that it meets all of the requirements for effectiveness of
this Pre-Effective Amendment to its Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on behalf of the Registrant by the undersigned, thereunto
duly authorized, in the City of Minneapolis, and State of Minnesota on the 16th
day of November, 1999.
American Enterprise Variable Life Separate Account
(Registrant)
By American Enterprise Life Insurance Company
(Sponsor)
By /s/ Richard W. Kling*
Richard W. Kling, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment to
the Registration Statement has been signed by the following persons in the
capacities indicated on the 16th day of November, 1999.
Signature Title
/s/ James E. Choat* Director, President and
James E. Choat Chief Executive Officer
/s/ Jeffrey S. Horton* Vice President and
Jeffrey S. Horton Treasurer
/s/ Richard W. Kling* Director, President and
Richard W. Kling Chief Executive Officer
/s/ Paul S. Mannweiler* Director
Paul S. Mannweiler
/s/ Paula R. Meyer* Director and Executive
Paula R. Meyer Vice President, Assured
Assets
/s/ William A. Stoltzmann* Director, Vice President,
William A. Stoltzmann General Counsel and
Secretary
/s/ Philip C. Wentzel* Vice President and
Philip C. Wentzel Controller
*Signed pursuant to Power of Attorney dated July 29, 1999 filed electronically
as an Exhibit 7(c) to its Initial Registration Statement on Form S-6 is
incorporated herein by reference.
By: /s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Vice President, Group Counsel and Assistant Secretary
American Enterprise Variable Life Account
File No. 333-84121/811-09515
EXHIBIT INDEX
Exhibit 1.A.(1)(b): Resolution of the Board of Directors of American
Enterprise Life Insurance Company, dated
November 3, 1999.
Exhibit 1.A.(3)(c): Schedules of Sales Commissions.
Exhibit 1.A.(5)(a): Flexible Premium Variable Life Insurance Policy
(SIG-VUL).
Exhibit 1.A.(5)(b): Accidental Death Benefit Rider.
Exhibit 1.A.(5)(c): Additional Insured Rider.
Exhibit 1.A.(5)(d): Children's Level Term Insurance Rider
Exhibit 1.A.(5)(e): Term Insurance Rider
Exhibit 1.A.(5)(f): Waiver of Monthly Deduction Rider for Total
Disability.
Exhibit 1.A.(8)(a): Copy of Participation Agreement between American
Enterprise Life Insurance Company and the Variable
Insurance Products Fund, Fidelity Distributors
Corporation, dated September 1, 1999.
Exhibit 1.A.(8)(b): Copy of Participation Agreement between American
Enterprise Life Insurance Company and the Variable
Insurance Products Fund III, Fidelity Distributors
Corporation, dated September 1, 1999.
Exhibit 1.A.(8)(c): Form of Participation Agreement between American
Enterprise Life Insurance Company and Royce
Capital Fund, Royce & Associates, Inc., dated
September 1, 1999.
Exhibit 1.A.(8)(d): Form of Participation Agreement between American
Enterprise Life Insurance Company and Warburg
Pincus Trust, Credit Suisse Asset Management, LLC
and Credit Suisse Asset Management Securities,
Inc., dated September 1, 1999.
Exhibit 1.A.(8)(e): Form of Participation Agreement between American
Enterprise Life Insurance Company and MFS Variable
Insurance Trust, Massachusetts Financial Services
Company, dated September 1, 1999.
Exhibit 1.A.(8)(f): Form of Participation Agreement between American
Enterprise Life Insurance Company and Lazard
Retirement Series, Inc., dated September 1, 1999.
Exhibit 1.A.(8)(g): Form of Participation Agreement between American
Enterprise Life Insurance Company and Baron
Capital Funds, BAMCO Inc., dated September 1,
1999.
Exhibit 1.A.(10): Form of Application for the Flexible Premium
Variable Life Insurance Policy.
Exhibit 1.A.(11): American Enterprise Life Insurance Company's
Description of Transfer and Redemption Procedures
and Method of Conversion to Fixed Benefit
Policies.
Exhibit (2): Opinion of counsel, dated November 16, 1999.
Exhibit (6): Actuarial opinion of Mark Gorham, dated November
9, 1999.
Exhibit (7)(a): Written actuarial consent of Mark Gorham, dated
November 9, 1999.
Exhibit (7)(b): Written auditor consent of Ernst & Young LLP,
dated November 15, 1999.
TO THE SECRETARY OF
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
By Resolution received by the Secretary on July 15, 1987, the Board of Directors
of American Enterprise Life Insurance Company:
RESOLVED, That American Enterprise Life Insurance Company, pursuant to
the provisions of Section 27-1-51 Section 1 Class 1(c) of the Indiana
Insurance Code, established a separate account designated American
Enterprise Variable Life Account to be used for the Corporation's
variable life insurance contracts; and
RESOLVED FURTHER, That the proper officers of the Corporation were
authorized and directed to establish such subaccounts and/or investment
divisions of the Account in the future as they determine to be
appropriate; and
RESOLVED FURTHER, That the proper officers of the Corporation were
authorized and directed to accomplish all filings, including
registration statements and applications for exemptive relief from
provisions of the securities laws as they deem necessary to carry the
foregoing into effect.
As President of American Enterprise Life Insurance Company, I hereby establish,
in accordance with the above resolutions and pursuant to authority granted by
the Board of Directors, 42 subaccounts within the separate account to invest in
the following funds or portfolios:
AXPsm Variable Portfolio - Blue Chip Advantage Fund
AXPsm Variable Portfolio - Bond Fund
AXPsm Variable Portfolio - Capital Resource Fund
AXPsm Variable Portfolio - Cash Management Fund
AXPsm Variable Portfolio - Diversified Equity Income Fund
AXPsm Variable Portfolio - Extra Income Fund
AXPsm Variable Portfolio - Federal Income Fund
AXPsm Variable Portfolio - Growth Fund
AXPsm Variable Portfolio - Managed Fund
AXPsm Variable Portfolio - New Dimensions Fund
AXPsm Variable Portfolio - Small Cap Advantage Fund
AIM V.I. Capital Appreciation Fund
AIM V.I. Capital Development Fund
AIM V.I. Value Fund
Alliance Premier Growth Portfolio (Class B)
Alliance Technology Portfolio (Class B)
Alliance U.S. Government/High Grade Portfolio (Class B)
Baron Capital Asset Fund
Fidelity VIP Fund III Growth & Income Portfolio (Service Class)
Fidelity VIP Fund III Mid Cap Portfolio (Service Class)
Fidelity VIP Fund Overseas Portfolio (Service Class)
Franklin Templeton VIP International Smaller Companies Fund-Class 2
Franklin Templeton VIP Mutual Shares Securities Fund-Class 2
Franklin Templeton VIP Real Estate Fund-Class 2
Goldman Sachs VIT Capital Growth Fund
Goldman Sachs VIT COREsm U.S. Equity Fund
Goldman Sachs VIT Global Income Fund
Goldman Sachs VIT International Equity Fund
J.P. Morgan U.S. Disciplined Equity Portfolio
Lazard Retirement Equity Portfolio
Lazard Retirement International Equity Portfolio
<PAGE>
MFS(R) New Discovery Series
MFS(R) Research Series
MFS(R) Utilities Series
Putnam VT Growth and Income Fund - Class IB Shares
Putnam VT International Growth Fund - Class IB Shares
Putnam VT International New Opportunities Fund - Class IB Shares
Royce Micro-Cap Portfolio
Royce Premier Portfolio
Wanger International Small Cap Fund
Wanger U.S. Small Cap Fund
Warburg Pincus Trust-Emerging Growth Portfolio
In accordance with the above resolutions and pursuant to authority granted by
the Board of Directors of American Enterprise Life Insurance Company, the Unit
Investment Trust comprised of American Enterprise Variable Life Account and is
hereby reconstituted as American Enterprise Variable Life Account consisting of
42 subaccounts.
Received by the Secretary:
/s/ James E. Choat /s/ William A. Stoltzmann
James E. Choat William A. Stoltzmann
Date: 11/3/99
American Enterprise Life
Variable Universal Life Commission Schedule
<TABLE>
<CAPTION>
- ----------------------- --------------------- --------------------- --------------------- ---------------------
Percent of First
Percent of First Year Premium Paid Percent of Premium Percent of Asset
Year Target Premium in Excess of Target Paid After the Value Paid After
(1) Premium First Year the First Year (2)
- ----------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
- ----------------------- --------------------- --------------------- --------------------- ---------------------
All Rate Bands and 95% 2% 2% .25%
Risk Classes
- ----------------------- --------------------- --------------------- --------------------- ---------------------
(1) An additional allowance of 0-15 percent of first year target premium may be
paid to the selling agency for distribution support activities such as
wholesaling, sales consulting and advanced case assistance.
(2) Asset based compensation is shown as an annual rate and paid quarterly
based on average quarterly cash value (less loans), which is calculated by
taking the previous and current quarter's cash value and dividing by two.
</TABLE>
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Flexible Premium Variable
Life Insurance Policy
- - Policy continues until death or surrender.
- - Flexible premiums payable as described herein.
- - No-lapse guarantee as described herein.
- - This policy is nonparticipating. Dividends are not payable.
This is a life insurance policy. It is a legal contract between you, as the
owner, and us, American Enterprise Life Insurance, a Stock Company,
Indianapolis, Indiana. PLEASE READ YOUR POLICY CAREFULLY.
In consideration of your application and payment of the initial premium, we
issue this policy and we promise to pay the proceeds described in this policy to
the beneficiary if we receive proof satisfactory to us that the insured died
while this policy was in force.
The owner and beneficiary are as named in the application unless they are
changed as provided in this policy.
The amount and duration of the death benefit of this policy may increase or
decrease as described herein depending on the investment experience of the
subaccounts.
The policy value of this policy may increase or decrease daily depending on the
investment experience of the subaccounts. There is no guaranteed minimum policy
value.
NOTICE OF YOUR RIGHT TO EXAMINE THIS POLICY FOR 20 DAYS. If for any reason you
are not satisfied with this policy, return it to us or our representative within
20 days after you receive it. We will then cancel this policy and refund the
policy value, minus indebtedness, plus any premium expense charges or monthly
deductions taken. This policy will then be considered void from its start.
Signed for and issued by American Enterprise Life Insurance Company in
Indianapolis, Indiana, as of the policy date shown above.
Secretary: President:
James E. Choat William A. Stoltzmann
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Guide to Policy Provisions
Policy Data Schedule of benefits and premium information..............Page 3
Rate Table Tables of Guaranteed Maximum Monthly
Cost of Insurance Rates...................................Page 4, 5
Definitions Important words and meanings..............................Page 6
Insurance Contract Entire contract; Incontestability; Suicide;
Misstatement of age or sex;
Termination...............................................Page 7
Owner and Beneficiary Owner's rights; Change of ownership;
Beneficiary designation; Change of
beneficiary; Assignment...................................Page 8
Premiums Payment of premiums; Premium allocations;
Grace period; No-lapse guarantee;
Reinstatement.............................................Page 9
Death Benefits Death benefit options 1 and 2.............................Page 11
Policy Change How to increase or decrease the specified
amount or to change the death benefit options ............Page 12
Policy Values The policy's value and how it is determined;
Monthly deduction; Cost of insurance; Basis
of policy values..........................................Page 13, 14, 15
Policy Loans How to request a loan; Interest rate;
Amount of loan; Loan repayment............................Page 16
Policy Surrender Cash surrender value; Full and
partial surrenders........................................Page 17
Subaccounts The subaccounts; Net investment factor;
Deductions from the subaccounts;
Transfer of values........................................Page 18
Payment of Policy
Proceeds How the proceeds are paid; Payment
Options...................................................Page 19, 20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Policy Data
Insured: John Q Doe
Issue Age: 35 Initial Specified Amount: $100,000
Risk Classification: Standard Non-Smoker Minimum Specified
Amount Allowed: $100,000
Type of Policy: Flexible Premium Initial Premium: $100.00
Variable Life
Scheduled Premium: $1,200 per year
Initial Death payable monthly
Benefit Option: Option 1 Minimum Monthly
Premium: $88.19
Policy Number: 9090-01234567 Current Policy Value Credit Percentage
First 10 policy years: 0%
Policy Date: January 15, 1998 All other policy years: .45%
Monthly Date: 15 Guaranteed Policy Value Credit Percentage
All policy years: 0%
Guaranteed Interest
Rate: 4% per year Premium Expense Charge: 3% of premium
Guaranteed Interest Administrative Charge: $7.00 per month
Rate Factor: 1.0032737
Mortality and Expense
Current Loan Risk Charge
Interest Rate: All policy years: .9% per year
First 10 policy years: 6% per year
All other policy years: 4% per year
Guaranteed Loan
Interest Rate: 6% per year
Partial Surrender Fee: $25.00 or 2% of amount
surrendered, whichever is less
No-lapse guarantee
period: 5 years from the policy date
</TABLE>
Table of Surrender Charges
Policy Year Surrender Charge
1 $ 1201.00
2 1120.93
3 1040.87
4 960.80
5 880.73
6 800.67
7 720.60
8 640.53
9 560.47
10 480.40
11 400.33
12 320.27
13 240.20
14 160.13
15 60.07
16+ 0.00
This table applies to the initial specified amount for the first 15 policy
years. Surrender charges decrease annually. Additional charges will apply to
each increase in the specified amount for 15 years after the effective date of
the increase.
Coverage will expire when the policy values are insufficient to pay the charges
assessed on a monthly anniversary. Because the policy values may be based on the
investment results of the subaccounts, the payment of scheduled premiums or
unscheduled premiums in any amount or frequency will not guarantee that the
policy will remain in force unless the premiums needed to keep the no-lapse
guarantee in effect have been paid. The no-lapse guarantee provision applies
only during the first 5 policy years.
<PAGE>
9090-1234,567
<TABLE>
<CAPTION>
<S> <C>
Investment Options Initial Premium Allocations
American Enterprise Life Fixed Account 100.0%
American Enterprise Variable Life Account
Subaccounts Investing in:
VPBND AXPSM VP Bond Fund 0.0%
VPCPR AXPSM VP Capital Resource Fund 0.0%
VPCMG AXPSM VP Cash Management Fund 0.0%
VPEXI AXPSM VP Extra Income Fund 0.0%
VPMGD AXPSM VP Managed Fund 0.0%
VPNDM AXPSM VP New Dimensions Fund 0.0%
VPBCA AXPSM VP Blue Chip Advantage Fund 0.0%
VPDEI AXPSM VP Diversified Equity Income Fund 0.0%
VPFIF AXPSM VP Federal Income Fund 0.0%
VPGRO AXPSM VP Growth Fund 0.0%
VPSCA AXPSM VP Small Cap Advantage Fund 0.0%
VACAP AIM VI Capital Appreciation Fund 0.0%
VACDV AIM VI Capital Development Fund 0.0%
VAVAL AIM VI Value Fund 0.0%
VAUGH Alliance US Gov/High Grade Securities Portfolio (Class B) 0.0%
VATEC Alliance Technology Portfolio (Class B) 0.0%
VAPGR Alliance Premier Growth Portfolio (Class B) 0.0%
VBCAS Baron Capital Asset Fund 0.0%
VFOVS Fidelity VIP III Overseas Portfolio: Service Class 0.0%
VFMDC Fidelity VIP III Mid Cap Portfolio: Service Class 0.0%
VFGRI Fidelity VIP III Growth & Income Portfolio: Service Class 0.0%
VFRES FT VIP Real Estate Securities Fund-Class 2 0.0%
VFISC FT VIP Templeton Intl Smaller Co Fund-Class 2 0.0%
VFMSI FT VIP Mutual Shares Securities Fund-Class 2 0.0%
VGCPG Goldman Sachs VIT Capital Growth Fund 0.0%
VGCUS Goldman Sachs VIT CORESM US Equity Fund 0.0%
VGGLI Goldman Sachs VIT Global Income Fund 0.0%
VGINE Goldman Sachs VIT Intl Equity Fund 0.0%
VJUDE JP Morgan US Disciplined Equity Portfolio 0.0%
VLRIE Lazard Retirement Intl Equity Portfolio 0.0%
VLREQ Lazard Retirement Equity Portfolio 0.0%
VMRES MFS(R)Research Series 0.0%
VMNDS MFS(R)New Discovery Series 0.0%
VMUTS MFS(R)Utilities Series 0.0%
VPGRI Putnam VT Growth & Income Fund - Class IB 0.0%
VPINO Putnam VT Intl New Opportunities Fund - Class IB 0.0%
VPIGR Putnam VT Intl Growth Fund - Class IB 0.0%
VRMCC Royce Micro-Cap Portfolio 0.0%
VRPRM Royce Premier Portfolio 0.0%
VTVAL Third Avenue Value Portfolio 0.0%
VWUSC Wanger US Small Cap 0.0%
VWISC Wanger International Small Cap 0.0%
VWTEG Warburg Pincus Trust-Emerging Growth Portfolio 0.0%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Schedule of Additional Benefits and Riders
Monthly
Effective Date Expiration Date Cost of Insurance
Accidental Death January 15, 1998 January 15, 2033 see rider form
Benefit Rider
- $50,000 -
Children's Level Term January 15, 1998 January 15, 2028 $ .58 per unit
Insurance - 10.0 units
with Waiver of Monthly
Deduction (1.0 unit = $1,000)
Additional Insured Rider
See Policy Data Supplemental Page for information as to coverage, amounts, and
cost of insurance.
Waiver of Monthly January 15, 1998 January 15, 2023 see rider form
Deduction Rider
for Total Disability
Term Insurance Rider January 15, 1998 January 15, 2063 see rider form
</TABLE>
<PAGE>
Policy Data Supplemental Page
Additional Insured Rider
Policy Number: 9090-12345678
Insured: Jane J. Doe
Issue Age: 35
Face Amount: $100,000
Minimum Face Amount: $100,000
Effective Date: January 15, 1998
Expiration Date: January 15, 2063
Monthly Cost of Insurance: See rider form. The
guaranteed monthly cost of insurance
rates shown on pages 4 and 5 of
policy will apply.
Risk Classification: Standard Non-Smoker
<PAGE>
<TABLE>
<CAPTION>
Male Rate Table
Guaranteed Maximum Monthly Cost of Insurance Rates per $1,000
for Insureds with a Standard Risk Classification
<S> <C> <C> <C> <C> <C> <C> <C>
Standard
Attained Attained Standard Non- Attained Standard Non-
Age Standard Age Smoker Smoker Age Smoker Smoker
-------- -------- ------- --------- -------- -------- -------- --------
0 $ 0.2175 35 $ 0.2250 $ 0.142 70 $ 4.8525 $ 3.0875
1 0.0850 36 0.2425 0.15 71 5.2850 3.4275
2 0.0825 37 0.2625 0.1600 72 5.7775 3.8250
3 0.0800 38 0.2875 0.1725 73 6.3250 4.2725
4 0.0775 39 0.3125 0.1825 74 6.9300 4.7700
5 0.0725 40 0.3450 0.197575 75 7.5800 5.3050
6 0.0675 41 0.3775 0.212576 76 8.2500 5.8725
7 0.0650 42 0.4150 0.2275 77 8.9250 6.467
8 0.0625 43 0.4550 0.245078 78 9.6150 7.0975
9 0.0600 44 0.5000 0.265079 79 10.3425 7.7825
10 0.0625 45 0.5450 0.287580 80 11.1325 8.5450
11 0.0675 46 0.5950 0.310081 81 12.0075 9.4075
12 0.0750 47 0.6475 0.335082 82 12.9875 10.3900
13 0.0875 48 0.7050 0.362583 83 14.0600 11.4925
14 0.1025 49 0.7675 0.392584 84 15.1925 12.6975
15 0.1175 50 0.8350 0.4275 85 16.3450 13.9800
16 0.1325 51 0.9150 0.467586 86 17.4900 15.3250
17 0.1425 52 1.0025 0.512587 87 18.6825 16.7175
18 0.1500 53 1.0250 0.565088 88 19.9400 18.1500
19 0.1550 54 1.2125 0.622589 89 21.2100 19.6475
55 1.3300 0.6875 90 22.5100 21.2325
56 1.4550 0.7575 91 22.8825 22.9475
57 1.5850 0.8325 92 25.5000 24.8700
58 1.7250 0.9150 93 27.6200 27.2000
59 1.8725 1.0075 94 30.5957 30.4275
60 2.0400 1.1125 95 34.5957 34.5957
61 2.2275 1.2300 96 41.3950 41.3950
62 2.4375 1.3650 97 53.1975 53.1975
63 2.6750 1.5175 98 73.2725 73.2725
64 2.9375 1.6850 99 83.3325 83.3325
65 3.2125 1.8725
66 3.5050 2.0750
67 3.8050 2.2900
68 4.1225 2.5275
69 4.4700 2.7900
</TABLE>
Standard
Attained Standard Non-
Age Smoker Smoker
--- ------- ------
20 $ 0.1925 $ 0.1400
21 0.1925 0.1375
22 0.1900 0.1350
23 0.1850 0.1325
24 0.1800 0.1275
25 0.1750 0.1250
26 0.1725 0.1225
27 0.1700 0.1200
28 0.1700 0.1200
29 0.1725 0.1200
30 0.1775 0.1200
31 0.1825 0.1225
32 0.1900 0.1250
33 0.2000 0.1300
34 0.2125 0.1375
For insureds with a preferred risk classification, the above standard non-smoker
guaranteed monthly cost of insurance rates will apply. For insureds with other
than a preferred or standard risk classification, the guaranteed monthly cost of
insurance rates are calculated by multiplying the above monthly rates by the
Special Class Risk Factor shown under Policy Data.
<TABLE>
<CAPTION>
Female Rate Table
Guaranteed Maximum Monthly Cost of Insurance Rates per $1,000
for Insureds with a Standard Risk Classification
<S> <C> <C> <C> <C> <C> <C> <C>
Standard Standard
Attained Attained Standard Non- Attained Standard Non-
Age Standard Age Smoker Smoker Age Smoker Smoker
------ ---------- ------- --------- ------- --------- --------- ---------
0 $ 0.1550 35 $ 0.1675 $ 0.1250 70 $ 2.4625 $ 1.8725
1 0.0700 36 0.1800 0.1325 71 2.7025 2.0775
2 0.0650 37 0.1975 0.1425 72 2.9975 2.3275
3 0.0650 38 0.2175 0.1550 73 3.3500 2.6275
4 0.0625 39 0.2375 0.1650 74 3.7525 2.9750
5 0.0625 40 0.2625 0.1800 75 4.1950 3.3625
6 0.0600 41 0.2900 0.1950 76 4.6675 3.7875
7 0.0575 42 0.3150 0.2100 77 5.1650 4.2425
8 0.0575 43 0.3425 0.2250 78 5.6925 4.7375
9 0.0575 44 0.3700 0.2400 79 6.2700 5.2900
10 0.0550 45 0.3975 0.2575 80 6.9225 5.9225
11 0.0575 46 0.4275 0.2750 81 7.6675 6.6550
12 0.0600 47 0.4575 0.2925 82 8.5225 7.5050
13 0.0625 48 0.4900 0.3125 83 9.5175 8.4775
14 0.0675 49 0.5250 0.3350 84 10.6125 9.5575
15 0.0725 50 0.5650 0.3600 85 11.7875 10.7425
16 0.0750 51 0.6050 0.3900 86 13.0400 12.0275
17 0.0800 52 0.6525 0.4200 87 14.3600 13.4100
18 0.0825 53 0.7050 0.4550 88 15.7550 14.9025
19 0.0850 54 0.7575 0.4925 89 17.2300 16.5150
55 0.8125 0.5300 90 18.8925 18.2725
56 0.8650 0.5700 91 20.7175 20.2225
57 0.9175 0.6075 92 22.7875 22.4525
58 0.9675 0.6450 93 25.2800 25.1475
59 1.0200 0.6875 94 28.7350 28.7350
60 1.0825 0.7375 95 33.5325 33.5325
61 1.1625 0.8000 96 40.6975 40.6975
62 1.2650 0.8775 97 52.8275 52.8275
63 1.3875 0.9725 98 73.1550 73.1550
64 1.5275 1.0800 99 83.3325 83.3325
65 1.6750 1.1950
66 1.8225 1.3150
67 1.9675 1.4375
68 2.1150 1.5650
69 2.2750 1.7075
</TABLE>
Standard
Attained Standard Non-
Age Smoker Smoker
--- ------- ------
20 $ 0.0975 $ 0.0825
21 0.0975 0.0850
22 0.1000 0.0850
23 0.1025 0.0875
24 0.1050 0.0900
25 0.1075 0.0900
26 0.1125 0.0925
27 0.1150 0.0950
28 0.1200 0.0975
29 0.1250 0.1000
30 0.1300 0.1025
31 0.1350 0.1075
32 0.1425 0.1100
33 0.1500 0.1150
34 0.1575 0.1200
For insureds with a preferred risk classification, the above standard non-smoker
guaranteed monthly cost of insurance rates will apply. For insureds with other
than a preferred or standard risk classification, the guaranteed monthly cost of
insurance rates are calculated by multiplying the above monthly rates by the
Special Class Risk Factor shown under Policy Data.
<PAGE>
Definitions
<TABLE>
<CAPTION>
<S> <C>
accumulation unit policy value
An accounting unit used to calculate the variable account The sum of the fixed account and variable
account value. It is a measure of the net investment account values.
results of each of the subaccounts.
proceeds
The amount payable by this policy as follows:
age anniversary 1. upon death of the insured prior to the insured's
The policy anniversary on which the insured be- 100 anniversary, proceeds will be the death benefit
comes a certain attained insurance age. under the option in effect as of the date of the
insured's death, minus any indebtedness;
cash surrender value 2. upon death of the insured on or after the insured's age
The policy proceeds if the policy is surrendered, or the 100 anniversary, proceeds will be the cash surrender
amount payable if the insured's death occurs on or after value;
the insured's age 100 anniversary. It is the policy value 3. on surrender of the policy, proceeds will be the cash
minus indebtedness, minus surrender charges as shown surrender value.
under Policy Data.
pro-rata basis
fixed account Allocation to the fixed account and each of the subaccounts.
Our general account. It is made up of our assets other It is proportionate to the value (minus any indebtedness in
than those in the subaccounts and those in any other the fixed account) that each bears to the policy value, minus
segregated asset account. indebtedness.
fixed account value specified amount
The portion of the policy value that is allocated to the An amount used to determine the death benefit and the
fixed account, including indebtedness. proceeds payable upon death prior to the insured's age 100
anniversary. The initial specified amount is shown under
in force Policy Data.
The insured's life remains insured under the terms of this
policy. subaccounts
The subaccounts named under Policy Data. Each is an
indebtedness investment division of the variable account and invests in a
All existing loans on this policy plus policy loan interest. particular portfolio.
insurance age terminate
The insurance age of the insured on the policy date is the This policy is no longer in force. All insurance coverage
issue age shown under Policy Data. It is the age of the under this policy has stopped.
insured on the date of application. Attained insurance
ages are determined from the policy date. valuation date
Each day on which the New York Stock Exchange
is open for trading, or any other day on which there is a
degree of trading in the investments of the subaccounts
such that the current value might be materially affected.
monthly date
The same day each month as the policy date. If there is valuation period
no monthly date in a calendar month, the monthly date The interval of time commencing at the close of business on
will be the first day of the next calendar month. each valuation date and ending at the close of business on
the next valuation date.
net premium
The portion of a premium paid that is credited to the policy variable account value
values. It is the premium paid minus the premium expense The sum of the values of the subaccounts under this
charge shown under Policy Data. policy.
we, our, us
policy anniversary American Enterprise Life Insurance Company
The same day and month as the policy date each year that
the policy remains in force. you, your
The owner of this policy. The owner may be someone
policy date other than the insured. The owner is
shown in the application unless the owner has changed as
provided in this policy.
</TABLE>
<PAGE>
The Insurance Contract
<TABLE>
<CAPTION>
<S> <C>
Entire Contract Policy Exchange
This policy and the copy of the application attached to it Once during the first two policy years, you
are the entire contract between you and us. exchange this policy for a flexible premium
No one except one of our corporate officers (President, policy that provides for benefits that do not
Vice President, Secretary of Assistant Secretary) can change the investment return of the subaccounts.
or waive any of our rights or requirements under this policy. transferring, without charge, the entire
That person must do so in writing. None of our representatives fixed account.
or other persons have the authority to change or waive any of
our rights or requirements under this policy. Voting Rights
All policy owners with variable account
In issuing this policy, we have relied upon the application. voting rights. So long as federal law requires, you may
The statements contained in the application are considered, have the right to vote at the meetings of the Variable
in the absence of fraud, representations and not warranties. policyowners. If you have voting rights, we will send you
No statement made in connection with the application will be a notice of the time and place of any such meetings. The
used by us to void the policy or to deny a claim unless that notice will also explain matters to be voted upon and how
statement is part of the application. many votes you will have.
Incontestable State Laws
After this policy has been in force during the insured's lifetime This policy is governed by the law of the state in which
for two years from the policy date, we cannot contest it is delivered. The values and benefits of this policy
the policy except for nonpayment of premiums. are at least equal to those required by such state.
While this policy is contestable, we, on the basis of a Misstatement of Age or Sex
misstatement or misrepresentation made in the application, If the insured's age or sex has been misstated,
may rescind or reform this policy and we may deny a claim. the proceeds payable upon death will be:
Any additional specified amount, other than that resulting 1. the policy value on the date of death; plus
solely from a change in death benefit option, issued after the 2. the amount of insurance that the cost of insurance
policy date will be incontestable only after such amount has on the insured, which was deducted from the policy
been force during the insured's lifetime fo two years from value for the month during which such death occurred,
the effective date of such amount. would have purchased had the cost of the insurance
the correct age and sex; minus
3. any indebtedness on the date of death.
Suicide
Suicide, by the insured, whether sane or insane, within two Policy Termination
years from the policy date is not covered by this policy. 1. the date you request that coverage ends; or
In this event, the only amount payable by us to the 2. the date you surrender the policy in full; or
beneficiary will be the premium that you have paid, minus 3. the end of the grace period; or
any indebtedness and partial surrenders. 4. the date of death on the insured.
If the insured commits suicide while sane or insane within
two years after the effective date of any additional specified
amount other than that resulting solely from a change in
death benefit option, the amount payable by us will Policy Tax Treatment
be limited to the monthly deductions for such additional This policy is intended to qualify for treatment as a life
amount. insurance policy under Sections 72, 101, and 7702 of
the Internal Revenue Code as they now exist or
may later be amended.
We reserve the right to endorse this policy
to comply with:
1. future changes in the Internal Revenue Code;
2. any regulations or rulings issued under the Code; and
3. any other requirements imposed by the Internal Revene
Service;
with respect to remaining qualified for treatment as a life
insurance policy under these Code Sections.
</TABLE>
<PAGE>
Owner and Beneficiary
<TABLE>
<CAPTION>
<S> <C>
Owner Rights Change of Beneficiary
As long as the insured is living and unless otherwise By making a satisfactory written request to us, you may
provided in this policy, you may exercise all change the beneficiary anytime while the insured is
rights and privileges provided in this policy or living.
allowed by us.
Change of Ownership Once we record the change, it will take effect as of the
You can change the ownership of this policy by written date of your request, subject to any action taken or
to any action taken or request on a form approved by us. payment made by us before the recording.
The change must be made while the insured is living.
Once the change is recorded by us, it will take effect as
of the date of your request, subject to any action taken
or payment made by us before the recording.
interest of any
Payment of Proceeds Assignment
We will pay the proceeds to the beneficiary or While the insured is living, you can assign this policy
beneficiaries whom you have named in the application or any interest in it. Your interest and the interest of
unless you have since changes the beneficiary as any beneficiary are subject to the interest of the
provided in the next provision. If the beneficiary has assignee. An assignment is not a change of ownership
been changed, we will pay the proceeds in accordance and an assignee is not an owner as these terms are
with your last change of beneficiary request. used in this policy. We will pay any policy proceeds
payable to the assignee in a single sum.
You must give us a copy of any assignment. Any
assignment is subject to any action taken or payment
made by us before the assignment was recorded at our
home office. We are not responsible for the
Only those beneficiaries who survive the insured's death validity of any assignment.
may share in the proceeds. If no beneficiary survives the
insured, we will pay the proceeds to you, if living;
otherwise, to your estate.
</TABLE>
<PAGE>
Premiums
<TABLE>
<CAPTION>
<S> <C>
Premium Payments Premium Payment Restrictions
Three types of premium payments apply to this We reserve the right to refuse premiums and to return
policy. We call these: premium payments with interest if such premiums would
1. the initial premium; disqualify your policy from:
2. scheduled premiums; and 1. treatment as a life insurance policy under Code
3. unscheduled premiums. Sections 72, 101, and 7702; or
2. favorable tax treatment under Code Sections 72 and
Initial Premium 101.
The initial premium is the premium due on the policy
date of this policy. Grace Period
If, on a monthly date, the cash surrender value is less than
Scheduled Premium the monthly deduction for the policy month following such
The scheduled premium is the premium shown under monthly date, a grace period of 61 days will begin.
Policy Data. It is payable at the stated interval that
you selected in the application. However, no scheduled The grace period will give you time to pay a premium
premium may be paid on or after the insured's age 100 sufficient to continue your coverage. We will mail,
anniversary. to your last known address, a notice as to the
premium needed so that the policy can remain in force.
If such premium is not paid within the grace period, all
coverage under this policy will terminate without value
at the end of the 61-day grace period.
The scheduled premium will serve only as an indication
of your intent as to the frequency and amount of
future premium payments. You may change the amount or
interval at any time by written request. You may also
skip scheduled premium payments. Any change in If a claim by death during the grace period becomes
amount may be subject to applicable tax laws and payable under the policy, any overdue monthly
regulations. deductions will be deducted from the proceeds.
Scheduled premiums may be paid annually, If the no-lapse guarantee is in effect as described in
semi-annually, or quarterly. Payment at any other the next provision, the policy will not enter the grace
interval must be approved by us. Scheduled premium period.
payments must be at least $25. We reserve the right
to limit the amount of any increase in scheduled premiums. No-Lapse Guarantee
During the no-lapse guarantee period, as shown under
Policy Data, this policy will not terminate
even if the cash surrender value is insufficient
to cover the monthly deduction on a monthly date if
(a)-(b)-(c) equals or exceeds (d) where:
Unscheduled Premium Payments
You can make additional premium payments of at (a) is the total of all premiums paid;
least $25 at any time prior to the insured's (b) is any partial surrenders;
age 100 anniversary. (c) is any indebtedness;
(d) is the sum of the minimum monthly premiums
required to keep the no-lapse guarantee in
effect since the policy date.
We reserve the right to limit the number and
amount of these unscheduled premiums. This
includes our right to refuse such premiums The initial mimimum monthly premium is
if there is indebtedness on this policy. shown under Policy Data.
Allocation of Premium Payments
Premium payments applied to the fixed account A new minimum monthly premium will be established
and the subaccounts will be allocated as specified for the remainder of the no-lapse guarantee period
in your application for this policy. You may if the following occur during the no-lapse guarantee
choose any whole percentage for each account from period: (1) the specified amount is increased of
0% to 100%. By written request, you may change decreased other than for a death benefit option
this allocation. The change will be effective for change or partial surrender; and (2) riders are
all premiums received after our receipt after our added, changed, or terminated.
receipt of the change.
Premium payments received before the policy If on a monthly date, sufficient premiums have
date will be allocated to the fixed account not been paid to maintain the no-lapse guarantee,
and subaccounts on the policy date as specified the no-lapse guarantee period will be terminated.
in your application for this policy.
<PAGE>
Reinstatement
This policy may be reinstated within 5 years The effective date of a reinstated policy will be
after the end of the grace period unless it the monthly date on or next following the date on
was surrendered for cash. To do this, we will which we approve the application for reinstatement.
require all of the following:
1. your written request to reinstate the policy;
2. evidence of insurability of the insured satisfactory The suicide and incontestability periods will apply
to us; from the effective date of reinstatement to contest
3. payment of the required reinstatement premium; the truth of statements or representations in the
4. payment or reinstatement of any indebtedness. reinstatement application.
The required premium to reinstate the policy is an amount
equal to (a)+(b)-(c) where:
(a) is the surrender charge which will be reinstated;
(b) is an amount equal to the next 5 monthly deductions
that will be taken after reinstatement;
(c) is the policy value which will be reinstated.
</TABLE>
<PAGE>
Death Benefits
<TABLE>
<CAPTION>
<S> <C>
Death Prior to Insured's Age 100 Anniversary Under this option, the policy value of this
The proceeds payable upon death of the insured prior policy is part of the specified amount. The initial
to the insured's age 100 anniversary will be the death specified amount is shown under Policy Data.
benefit in effect on the date of the insured's death, Such amount may be changed as explained in the
minus any indebtedness. The death benefit will be Policy Change section. A partial surrender will
calculated based on the death benefit option in effect reduce the specified amount.
as of the date of the insured's death. One of two
options will apply: Option 1 or 2. Both options are Option 2
described below. The death benefit under this option will be the
greater of:
Option 1 1. the policy value of this policy, plus the
The death benefit under this option will be the greater of: specified amount; or
1. the specified amount; or 2. the percentage of policy value for the insured's
2. the percentage of policy value for the insured's attained age shown in the following table.
attained age shown in the following table.
Under this option, the policy value is not part of
the specified amount. The initial specified amount
is shown under Policy Data. Such amount may be
changed as explained in the Policy Change section.
</TABLE>
Insured's Applicable Insured's Applicable
Attained Age Percentage Attained Age Percentage
------------ ---------- ------------ ----------
40 or less 250 61 128
41 243 62 126
42 236 63 124
43 229 64 122
44 222 65 120
45 215 66 119
46 209 67 118
47 203 68 117
48 197 69 116
49 191 70 115
50 185 71 113
51 178 72 111
52 171 73 109
53 164 74 107
54 157 75-95 105
55 150 96 104
56 146 97 103
57 142 98 102
58 138 99 101
59 134 100 100
60 130
<TABLE>
<CAPTION>
<S> <C>
The percentage of policy value is designed to ensure Death Benefit Option
that the policy meets the provisions of Federal tax law You chose the death benefit option you wanted when
which require a minimum death benefit in relation to policy you applied for this policy. The initial
value for the policy to qualify as life insurance. death benefit Option is shown under Policy Data.
While this policy is in force, you may change the
option as in the Policy Change section.
Death After Insured's Age 100 Anniversary
The proceeds payable upon death of the
insured's age 100 anniversary will be the cash surrender
value.
</TABLE>
<PAGE>
Policy Change
<TABLE>
<CAPTION>
<S> <C>
Request to Change Benefits Increases of the Specified Amount
While this policy is in force, you may request to You may increase the specified amount at any time by
decrease or increase the specified amount. You written request subject to the following rules:
may also change the death benefit option from 1
to 2 or from 2 to 1. All such changes may be made 1. You must apply for an increase by written request on
only prior to the insured's age 100 anniversary and a form satisfactory to us and not later than the insured's
will be subject to the rules below. age 85 anniversary.
Rules for Changing Specified Amount 2. You must furnish satisfactory evidence of insurability
of the insured.
Decreases of the Specified Amount
You may decrease the specified amount after the first 3. Any increase will be subject to our issue rules and limits
policy year and once per policy year by written request, at the time of increase.
subject to the following rules:
4. The minimum increase in the specified amount is
1. Any decrease will be effective on the monthly date $25,000.
on or next following our receipt of your written
request. Any such decrease will be applied in the
following order: 5. Any increase will be effective on the monthly date on or
(a) against the specified amount provided by next following the date your application is approved.
the most recent increase; then
(b) against the next most recent increases 6. A new schedule of surrender charges will apply to the
successively; then amount of any increase in the specified amount.
(c) against the initial specified amount shown
under Policy Data.
2. The specified amount that remains in force after Change of Death Benefit Option
a requested decrease may not be less than the You may change the death benefit option once per policy year
minimum specified amount allowed shown under by written request. The change in option will be effective
Policy Data. on the monthly date on or next following the date we
approve your request.
3. We reserve the right to decline to make any
specified amount decrease that we determine If the death benefit is Option 2, it may be changed to Option 1.
would cause this policy to fail to qualify The new specified amount will be the Option 2 death benefit
as life insurance under applicable tax laws. as of the effective date of change.
4. We reserve the right to limit any specified If the death benefit is Option 1, it may be changed to Option 2.
amount decrease, in any policy year, to no The new specified amount will be the Option 1 death benefit
more than 25% of the specified amount in minus the policy value as of the effective date of change.
effect as of the date of your request.
We reserve the right to decline to make any death benefit
option change that we determine would cause this policy to
fail to qualify as life insurance under applicable tax laws.
</TABLE>
<PAGE>
Policy Values
<TABLE>
<CAPTION>
<S> <C>
Policy Value Variable Account Value
On a given date, the policy value is equal The variable account value is the sum of the values of the
to the fixed account value plus the variable subaccounts under this policy as shown under Policy Data.
account value.
Fixed Account Value
On the policy date, the fixed account value equals: On the policy date, the value of each subaccount equals:
1) the portion of the initial net premium allocated 1)the portion of the initial net premium allocated to
to the fixed account; minus 2) the portion of the the subaccount, minus 2)the portion of the monthly
monthly deduction allocated to the fixed account deduction allocated to the subaccount for the first policy
for the first policy month. month.
On any subsequent date, the fixed account value On any subsequent date, the value of each subaccount will
will be calculated as: be calculated as:
a + b + c - d - e - f + g a + b + c - d - e - f + g
where: where:
(a) is the fixed account value on the preceding (a) is the value of the subaccount on the preceding valuation
monthly date plus interest thereon from the date, multiplied by the net investment factor for the
preceding monthly date to the date of current valuation period;
calculation;
(b) is the portion of net premiums allocated to (b) is the net premiums received and allocated to the
the fixed account and received since the subaccount during the current valuation period;
preceding monthly date, plus interest on such
portions from the date such net premiums (c) is the amount of any transfers from other subaccounts
were received to the date of calculation; or the fixed account, including loan repayment transfers,
to the subaccount during the current valuation period;
(c) is the amount of any transfers from the
subaccounts, including loan transfers, to (d) is the amount of any transfers to other subaccounts
the fixed account since the preceding or fixed account, including loan transfers, from the
monthly date, plus interest on such subaccount during the current valuation period;
transferred amounts from the effective
dates of such transfers to the date of (e) is the amount of partial surrender and partial
calculation; surrender fee allocated to the subaccount during
the current valuation period;
(d) is the amount of any transfers from the
fixed account, including loan repayment (f) is the portion of any monthly deduction during the
transfers, to the subaccounts since the current valuation period allocated to the subaccount
preceding monthly date, plus interest on for the policy month following the monthly date;
such transferred amounts from the effective
dates of such transfers to the date of (g) is any applicable policy value credit.
calculation;
(e) is the amount of any partial surrenders
and partial surrender fees allocated to
the fixed account since the preceding
monthly date, plus interest on such
surrendered amounts from the effective
date of such partial surrenders to the
date of calculation;
(f) if the date of calculation is a monthly
date, the portion of the monthly deduction
allocated to the fixed account for the
policy month following the monthly date;
and,
(g) is any applicable policy value credit.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Monthly Deduction The guaranteed maximum monthly cost of insurance
A deduction will be made each monthly date prior to the rates shown in this policy on pages 4 and 5, for
insured's age 100 anniversary for the cost of insurance, ages 20 and over, are based on the 1980
administrative charge, and the cost of any riders, for the Commissioner's Standard Ordinary Smoker or
policy month following such monthly date. The monthly Nonsmoker, Male or Female Mortality Tables, Age
deduction for a policy month will be calculated as: Last Birthday.
(a) + (b) + (c)
The rates for ages under 20 do not distinguish
where: between smokers and nonsmokers and are based on
the 1980 Standard Ordinary Mortality Table, Male
(a) is the cost of insurance for the policy month; or Female, Age Last Birthday. Shortly before the
(b) is the administrative charge shown under Policy Data; insured becomes age 20, we will send you a
and notice that we may begin charging smoker rates
(c) is the cost of any policy riders for the policy month. upon the insured's age policy anniversary. If
you do not apply for nonsmoker rates, or if the
insured does not qualify for nonsmoker rates, the
The monthly deduction will be taken from the fixed account insured will be reclassified as a smoker, and
and subaccounts with value on a pro-rata basis. smoker guaranteed maximum monthly cost of
insurance rates will apply to the policy.
Cost of Insurance Calculation
The cost of insurance for a policy month is calculated as: Interest Rate Used to Determine Fixed Account Value
The guaranteed interest rate applied in the
(a + b) x (c - d) calculation of the fixed account value is shown
----------------- under Policy Data. Interest in excess of the
1000 guaranteed interest rate shown under Policy Data
may be applied in the calculation of the fixed
where: account value at such increased rates and in
such manner as we may determine. Interest in
(a) is the cost of insurance rate described below; excess of the guaranteed interest rate as
shown under Policy Data, however, will not be
(b) is the amount of any flat extra insurance charges as applied to the portion of the policy value
shown under Policy Data; that equals any indebtedness due us.
(c) is the death benefit on the monthly date divided by Policy Value Continuing Insurance
the guaranteed interest rate factor shown under If sufficient scheduled premium payments are not
Policy Data; and continued, insurance coverage under this policy
will end and any benefits provided by riders will
(d) is the policy value at the beginning of the policy be continued until the cash surrender value is
month. At this point the policy value has been insufficient to cover the monthly deduction, as
reduced by the monthly deduction except for the provided in the Grace Period provision. This
part of themonthly deduction that pays for the provision will not continue any rider beyond
cost of insurance. the date for its termination as provided in the
rider.
Basis Used for Policy Values
Values and reserves are equal to or greater than
those required by law. Where required, a detailed
statement of the method of computation of values
and reserves has been filed with the insurance
department of the state where this policy was
delivered.
</TABLE>
Cost of Insurance Rate
The cost of insurance rate is the rate applied to the insurance under this
policy to determine the monthly deduction. It is based on the sex, attained age,
and risk classification of the insured. "Attained Age" means age on the prior
policy anniversary.
We may change monthly cost of insurance rates from time to time. Any change in
the cost of insurance rate will apply to all individuals of the same risk class
as the insured. Any change will be in accordance with procedures and standards
on file with the state insurance department. Cost of insurance rates will be
determined by us based on our expectations as to future mortality experience.
<PAGE>
<TABLE>
<CAPTION>
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Policy Value Credits Information About Values of Policy
Beginning in the 11th policy year and while this policy is in At least once a year, we will send to your last
force, we will periodically apply a policy value credit to your known address, a report that shows:
policy value.
1. the current policy value;
On an annual basis, the policy value credit is an amount 2. premiums paid since the last report;
determined by multiplying (a) times (b) where: (a) is the policy 3. all charges since the last report;
value credit percentage at the time the calculation is made; 4. indebtedness on this policy;
and (b) is the policy value less indebtedness at the time the 5. the current cash surrender value;
calculation is made. 6. the current death benefit; and
7. partial surrenders since the last report.
We reserve the right to calculate and apply the policy value
credit on a quarterly or monthly basis. At any time, upon written request by you, we
will provide a projection of future death
benefits and policy values.
The policy value credit amount shall be applied to the policy The projection will be based on
value on a pro-rata basis. (1) assumptions as to specified amount(s),
type of coverage option and future premium
payments as are necessary andspecified by us
and/or you.
</TABLE>
<PAGE>
Policy Loans
<TABLE>
<CAPTION>
<S> <C>
How to Borrow Money on This Policy For any loans from the fixed account, we have the right
By written request, you may obtain a to postpone the loan for up to 6 months unless the loan
loan from us whenever this policy has is used to pay premiums on any policies you have with us.
a loan value. The loan value of this
policy is the only security required Policy Loan Interest Rate
for your loan. A loan must be for at The current loan interest rate for policy loans is
least $500. We will pay interest on shown under Policy Data. We reserve the right to
the loaned amount at an annual rate increase the current loan interest rate charge, but
as stated under Policy Data. Loans it will never exceed the guaranteed loan interest
may affect the no-lapse guarantee as rate shown under Policy Data.
described in the Premiums section of
this policy. If you do not specify the Interest is charged daily and payable at the end of
accounts from which the loan is to be the policy year. If interest is not paid when it is
made, the loan will be made from the due, it will be added to your indebtedness and
fixed account and the subaccounts with charged the same interest rate as your loan.
value on a pro-rata basis. The additional interest will be taken from the
fixed account and the subaccounts with value on a
The amount of any loan and any loan interest pro-rata basis.
from the subaccounts will be transferred
from the subaccounts to the fixed account. Maximum Loan Value
You can borrow an amount up to 90% of the policy
Payment of a Loan value minus surrender charges. We calculate the
We will normally pay the portion of any policy value as of the date of the loan. Interest
loan from the subaccounts within 7 days to pay for the loan until the next policy
after we receive your written request anniversary will be included in determining the
in our home office. We have the right, maximum loan value.
however, to suspend or delay the date
of any loan from the subaccounts for Repayment of Your Loan
any period: Your loan can be repaid in full or in part at any
time before the insured's death and while this
1. when the New York Stock Exchange is policy is in force. A loan that exists at the
closed; or end of the grace period may not be repaid unless
this policy is reinstated.
2. when trading on the New York Stock
Exchange is restricted; or Repayments should be clearly marked as "loan
repayments"; otherwise, they will be credited
3. when an emergency exists, and as a to this policy as premiums. Loan repayments
result: must be in amounts of at least $25. Remaining
loan amounts of less than $25 can be paid in
(a) disposal of securities held in the full. Loan repayments will be allocated to
subaccounts is not reasonably the fixed account and the subaccounts according
predictable; or to the premium allocation percentages in effect
unless you tell us otherwise. Failure to repay
(b) it is not reasonably predictable to a loan or pay loan interest will not terminate
fairly determine the value of the this policy unless the cash surrender value is
assets of the subaccounts; or insufficient to cover the monthly deduction,
as provided in the Grace Period provision.
4. during any other period when the This would happen if indebtedness exceeded the
Securities and Exchange Commission, by policy value, minus surrender charges.
order, so permits for the Protection of
security holders.
Rules and regulations of the Securities and
Exchange Commission will govern as to whether
the conditions set forth in the above items
2 and 3 exist.
</TABLE>
<PAGE>
Policy Surrender
<TABLE>
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Surrender of the Policy 5. We reserve the right to decline a request for a
You may surrender this policy for its cash partial surrender that we determine would cause
surrender value at any time. Your request this policy to fail to qualify as life insurance
must be in writing. Upon surrender for the under applicable tax laws.
cash surrender value, this policy will
terminate. If you do not specify the accounts from which the
surrender is to be made, the surrender will be
The cash surrender value of this policy is: made from the fixed account and the subaccounts
with value on a pro-rata basis.
1. the policy value at the time of surrender;
minus Payment of a Surrender
2. any indebtedness on this policy; minus We will normally pay the portion of any surrendered
3. any applicable surrender charges as amount from the subaccounts within 7 days after we
shown under Policy Data. receive your written request on our home office.
We have the right, however, to suspend or delay
Partial Surrender the date of any surrender payment from the
By written request or other requests subaccounts for any period:
acceptable to us, you may partially surrender
this policy for an amount less than the cash 1. when the New York Stock Exchange is closed; or
surrender value. Partial surrenders are 2. when trading on the New York Stock Exchange is
subject to the rules below and payment of the restricted; or
Partial Surrender Fee shown under Policy Data. 3. when an emergency exists, and as a result:
We reserve the right to limit the frequency (a) disposal of securities held in the subaccounts
of partial surrenders you may request. is not reasonably practicable; or
Partial surrenders may affect the no-lapse (b) it is not reasonably practicable to fairly
guarantee as described in the Premiums determine the value of the assets of the
section of this policy. subaccounts; or
4. during any other period when the Securities and
If death benefit Option 1 is in effect, Exchange Commission, by order, so permits for
both the specified amount and the policy the protection of security holders.
value will be reduced by the amount of
surrender and partial surrender fee. If Rules and regulations of the Securites and
death benefit Option 2 is in effect, the Exchange Commission will govern as to whether the
policy value will be reduced by the conditions set forth in the above items 2 and 3
amount of surrender and the partial exist.
surrender fee.
Rules For a Partial Surrender For any surrender request from the fixed account,
The following rules will apply to any we have the right to postpone the payment for up
partial surrender: to 6 months. If we postpone payment more than 30
days, we will also pay you interest. The interest
1. partial surrenders may not be made in will be paid at the rate of 3% per year based on
the first policy year; the amount surrendered for the period of
postponement.
2. the minimum amount that may be surrendered
is $500;
3. the partial surrender amount cannot
exceed 90% of the full cash surrender
value;
4. the partial surrender fee is as stated
under Policy Data. The surrender amount
and partial surrender fee will be
deducted from the policy value at the
time of each partial surrender; and
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Subaccounts
Subaccounts (2) is the net result of:
The subaccounts are separate investment accounts of a. the net asset value of the portfolios or funds
ours. They are named under Policy Data. We have held in the subaccount, determined at the end
allocated a part of our assets for this and certain of the last prior valuation period; plus or
other policies to the subaccounts. Such assets minus
remain our property. They cannot be charged, however, b. the per-share charge or credit for any taxes
with liabilities from any other business in which we reserved for the last prior valuation period;
may take part. and
Investments of the Subaccounts (3) is a factor representing the mortality and expense
Net premiums and transfers will be allocated as you risk charge.
specify. Each subaccount will buy the investment shown
for that subaccount under Policy Data or as later Deductions From the Subaccounts
added or changed. The mortality and expense risk charge compensates us for
assuming the mortality and expense risks under the policy.
Subaccount Value It is equal on an annual basis to the percentage, as
The subaccount value is determined by multiplying the stated under Policy Data, of the daily value of the
number of accumulation units credited to the subaccounts. The deduction will be (1) made from each
subaccount by the appropriate accumulation unit values. subaccount with value; and (2) computed on a daily basis.
The number of accumulation units for each of the
subaccounts is found by dividing: (1) the amount Change of Investments of the Subaccounts
allocated to the subaccount; by (2) the subaccount's The investments of the subaccounts would be changed only
accumulation unit value for the valuation period in if laws or regulations changes, the investment became
which we received the premium payment, transfer unavailable, or in our judgement the investments were
request, or partial surrender request. no longer suitable for the subaccounts. If any of these
situations occurred, we would have the right to substitute
The value of an accumulation unit for each of the investments other than those shown under Policy Data. We
subaccounts was arbitrarily set at $1 when the would first seek the approval of the Securities and
first investments were bought. The value for any Exchange Commission and, where required, the insurance
later valuation period is found as follows: The regulator of the state where this policy is delivered.
accumulation unit value for a subaccount for the
last prior valuation period is multiplied by Transfers Among Your Subaccounts and Fixed Account
such subaccount's net investment factor for the By written request or other request acceptable to us,
following valuation period. The result is the you may transfer all or part of the value of a
accumulation unit value. The value of an subaccount to one or more of the other subaccounts or
accumulation unit may increase or decrease from to the fixed account. The amount transferred, however,
one valuation period to the next. must be at least: (1) $250; or (2) the total value of
the subaccount, if less. We reserve the right to limit
Determination of Net Investment Factor such transfers to 12 per policy year. We may suspend
The net investment factor is an index or modify this transfer privilege at any time with
applied to measure the investment performance the necessary approval of the Securites and Exchange
of a subaccount from one valuation period to Commission.
the next. The net investment factor may be
greater or less than one; therefore, the You may also transter from the fixed account to the
value of an accumulation unit may increase subaccounts once a year, but only on the policy
or decrease from one valuation period to the anniversary or within 30 days after such policy
next. anniversary. If you make this transfer, you cannot
transfer from the subaccounts back into the fixed
To find the net investment factor of any such account until the next policy anniversary. If we
subaccount for a valuation period, we divide receive your written request within 30 days before
(1) by (2), and subtract (3) from the result, the policy anniversary date, the transfer from the
where: fixed account to the subaccounts will be effective
(1) is the net result of: on the anniversary date. If we receive your written
a. the net asset value per share of the request within 30 days after the policy anniversary
portfolios or funds held in the date, the transfer from the fixed account to the
subaccount determined at the end of subaccounts will be effective on the date we
the current valuation period; plus receive the request. The minimum transfer amount
b. the per-share amount of any dividend is $250 of the fixed account value minus
or capital gain distributions made indebtedness, is less. The maximum transfer amount
by the investment held in the is the fixed account value, minus indebtedness.
subaccount, if the "ex-dividend" We may suspend or modify this transfer privilege
date occurs during the current at any time.
valuation period; plus or minus
c. a per-share charge or credit for any
taxes reserved for the current
valuation period that we determine
to have resulted from the investment
operations of the subaccount.
</TABLE>
<PAGE>
<TABLE>
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<S> <C>
Payment of Policy Proceeds
How the Proceeds are Paid Option B - Payment for a Specified Period
We will pay the proceeds in a single sum unless a payment We will make monthly payments for a specified number
option has been selected. The date on which the proceeds of years. The amount of each monthly payment for each
are paid in a lump sum or first placed under a payment $1,000 placed under this option is shown in the following
option is the settlement date. All proceeds are payable at table. Monthly payment amounts for years not shown will
our home office. We will pay interest at a rate not less be furnished upon request.
than 4% per year on single sum death proceeds from the
date of the insured's death to the settlement date. Option B Table
Payment Options Other Than Single Sum Number Monthly
During the insured's lifetime, you may request in writing of Years Payment/$1000
that we pay the proceeds under one or more of the following 10 9.61
payment options, or that we change a prior election. 15 6.87
You may elect other payment options not shown if we agree. 20 5.51
Unless we agree otherwise, however, a payment option may 25 4.71
be selected only if the payments are to be made to a natural 30 4.18
person in that person's own right. Also, the amount of
proceeds placed under a payment option must be at least
$5,000.
Option A - Interest Payments Option C - Lifetime Income
We will pay interest on proceeds placed under this We will make monthly payment for the life of the
option at the rate of 3% per year compounded person (the payee) who is to receive the income.
annually. We will make regular interest payments Payment will be guaranteed for either 5, 10, or
at intervals and for a period that is aggreeable 15 years. The amount of each monthly payment for
to both you and us. At the end of any payment each $1,000 placed under this option will be
interval, a withdrawal or proceeds may be made based on our Table of Settlement Rates in effect
in the amount of at least $100. At any time, at the time of the first payment. The amounts
all the proceeds that remain may be withdrawn will not be less than those shown in the
or placed under a different payment option following table for the sex and age of the
approved by us. payee on the due date of the first payment.
Monthly income amounts for any age not shown in
the following table will be furnished upon request.
</TABLE>
<TABLE>
<CAPTION>
Option C Table
M = Male F = Female
Life Income per $1,000 with
Payments Guaranteed for
Age Payee Settlement 5 years 10 Years 15 Years
--------- ---------- ------- -------- --------
Beginning In Year M F M F M F
----------------- - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C>
65 2005 5.26 4.66 5.15 4.62 4.95 4.53
2010 5.17 4.60 5.07 4.55 4.89 4.48
2015 5.09 4.53 4.99 4.49 4.83 4.42
2020 5.01 4.47 4.92 4.44 4.77 4.38
2025 4.94 4.42 4.86 4.39 4.72 4.33
2030 4.87 4.37 4.79 4.34 4.67 4.29
70 2005 6.12 5.35 5.87 5.24 5.48 5.05
2010 6.01 5.26 5.77 5.16 5.41 4.99
2015 5.89 5.17 5.68 5.08 5.35 4.93
2020 5.79 5.09 5.59 5.01 5.29 4.87
2025 5.69 5.01 5.51 4.94 5.23 4.82
2030 5.59 4.94 5.43 4.88 5.17 4.76
75 2005 7.27 6.33 6.72 6.07 6.00 5.65
2010 7.11 6.20 6.61 5.97 5.94 5.59
2015 6.96 6.08 6.50 5.87 5.88 5.52
2020 6.82 5.97 6.40 5.78 5.83 5.46
2025 6.68 5.86 6.30 5.69 5.77 5.40
2030 6.55 5.76 6.21 5.60 5.72 5.34
</TABLE>
Supplemental Contract
If a payment option is requested, we will prepare an agreement stating the terms
under which payments will be made. The agreement will include statements about
withdrawal value, if any, and to whom remaining proceeds will be paid if the
payee dies.
Beneficiary Request of Payment Option
After the insured's death but before any proceeds are paid, the beneficiary may
select a payment option by written request to us. You may provide, however, that
the beneficiary will not be permitted to change the payment option you have
selected.
Payment of Excess Interest Earnings
On each anniversary of the settlement date, we will determine excess interest,
if any, on payment option deposits. Any such excess interest will be paid under
Option A or B.
<PAGE>
Flexible Premium Variable Life Insurance Policy
- - Policy continues until death or surrender.
- - Flexible premiums payable as described herein.
- - No-lapse guarantee as described herein.
- - This policy is nonparticipating. Dividends are not payable.
American Enterprise Life Insurance Company
Administrative Offices
80 South Eighth Street
PO Box 534
Minneapolis, MN 55440
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Accidental Death Benefit Rider
Based on the application for this rider and the payment of its monthly
deduction, this rider is made a part of the policy. This rider is subject to all
policy terms and provisions unless this rider changes them. This rider does not
increase your policy values.
<TABLE>
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<S> <C>
Rider Benefit Monthly Deduction
We will pay the Accidental Death Benefit shown under While this rider is in force, a monthly
Policy Data if we receive proof satisfactory to us that deduction is taken from the policy's value
the insured's death: for the cost of this rider. The amount can
be determined from the following Rider
1. resulted, directly and independently of all other Cost of Insurance Table.
causes, from accidental bodily injury; and
Incontestability
2. occurred while this rider was in force; and After this rider has been in force during the
insured's lifetime for two years from its
3. occurred within 90 days of the injury. Effective date, we cannot contest this rider.
This benefit is in addition to any other benefits payable Rider Termination
under the policy. If payable, it will be included in the This rider will terminate on the earliest of
proceeds of the policy. the following:
Risks Not Covered 1. the monthly date on or next following
The benefits of this rider are not payable if death receipt of your written request for
resulted from or was contributed to by any of the following: coverage to end; or
2. the date the policy terminates;
1. suicide or attempted suicide, whether sane or
insane; 3. the insured's age 70 anniversary.
Rider Effective Date
2. bodily or mental infirmity, illness, or disease; This rider is issued as of the policy date of
the policy unless a different date is shown
3. infection of any nature not resulting from under Policy Data.
accidental bodily injury;
4. poison, gas, or fumes taken, administered, or inhaled American Enterprise Life Insurance Company
voluntarily, except in the course of the insured's
occupation;
5. the voluntary taking of drugs or narcotics unless prescribed by a
licensed physician;
Secretary
6. the insured's commission of or attempt to
commit a felony;
7. an act or incident of war, declared or not, or
any type of military conflict;
8. travel in or descent from any kind of aircraft if:
a. the insured was taking part in training or had
duties aboard the aircraft; or
b. the aircraft was operated by or for the armed
forces of any country.
</TABLE>
<PAGE>
Rider Cost of Insurance Table
The monthly deduction for the cost of this rider is equal to A x B where:
1000
A is the Accidental Death Benefit; and
B is the ADB Rate from the table below based on the then attained age of the
insured.
Attained Attained
Age of Monthly ADB Rate* Age of Monthly ADB Rate*
Insured Male Female Insured Male Female
5 $.07 $ .04 40 $ .08 $ .04
6 .07 .04 41 .08 .04
7 .07 .04 42 .08 .04
8 .07 .05 43 .08 .04
9 .08 .05 44 .08 .04
10 .08 .05 45 .08 .04
11 .08 .05 46 .08 .04
12 .09 .05 47 .08 .04
13 .09 .06 48 .08 .04
14 .10 .06 49 .08 .04
15 .10 .06 50 .08 .04
16 .10 .06 51 .08 .04
17 .11 .07 52 .08 .04
18 .12 .07 53 .09 .05
19 .12 .07 54 .09 .05
20 .12 .07 55 .09 .05
21 .12 .07 56 .09 .05
22 .11 .06 57 .09 .05
23 .10 .06 58 .10 .06
24 .10 .05 59 .10 .06
25 .09 .05 60 .10 .06
26 .09 .05 61 .10 .06
27 .08 .04 62 .11 .06
28 .08 .04 63 .11 .07
29 .08 .04 64 .11 .07
30 .08 .04 65 .12 .07
31 .08 .04 66 .13 .08
32 .08 .04 67 .14 .09
33 .08 .04 68 .15 .10
34 .08 .04 69 .16 .11
35 .08 .04
36 .08 .04
37 .08 .04
38 .08 .04
39 .08 .04
*If this rider is issued with other than a standard rating classification, the
ADB Rates will be adjusted by multiplying the above monthly rates by the ADB
Rating Factor shown under Policy Data.
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Additional Insured Rider
Term Insurance
Based on the application for this rider and the payment of its monthly
deduction, this rider is made a part of the policy. This rider is subject to all
policy terms and provisions unless this rider changes them. Thisrider does not
increase your policy values.
Definition of "Additional Insured" Each person whose life is insured by this
rider. Each additional insured is shown under Policy Data. If there is more than
one additional insured, the provisions of this rider will apply individually as
to each additional insured.
Definition of "Face Amount"
The amount of the death benefit provided by this rider. The face amount for the
additional insured is shown under Policy Data.
Rider Benefit
If we receive proof satisfactory to us that the additional insured died while
this rider was in force, we will pay a death benefit to the beneficiary of this
rider. The death benefit will be the face amount in force as of the date of
death of the additional insured. The beneficiary is named in the application for
this rider unless changed as provided below.
Subject to the terms of the policy, the death benefit payable may be applied
under one of the payment options shown in the policy.
Beneficiary Change
You may change a named beneficiary by satisfactory written request to us
provided:
1. the base policy is in force;
2. this rider is in force; and
3. the additional insured is alive.
Once the change is recorded by us, it will take effect as of the date it is
signed subject to any action taken or payment made by us before the recording.
37030
When you name, add, or change a beneficiary, we will assume that it applies to
the base policy unless you tell us that it applies to this rider.
Monthly Deduction
While this rider is in force, a monthly deduction for the cost of this rider is
taken from the policy's value for each additional insured. The amount of the
deduction is the face amount of each additional insured as shown under Policy
Data divided by 1,000 times the monthly cost of insurance rate.
If a Waiver of Monthly Deduction rider is attached to the policy, the monthly
deduction for the cost of the Waiver of Monthly Deduction rider is equal to 1 x
2 divided by 1000 where:
1. is the Waiver of Monthly Deduction rate from the Waiver of Monthly Deduction
Rider Cost of Insurance Table, based on the then attained age of the insured;
2. is the face amount for each additional insured shown under Policy Data.
Cost of Insurance Rate
The cost of insurance rate is the rate applied to the face amount of this rider
to determine the monthly deduction. It is based on the sex, attained age, and
risk classification of the additional insured. For purposes of this rider,
"attained age" means age of the additional insured on the prior rider
anniversary.
We may change monthly cost of insurance rates from time to time. Any change in
the cost of insurance rate will apply to all individuals of the same risk class
as the additional insured. Any change will be in accordance with procedures and
standards on file with the state insurance department. Cost of insurance rates
will be determined by us based on our expectations as to future mortality
experience.
<PAGE>
The guaranteed maximum monthly cost of insurance rates shown in the policy, for
ages 20 and over, are based on the 1980 Commissioners Standard Ordinary Smoker
or Nonsmoker, Male or Female Mortality Tables, Age Last Birthday.
The rates for ages under 20 do not distinguish between smokers and nonsmokers
and are based on the 1980 Standard Ordinary Mortality Table, Male or Female, Age
Last Birthday. Shortly before the additional insured becomes age 20, we will
send you a notice that we may begin charging smoker rates upon the additional
insured's age 20 policy anniversary. If you do not apply for nonsmoker rates, or
the additional insured does not qualify for nonsmoker rates, the additional
insured will be classified as a smoker, and smoker guaranteed maximum monthly
cost of insurance rates will apply to this rider.
Change of the Rider Face Amount
Decreases of the Face Amount
While this rider is in force, you may decrease the face amount once per year by
written request. The decrease may only be made after the first rider year and is
subject to the following rules:
1. Any decrease will be effective on the monthly date on or next following our
receipt of your written request. Any such decrease will be applied in the
following order:
(a) against the face amount provided by the
most recent increase; then
(b) against the next most recent increases
successively; then
(c) against the original face amount of this rider.
2. The face amount that remains in force after a decrease may not be less
than $25,000.
Increases of the Face Amount
While this rider is in force, you may increase the face amount at any time by
written request. You may not, however, make any increase in the face amount
during a period of disability of the insured. Increases are subject to the
following rules:
1. You must apply for an increase on a form satisfactory to us and before
the additional insured's attained age 75.
2. You must furnish satisfactory evidence of
insurability of the additional insured. If the policy includes a
disability waiver of monthly deductions rider, you must also provide
evidence of insurability of the insured under the base policy.
3. Any increase will be subject to our issue rules and limits at the time
of increase.
4. The minimum increase in the face amount is $25,000.
5. Any increase will be effective on the monthly date on or next following
the date your application is approved.
Conversion to a New Policy After the first year of coverage, you may convert
such coverage on the life of the additional insured to one of our permanent life
insurance policies we are then issuing. No evidence of insurability will be
required. Coverage, however, may be converted only:
1. if the additional insured is alive;
2. while this rider is in force with respect to the additional insured;
2. before the additional insured's attained age 75; and
3. while the base policy is in force or within 31 days after the insured's
death.
Application must be made by written request. During your lifetime, only you may
apply for conversion. If you are the insured, then the additional insured will
have 31 days after the death of the insured to apply for conversion.
The New Policy
The amount of the new policy may be for an amount up to the face amount of this
rider in force at the time of conversion. The new policy date will be the 15th
of the month on or next following the date we received your request or another
date agreed to by us. The new policy must be one of our permanent life insurance
policies we are then issuing. The new policy will be in the same risk class as
this rider.
Rider Termination
Coverage under this rider will terminate on the earliest of the following:
1. the monthly date on or next following receipt of your written request for
coverage to end; or
2. the date the policy terminates due to other than the insured's death; or
3. 31 days after the insured's death. During these 31 days we will not charge
you for coverage under this rider; or
4. the date of conversion of coverage as
provided in this rider; or
5. the insured's age 100 anniversary; or
6. the additional insured's attained age 100.
Rider Reinstatement
If the policy and this rider lapsed as provided in the policy's Grace Period
provision, this rider may be reinstated within 5 years of the date of lapse if:
1. this rider was in effect when the policy lapsed; and
2. the policy is reinstated; and
3. the requirements stated below are met.
<PAGE>
In order to reinstate coverage for this rider, you must:
1. furnish satisfactory evidence of insurability for
the additional insured; and
2. pay a premium sufficient to keep this rider in force for 5 months.
The effective date of reinstatement will be the monthly date on or next
following the date we approve the application for reinstatement. We will have
two years from the effective date of reinstatement during the additional
insured's lifetime to contest the truth of statements or representations in the
reinstatement application.
Misstatement of Age or Sex
In the event the age or sex of the additional insured has been misstated, any
amount payable under this rider will be the amount of insurance, if any, that
the rider cost for the policy month during which such death occurred, would have
purchased had the cost of the benefits provided under the rider been calculated
using the rider Cost of Insurance Rates for the correct age and sex.
Incontestability
After coverage with respect to the additional insured has been in force during
the additional insured's lifetime for two years from its effective date, we
cannot contest the coverage.
Any increase in face amount will be incontestable only after such amount has
been in force during the additional insured's lifetime for two years from the
effective date of such increase.
Suicide Exclusion
Suicide by the additional insured, whether sane or insane, within two years from
the effective date of coverage is not covered. In this event, our liability
under this rider will be limited to the total of the monthly deductions taken
for the additional insured's coverage. If the additional insured commits suicide
while sane or insane within two years after the effective date of any increase
in face amount, our liability will be limited to an amount equal to the cost of
the additional coverage.
Rider Effective Date
This rider is issued as of the policy date of the policy unless a different date
is shown under Policy Data.
American Enterprise
Life Insurance Company
Secretary
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Children's Level Term Insurance Rider
Based on the application for this rider and the payment of its monthly
deduction, this rider is made a part of the policy. This rider is subject to all
policy terms and provisions unless this rider changes them. This rider does not
increase your policy values.
Definition of Insured When we use the term "insured" in this rider, we mean the
person who is the insured under the policy to which this rider is attached.
Definition of Insured Child
When we use the term "insured child" in this rider, we mean:
1. any child, step-child, or legally adopted child of the
insured who is named in the application for this
rider. The child must be at least 15 days old before coverage is
provided. On the date of the application, the child must be less
than 19 years old; and
2. any child born to or legally adopted by the insured
after the date of application for this rider, or any step-child acquired by
the insured after the date of application for this rider and who is a
member of the insured's household. The child must be at least 15 days old
before coverage is provided. On the date of adoption or the date the
stepchild is acquired, the child must be less than 19 years old.
Benefit of This Rider
If we receive proof satisfactory to us that an insured child died:
1. while this rider was in force; and
2. before the insured child's 22nd birthday; and
3. before the insured's Age 65 Anniversary;
we will pay a death benefit to you. The amount of the benefit will be the
amount shown for this rider under Policy Data.
Conversion to a New Policy
Insurance on each insured child provided by this rider can be converted if the
insurance is in force on the earlier of: (1) the insured child's 22nd birthday;
or (2) the insured's Age 65 Anniversary; or (3) the death of the insured.
You have the right to convert the insurance provided by this rider to a new
policy. You will be the owner of the new policy unless provided differently in
the policy.
Any conversion will be subject to the following requirements.
Conversion on Insured Child's 22nd Birthday
To convert the insurance in force on an insured child's 22nd birthday, written
request must be received by us:
1. within 31 days following such child's 22nd birthday; and
2. during the life of the child; and
3. with the full first premium for the new policy.
The new policy will be effective as of such child's 22nd birthday. If conversion
is not made, the insurance in force will terminate on such child's 22nd
birthday.
Conversion at Insured's Age 65 Anniversary
Only the insurance in force on each insured child who has not reached his or her
22nd birthday can be converted.
Written request for conversion must be received by us:
1. within 31 days following the insured's Age 65 Anniversary; and
2. during the life of each such insured child; and
3. with the full first premium for each new policy.
Each new policy will become effective as of the insured's Age 65 Anniversary.
Conversion at Insured's Death
Only the insurance in force on each insured child who has not reached his or her
22nd birthday can be converted.
Written request for conversion must be received by us:
1. within 31 days following the death of the insured; and
2. during the life of each such insured child; and
3. with the full first premium for each new policy.
Each new policy will become effective as of the insured's death.
<PAGE>
The New Policy
The new policy must be a policy of permanent life insurance we are then issuing
at the time of conversion. The maximum amount of insurance for each new policy
may be up to 5 times the amount stated for this rider under Policy Data. The
minimum amount is $2,000. The premium will depend on the policy chosen and will
be based on the amount of insurance and the insured child's age at the time of
conversion. Policy forms, premiums and values for each new policy will be those
offered by us for other new policies at the time of conversion.
Monthly Deduction
While this rider is in force a monthly deduction is taken from the policy's
value for the cost of this rider. The amount of such deduction for this rider is
shown under Policy Data.
Suicide Exclusion
If within two years of this rider's effective date the insured commits suicide,
while sane or insane, the new policy provision in this rider will automatically
apply. No other benefit provided by this rider will be payable. Any monthly
deductions taken for this rider will not be refunded.
Misstatement of Age
If the age of the insured or an insured child has been misstated, any amount
payable under this rider will be the amount, if any, of insurance that the rider
cost for the policy month during which such death occurred would have purchased
had the cost of benefits provided under the rider been calculated using the
Rider Cost of Insurance Rates for the correct age.
Rider Reinstatement
To reinstate this rider, you must provide satisfactory evidence of insurability
for all persons whose lives will be insured under this rider. You must pay a
premium that will keep this rider in force for at least 3 months.
Incontestability
This rider will be incontestable after it has been in force during the insured's
lifetime for two years from the effective date of this rider.
Rider Termination
This rider will terminate on the earliest of the following:
1. the monthly date on or next following receipt of your written request for
coverage to end; or
2. the date of death of the insured; or
3. the date the policy terminates; or
4. the insured's Age 65 Anniversary.
Effective Date of This Rider
This rider is issued as of the policy date of the policy unless a different date
is shown under Policy Data.
American Enterprise Life Insurance Company
Secretary
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Term Insurance Rider
Based on the application for this rider and the payment of its monthly
deduction, this rider is made a part of the policy. This rider is subject to all
policy terms and provisions unless this rider changes them. Thisrider does not
increase your policy values.
Definition of "Insured"The person whose life is insured by the policy and this
rider.
Definition of "Face Amount"
The amount of the death benefit provided by this rider. The face amount for the
insured is shown under Policy Data.
Rider Benefit
If we receive proof satisfactory to us that the insured died while this rider
was in force, we will pay a death benefit to the beneficiary of the policy. The
death benefit will be the face amount in force as of the date of death of the
insured.
Subject to the terms of the policy, the death benefit payable may be applied
under one of the payment options shown in the policy.
Monthly Deduction
While this rider is in force, a monthly deduction for the cost of this rider is
taken from the policy's value. The amount of the deduction is the face amount of
the rider as shown under Policy Data divided by 1,000 times the monthly cost of
insurance rate.
If a Waiver of Monthly Deduction rider is attached to the policy, the monthly
deduction for the cost of the Waiver of Monthly Deduction rider is equal to 1 x
2 divided by 1000 where:
1. is the Waiver of Monthly Deduction rate from the Waiver of Monthly Deduction
Rider Cost of Insurance Table, based on the then attained age of the insured;
2. is the face amount of the rider as shown under Policy Data.
Cost of Insurance Rate
The cost of insurance rate is the rate applied to the face amount of this rider
to determine the monthly deduction. It is based on the sex, attained age, and
risk classification of the insured. For purposes of this rider, "attained age"
means age of the insured on the prior rider anniversary.
We may change monthly cost of insurance rates from time to time. Any change in
the cost of insurance rate will apply to all individuals of the same risk class
as the rider insured. Any change will be in accordance with procedures and
standards on file with the state insurance department. Cost of insurance rates
will be determined by us based on our expectations as to future mortality
experience.
The guaranteed maximum monthly cost of insurance rates shown in the policy, for
ages 20 and over, are based on the 1980 Commissioners Standard Ordinary Smoker
or Nonsmoker, Male or Female Mortality Tables, Age Last Birthday.
The rates for ages under 20 do not distinguish between smokers and nonsmokers
and are based on the 1980 Standard Ordinary Mortality Table, Male or Female, Age
Last Birthday. Shortly before the insured becomes age 20, we will send you a
notice that we may begin charging smoker rates upon the insured's age 20 policy
anniversary. If you do not apply for nonsmoker rates, or the insured does not
qualify for non-smoker rates, the insured will be classified as a smoker, and
smoker guaranteed maximum monthly cost of insurance rates will apply to this
rider.
<PAGE>
Change of the Rider Face Amount
Decreases of the Face Amount
While this rider is in force, you may decrease the face amount once per year by
written request. The decrease may only be made after the first rider year and is
subject to the following rules:
1. Any decrease will be effective on the monthly date on or next following our
receipt of your written request. Any such decrease will be applied in the
following order:
(a) against the face amount provided by the
most recent increase; then
(b) against the next most recent increases
successively; then
(c) against the original face amount of this rider.
2. The face amount that remains in force after a decrease may not be less
than $25,000.
Increases of the Face Amount
While this rider is in force, you may increase the face amount at any time by
written request. You may not, however, make any increase in the face amount
during a period of disability of the insured. Increases are subject to the
following rules:
1. You must apply for an increase on a form satisfactory to us and before
attained age 75.
2. You must furnish satisfactory evidence of insurability of the insured.
3. Any increase will be subject to our issue rules and limits at the time of
increase.
4. The minimum increase in the face amount is $25,000.
5. Any increase will be effective on the monthly date on or next following
the date your application is approved.
Conversion to a New Policy
After the first year of coverage, you may convert such coverage to a new
individual life insurance policy on the life of the insured. No evidence of
insurability will be required. Coverage, however, may be converted only:
1. if the insured is alive;
2. while this rider is in force with respect to the insured;
3. before the insured's attained age 75; and 4. while the base policy is
in force.
Application must be made by written request. During your lifetime, only you may
apply for conversion.
The New Policy
The amount of the new policy may be for an amount up to the face amount of this
rider in force at the time of conversion. The new policy date will be the 15th
of the month on or next following the date we received your request or another
date agreed to by us. The new policy must be one of our permanent life insurance
policies we are then issuing. The new policy will be in the same risk class as
this rider.
Rider Termination
Coverage under this rider will terminate on the earliest of the following:
1. the monthly date on or next following receipt of your written request for
coverage to end; or
2. the date the policy terminates due to other than the insured's death; or
3. the date of death of the insured; or
4. the date of conversion of coverage as provided in this rider; or
5. the insured's age 100 anniversary.
Rider Reinstatement
If the policy and this rider lapsed as provided in the policy's Grace Period
provision, this rider may be reinstated within 5 years of the date of lapse if:
1. this rider was in effect when the policy lapsed; and
2. the policy is reinstated; and 3. the requirements stated below are met.
In order to reinstate coverage for this rider, you must:
1. furnish satisfactory evidence of insurability for the insured; and
2. pay a premium sufficient to keep this rider in force for 5 months.
The effective date of reinstatement will be the monthly date on or next
following the date we approve the application for reinstatement.
We will have two years from the effective date of reinstatement during the
insured's lifetime to contest the truth of statements or representations in the
reinstatement application.
Misstatement of Age or Sex
In the event the age or sex of the insured has been misstated, any amount
payable under this rider will be the amount of insurance, if any, that the rider
cost for the policy month during which such death occurred, would have purchased
had the cost of the benefits provided under the rider been calculated using the
rider Cost of Insurance Rates for the correct age and sex.
<PAGE>
Incontestability
After coverage with respect to the insured has been in force during the
insured's lifetime for two years from its effective date, we cannot contest the
coverage.
Any increase in face amount will be incontestable only after such amount has
been in force during the insured's lifetime for two years from the effective
date of such increase.
Suicide Exclusion
Suicide by the insured, whether sane or insane, within two years from the
effective date of coverage is not covered. In this event, our liability under
this rider will be limited to the total of the monthly deductions taken for the
insured's coverage. If the insured commits suicide while sane or insane within
two years after the effective date of any increase in face amount, our liability
will be limited to an amount equal to the cost of the additional coverage.
Rider Effective Date
This rider is issued as of the policy date of the policy unless a different date
is shown under Policy Data.
American Enterprise Life
Insurance Company
Secretary
American Administrative Offices
Enterprise 80 South Eighth Street
Life PO Box 534
Minneapolis, MN 55440
Waiver of Monthly Deduction Rider for Total Disability
Based on the application for this rider and the payment of its monthly
deduction, this rider is made a part of the policy. This rider is subject to all
policy terms and provisions unless this rider changes them. This rider does not
increase your policy values.
Definition of Injury
Accidental bodily injury that occurs while this rider is in force. It must
result, directly and independently of all other causes, in total disability.
Definition of Sickness
Disease or illness that first appears and causes total disability while this
rider is in force.
Definition of Total Disability
The inability of the insured, due to injury or sickness, to perform the material
and substantial duties of his or her principal occupation. After 2 years of such
continuous disability, we will consider the insured to be totally disabled only
if he or she is unable to perform the material and substantial duties of any
gainful occupation. By "gainful occupation", we mean one for which the insured
is or becomes reasonably fitted by education, training, or experience.
Subject to the terms of the policy, the death benefit payable may be applied
under one of the payment options shown in the policy.
Losses Considered "Presumptive Total Disability"
If injury or sickness causes the total and irrecoverable loss of the following,
we will consider the insured totally disabled, even while the insured performs
in an occupation:
1. the sight of both eyes; or
2. the use of both hands; or
3. the use of both feet; or
4. the use of one hand and one foot.
Such loss must occur or first appear after the effective date of this rider and
while this rider is in force.
Rider Benefit
This rider provides for the waiver of monthly deductions for the policy if the
insured becomes totally disabled and meets the requirements shown below.
To qualify for this benefit, you must give timely proof that the insured's total
disability:
1. has been continuous for 6 months or more; and
2. began while this rider was in force; and
3. began after the insured's 5th birthday, but before the age 60
anniversary.
Provided these requirements are met, we will waive the monthly deductions as
long as total disability lasts. The waiver of monthly deductions will also apply
to this and all other riders attached to the policy unless stated otherwise
under Policy Data.
Until your claim is approved by us, you must pay the premiums needed so that
your policy does not lapse as provided in the grace period provision of the
policy. We will also take monthly deductions as usual.
Coverage Under the Policy During Disability During a period of disability, you
may not:
1. increase the specified amount of the policy; or
2. change from death benefit Option 2 to death benefit Option 1; or
3. increase any benefits under the policy or any riders attached to it.
<PAGE>
Rider Exclusions
We will not waive any monthly deductions if total disability results from:
1. intentionally self-inflicted injuries; or
2. war, declared or not, an act of war, or any type of military conflict.
If total disability begins within the grace period for the policy, the monthly
deduction due at the time the policy entered the grace period will not be
waived.
Proof of Disability
We must receive proof of total disability within one year after the monthly date
of the monthly deduction that you ask us to waive. If you don't give us proof
within this time, your claim will not be affected if proof was given:
1. as soon as reasonably possible; and
2. within one year after the insured's death or recovery from total
disability; otherwise, monthly deductions made more than one year before
proof was furnished will not be waived.
At reasonable intervals, we have the right to require proof that total
disability is continuing. If such proof is not given when required, no further
monthly deductions will be waived.
Monthly Deduction
While this rider is in force, a monthly deduction for the cost of this rider is
taken from the policy value. The amount can be determined from the Rider Cost of
Insurance Table.
Incontestability
After this rider has been in force during the insured's lifetime for two years
from its effective date, we cannot contest this rider. The two year period will
not include time during which the insured is totally disabled.
Rider Termination
This rider will terminate on the earliest of the following:
1. the monthly date on or next following receipt of your written request
for coverage to end; or
2. the insured's age 60 anniversary; or
3. the date the policy terminates.
Termination of this rider will not affect a valid claim for benefits for total
disability that starts before the termination.
Rider Effective Date
This rider is issued as of the policy date of the policy unless a different date
is shown under Policy Data.
American Enterprise Life Insurance Company
Secretary
<PAGE>
Rider Cost of Insurance Table
The monthly deduction of the cost of this rider is equal to the sum of A + B
described below.
A is the result of 1 x (2 - 3), where:
1000
(1) is the WMD Rate from the table below, based on the then attained age of the
insured;
(2) is the base policy's death benefit, divided by the guaranteed interest rate
factor shown under Policy Data;
(3) is the base policy's value at the beginning of the policy month.
B is the monthly cost of this rider for any additional riders attached to the
policy.
<TABLE>
<CAPTION>
WMD Rate* WMD Rate* WMD Rate* WMD Rate*
Male Female Male Female
Attained Attained Std. Std.
Age of Age of Std. Non- Std. Non-
Insured Std. Std. Insured Smoker Smoker Smoker Smoker
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 $ 0.0100 $ 0.0100 35 $ 0.0200 $ 0.0175 $ 0.0250 $ 0.0225
6 0.0100 0.0100 36 0.0200 0.0175 0.0275 0.0250
7 0.0100 0.0100 37 0.0225 0.0175 0.0275 0.0250
8 0.0100 0.0100 38 0.0225 0.0200 0.0300 0.0250
9 0.0100 0.0100 39 0.0250 0.0200 0.0300 0.0275
10 0.0100 0.0100 40 0.0275 0.0225 0.0325 0.0275
11 0.0100 0.0100 41 0.0275 0.0225 0.0325 0.0275
12 0.0100 0.0100 42 0.0300 0.0250 0.0350 0.0300
13 0.0125 0.0125 43 0.0325 0.0250 0.0375 0.0300
14 0.0125 0.0125 44 0.0350 0.0275 0.0375 0.0300
15 0.0150 0.0125 45 0.0375 0.0300 0.0400 0.0325
16 0.0150 0.0125 46 0.0400 0.0300 0.0425 0.0325
17 0.0150 0.0125 47 0.0450 0.0350 0.0450 0.0350
18 0.0150 0.0150 48 0.0500 0.0375 0.0475 0.0375
19 0.0150 0.0150 49 0.0550 0.0400 0.0500 0.0400
Attained Std. Std. 50 0.0600 0.0450 0.0550 0.0425
Age of Std. Non- Std. Non- 51 0.0675 0.0525 0.0625 0.0475
Insured Smoker Smoker Smoker Smoker 52 0.0775 0.0600 0.0700 0.0525
20 0.0150 0.0150 0.0175 0.0150 53 0.0925 0.0700 0.0800 0.0575
21 0.0150 0.0150 0.0175 0.0150 54 0.1075 0.0825 0.0900 0.0675
22 0.0150 0.0150 0.0175 0.0150 55 0.1300 0.0975 0.1050 0.0775
23 0.0150 0.0150 0.0175 0.0175 56 0.1550 0.1175 0.1225 0.0925
24 0.0150 0.0150 0.0175 0.0175 57 0.1875 0.1400 0.1450 0.1100
25 0.0150 0.0150 0.0200 0.0175 58 0.2275 0.1700 0.1700 0.1300
26 0.0150 0.0150 0.0200 0.0175 59 0.2775 0.2075 0.2000 0.1550
27 0.0150 0.0150 0.0200 0.0200
28 0.0150 0.0150 0.0200 0.0200
29 0.0150 0.0150 0.0200 0.0225
30 0.0150 0.0150 0.0225 0.0200
31 0.0175 0.0150 0.0225 0.0225
32 0.0175 0.0150 0.0225 0.0225
33 0.0175 0.0150 0.0250 0.0225
34 0.0175 0.0175 0.0250 0.0225
</TABLE>
*For insureds with a preferred risk classification, the above standard
non-smoker rates will apply. If other than a preferred or standard risk
classification applies to the specified amount or to this rider, the WMD rate
will be adjusted by multiplying the above monthly rates by the appropriate risk
factor shown under Policy Data.
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of
September, 1999 by and among AMERICAN ENTERPRISE LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Indiana corporation, on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated October 15, 1985 (File No. 812-6102), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser")
is duly registered as an investment adviser under the federal Investment
Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act, which
are identified on Schedule A hereto ("Contracts"); and
<PAGE>
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. The Company shall use its best efforts to
begin placing all orders for the purchase or redemption of shares of the Funds
on behalf of the Accounts directly with the Funds or their transfer agent by
electronic transmission by March 31, 2000, and must begin doing so no later than
June 30, 2000. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5 of
Article II of this Agreement is in effect to govern such sales.
<PAGE>
1.5. The Fund agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund that underlie the
Contracts; or (b) the Company gives the Fund and the Underwriter 30 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7. The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be filed and
qualified and/or approved for sale, as applicable, under insurance laws or
regulations of states in which the Contract will be offered prior to sale; and
that the sale of the Contracts shall comply in all material respects with
applicable federal and state securities and insurance laws and state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-51,
Section 1, Class 1(c) of the Indiana Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Indiana and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts will be treated
at the time of sale as endowment, life insurance or annuity contracts, under
applicable provisions of the Code and that it will make every effort to maintain
such treatment and that it will notify the Fund and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5. (a) With respect to the Fund's Initial Class shares, the
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a "no fee" or "defensive"
Rule 12b-1 Plan under which it makes no payments for distribution expenses. To
the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a board of trustees, a majority of whom are
not interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(b) With respect to the Fund's Service Class shares, the
Fund has adopted a Rule 12b-1 Plan under which it makes payments to finance
distribution expenses. The Fund represents and warrants that it has a board of
trustees, a majority of whom are not interested persons of the Fund, which
has formulated and approved the Fund's Rule 12b-1 Plan to finance distribution
expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plan
will be approved by a similarly constituted board of trustees.
2.6. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the State of Indiana and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the State of Indiana to the extent required to
perform this Agreement.
<PAGE>
2.7. The Underwriter represents and warrants that it is and will
remain a member in good standing of the NASD and is and will remain registered
as a broker-dealer with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with the laws of the State of
Indiana and all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information (including any supplements thereto) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
camera-ready film and/or computer diskette containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
by itself or in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
<PAGE>
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with
instructions received from Contract owners; and
(iii) vote Fund shares for which no instructions have
been received in a particular separate account in
the same proportion as Fund shares of such
portfolio for which instructions have been received
in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either. The Fund and the Underwriter agree to
respond to any request for approval on a prompt and timely basis.
<PAGE>
4.3. The Fund, Underwriter, or its designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company.
The Company agrees to respond to any request for approval on a prompt and
timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, on-line networks or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
registration statements, prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under the NASD rules, the 1933 Act or the 1940
Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund.
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus and annual and semiannual reports to owners of Contracts
issued by the Company. The Fund shall bear the costs of soliciting Fund proxies
from Contract owners, including the costs of mailing proxy materials and
tabulating proxy voting instructions. The Fund and the Underwriter shall not be
responsible for the costs of any proxy solicitations other than proxies
sponsored by the Fund.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
<PAGE>
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement,
a majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
<PAGE>
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings, or complaints or actions
by regulatory authorities, against them in connection with the issuance or sale
of the Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of, or investment
in, the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration
Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Fund,
Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of
the Contracts or Fund shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make
the statement or statements therein not misleading,
if such statement or omission was made in reliance
upon and in conformity with information furnished to
the Company by or on behalf of the Fund or the
Underwriter; or
(iv) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise,
to comply with the diversification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings, or complaints or actions by
regulatory authorities, against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3. Indemnification By the Fund
<PAGE>
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect
until the first to occur of:
(a) termination by any party for any reason by ninety (90)
days' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof or if the company reasonably and in good faith
believes the Portfolio may fail to meet such requirements;
or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
thirty (30) days after the notice specified in Section
1.6(b) was given.
<PAGE>
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) or other evidence satisfactory to
the Fund and the Underwriter to the effect that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, except in cases
where permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts by (i) substituting another fund for the Fund; or
(ii) not offering the Fund under sales of new Contracts; or (iii) any other
legally permissible means, without first giving the Fund or the Underwriter 90
days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail, or other method agreed to in writing by the parties, to the
other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
Attention: President
With a copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
<PAGE>
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 The Fund and the Underwriter acknowledge that the
identities of the customers of the Company or any of its affiliates
(collectively the "Protected Parties" for purposes of this section 12.2) and
information maintained by the Company regarding those customers are the valuable
property of the Protected Parties. The Fund and the Underwriter agree that if
they come into possession of any list or compilation of the identities of or
other information about the Protected Parties' customers, other than such
information as may be independently developed or independently compiled by the
Fund or the Underwriter, the Fund and the Underwriter will hold such information
or property in confidence and refrain from using, disclosing, or distributing
any of such information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. In addition,
subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contract and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
<PAGE>
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in
any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other nonconfidential report submitted to the
Company by independent accountants in connection
with any annual, interim or special audit made by
them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY ATTEST
By: /s/ James E. ChoatBy: /s/ Mary Ellyn Minenko
James E. Choat Mary Ellyn Minenko
President Assistant Secretary
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ Robert C. Pozen
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
American Enterprise Variable Annuity Account 43431, 44170 and state
(established July 15, 1987) variations thereof
American Enterprise Variable Life Account 37022 and state variations thereof
(established July 15, 1987)
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the Company may engage a third party to
perform the functions stated below and the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below. Expenses will be borne as stated in the Participation
Agreement.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company shall produce and
personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company)
addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration
which was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed
on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
<PAGE>
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company and listed on Schedule A:
Policy Form Number 43431 - American Express Signature Variable Annuitysm
Policy Form Number 37022 - American Express Signature Variable Universal Lifesm
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
AIM Variable Insurance Funds, Inc.
Alliance Variable Product Series
Baron Capital Funds
Franklin Templeton Variable Insurance Products Trust
Goldman Sachs Variable Insurance Trust
J.P. Morgan Series Trust II
Lazard Retirement Series, Inc.
MFS(R) Variable Insurance Trustsm
Putnam Variable Trust
Royce Capital Fund
Third Avenue Variable Series Trust
Wanger Advisors Trust
Warburg Pincus Trust
Policy Form Number 44170 - American Express Pinnacle Variable Annuitysm
AIM Variable Insurance Funds, Inc.
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
Franklin Templeton Variable Insurance Products Trust - Class 2
MFS(R) Variable Insurance Trustsm
Putnam Variable Trust
<PAGE>
SUB-LICENSE AGREEMENT
Agreement effective as of this 1st of September, 1999, by and between
Fidelity Distributors Corporation (hereinafter called "Fidelity"), a corporation
organized and existing under the laws of the Commonwealth of Massachusetts, with
a principal place of business at 82 Devonshire Street, Boston, Massachusetts,
and American Enterprise Life Insurance Company (hereinafter called "Company"), a
company organized and existing under the laws of the State of Indiana, with a
principal place of business at Minneapolis, Minnesota.
WHEREAS, FMR Corp., a Massachusetts corporation, the parent company of
Fidelity, is the owner of the trademark and the tradename "FIDELITY INVESTMENTS"
and is the owner of a trademark in a pyramid design (hereinafter, collectively
the "Fidelity Trademarks"), a copy of each of which is attached hereto as
Exhibit "A"; and
WHEREAS, FMR Corp. has granted a license to Fidelity (the "Master
License Agreement") to sub-license the Fidelity Trademarks to third parties for
their use in connection with Promotional Materials as hereinafter defined; and
WHEREAS, Company is desirous of using the Fidelity Trademarks in
connection with distribution of "sales literature and other promotional
material" with information, including the Fidelity Trademarks, printed in said
material (such material hereinafter called the Promotional Material). For the
purpose of this Agreement, "sales literature and other promotional material"
shall have the same meaning as in the certain Participation Agreement dated as
of the 1st day of September, 1999, among Fidelity, Company and Variable
Insurance Products Fund (hereinafter "Participation Agreement"); and
WHEREAS, Fidelity is desirous of having the Fidelity Trademarks used in
connection with the Promotional Material.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy whereof is hereby acknowledged,
and of the mutual promises hereinafter set forth, the parties hereby agree as
follows:
1. Fidelity hereby grants to Company a non-exclusive, non-transferable
license to use the Fidelity Trademarks in connection with the promotional
distribution of the Promotional Material and Company accepts said license,
subject to the terms and conditions set forth herein.
2. Company acknowledges that FMR Corp. is the owner of all right, title
and interest in the Fidelity Trademarks and agrees that it will do nothing
inconsistent with the ownership of the Fidelity Trademarks by FMR Corp., and
that it will not, now or hereinafter, contest any registration or application
for registration of the Fidelity Trademarks by FMR Corp., nor will it, now or
hereafter, aid anyone in contesting any registration or application for
registration of the Fidelity Trademarks by FMR Corp.
3. Company agrees to use the Fidelity Trademarks only in the form and
manner approved by Fidelity and not to use any other trademark, service mark or
registered trademark in combination with any of the Fidelity Trademarks without
approval by Fidelity.
4. Company agrees that it will place all necessary and proper notices
and legends in order to protect the interests of FMR Corp. and Fidelity therein
pertaining to the Fidelity Trademarks on the Promotional Material including, but
not limited to, symbols indicating trademarks, service marks and registered
trademarks. Company will place such symbols and legends on the Promotional
Material as requested by Fidelity or FMR Corp. upon receipt of notice of same
from Fidelity or FMR Corp.
5. Company agrees that the nature and quality of all of the Promotional
Material distributed by Company bearing the Fidelity Trademarks shall conform to
standards set by, and be under the control of, Fidelity.
<PAGE>
6. Company agrees to cooperate with Fidelity in facilitating Fidelity's
control of the use of the Fidelity Trademarks and of the quality of the
Promotional Material to permit reasonable inspection of samples of same by
Fidelity and to supply Fidelity with reasonable quantities of samples of the
Promotional Material upon request.
7. Company shall comply with all applicable laws and regulations and
obtain any and all licenses or other necessary permits pertaining to the
distribution of said Promotional Material.
8. Company agrees to notify Fidelity of any unauthorized use of the
Fidelity Trademarks by others promptly as it comes to the attention of Company.
Fidelity or FMR Corp. shall have the sole right and discretion to commence
actions or other proceedings for infringement, unfair competition or the like
involving the Fidelity Trademarks and Company shall cooperate in any such
proceedings if so requested by Fidelity or FMR Corp.
9. This agreement shall continue in force until terminated by Fidelity.
This agreement shall automatically terminate upon termination of the Master
License Agreement. In addition, Fidelity shall have the right to terminate this
agreement at any time upon notice to Company, with or without cause. Upon any
such termination, Company agrees to cease immediately all use of the Fidelity
Trademarks and shall destroy, at Company's expense, any and all materials in its
possession bearing the Fidelity Trademarks, and agrees that all rights in the
Fidelity Trademarks and in the goodwill connected therewith shall remain the
property of FMR Corp. Unless so terminated by Fidelity, or extended by written
agreement of the parties, this agreement shall expire on the termination of that
certain Participation Agreement.
10. Company shall indemnify Fidelity and FMR Corp. and hold each of them
harmless from and against any loss, damage, liability, cost or expense of any
nature whatsoever, including without limitation, reasonable attorneys' fees and
all court costs, arising out of use of the Fidelity Trademarks by Company.
11. In consideration for the promotion and advertising of Fidelity as a
result of the distribution by Company of the Promotional Material, Company shall
not pay any monies as a royalty to Fidelity for this license.
12. This agreement is not intended in any manner to modify the terms and
conditions of the Participation Agreement. In the event of any conflict between
the terms and conditions herein and thereof, the terms and conditions of the
Participation Agreement shall control.
13. This agreement shall be interpreted according to the laws of the
Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereunto set their hands and seals, and
hereby execute this agreement, as of the date first above written.
FIDELITY DISTRIBUTORS CORPORATION
By: _____________________ By: /s/ Kevin J. Kelly
Name: Kevin J. Kelly
Title: President
Title: _____________________
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
ATTEST
By: /s/ Mary Ellyn Minenko By: /s/ James E. Choat
Name: Mary Ellyn Minenko Name: James E. Choat
Title: Assistant Secretary Title: President
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EXHIBIT A
Int. Cl.: 36
Prior U.S. Cls.: 101 and 102
Reg. No. 1,481,040
United States Patent and Trademark Office Registered Mar. 15, 1988
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SERVICE MARK
PRINCIPAL REGISTER
[GRAPHIC OMITTED] Fidelity
Investments
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FMR CORP. (MASSACHUSETTS CORPORATION) FIRST USE 2-22-1984; IN COMMERCE 2-22-1984.
82 DEVONSHIRE STREET
BOSTON, MA 02109, ASSIGNEE OF FIDELITY DISTRIBUTORS NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE
CORPORATION (MASSACHUSETTS CORPORATION) BOSTON, MA "INVESTMENTS", APART FROM THE MARK AS SHOWN.
02109
SER. NO. 641,707, FILED 1-28-1987
FOR: MUTUAL FUND AND STOCK BROKERAGE SERVICES, IN CLASS
36 (U.S. CLS. 101 AND 102) RUSS HERMAN, EXAMINING ATTORNEY
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PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND III,
FIDELITY DISTRIBUTORS CORPORATION
and
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of
September, 1999 by and among AMERICAN ENTERPRISE LIFE INSURANCE COMPANY,
(hereinafter the "Company"), an Indiana corporation, on its own behalf and on
behalf of each segregated asset account of the Company set forth on Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION
(hereinafter the "Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into
several series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management
investment company under the 1940 Act and its shares are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser")
is duly registered as an investment adviser under the federal Investment
Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain
variable life insurance and variable annuity contracts under the 1933 Act, which
are identified on Schedule A hereto ("Contracts"); and
<PAGE>
WHEREAS, each Account is a duly organized, validly existing
segregated asset account, established by resolution of the Board of Directors of
the Company, on the date shown for such Account on Schedule A hereto, to set
aside and invest assets attributable to the aforesaid variable annuity
contracts; and
WHEREAS, the Company has registered or will register each
Account as a unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with
the Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws
and regulations, the Company intends to purchase shares in the Portfolios on
behalf of each Account to fund certain of the aforesaid variable life and
variable annuity contracts and the Underwriter is authorized to sell such shares
to unit investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares
of the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. The Company shall use its best efforts to
begin placing all orders for the purchase or redemption of shares of the Funds
on behalf of the Accounts directly with the Funds or their transfer agent by
electronic transmission by March 31, 2000, and must begin doing so no later than
June 30, 2000. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission.
1.2. The Fund agrees to make its shares available indefinitely
for purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies and their separate
accounts. No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to
any insurance company or separate account unless an agreement containing
provisions substantially the same as Articles I, III, V, VII and Section 2.5 of
Article II of this Agreement is in effect to govern such sales.
<PAGE>
1.5. The Fund agrees to redeem for cash, on the Company's
request, any full or fractional shares of the Fund held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption. For
purposes of this Section 1.5, the Company shall be the designee of the Fund for
receipt of requests for redemption from each Account and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of
Portfolio shares offered by the then current prospectus of the Fund shall be
made in accordance with the provisions of such prospectus. The Company agrees
that all net amounts available under the Contracts shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund that underlie the
Contracts; or (b) the Company gives the Fund and the Underwriter 30 days written
notice of its intention to make such other investment company available as a
funding vehicle for the Contracts; or (c) such other investment company was
available as a funding vehicle for the Contracts prior to the date of this
Agreement and the Company so informs the Fund and Underwriter prior to their
signing this Agreement (a list of such funds appearing on Schedule C to this
Agreement); or (d) the Fund or Underwriter consents to the use of such other
investment company.
1.7.The Company shall pay for Fund shares on the next Business
Day after an order to purchase Fund shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Fund of the
federal funds so wired, such funds shall cease to be the responsibility of the
Company and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book
entry only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or
telephone, followed by written confirmation) to the Company of any income,
dividends or capital gain distributions payable on the Fund's shares. The
Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on the Portfolio shares in additional shares of
that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
<PAGE>
2.1. The Company represents and warrants that the Contracts are
or will be registered under the 1933 Act; that the Contracts will be filed and
qualified and/or approved for sale, as applicable, under insurance laws or
regulations of states in which the Contract will be offered prior to sale; and
that the sale of the Contracts shall comply in all material respects with
applicable federal and state securities and insurance laws and state insurance
suitability requirements. The Company further represents and warrants that it is
an insurance company duly organized and in good standing under applicable law
and that it has legally and validly established each Account prior to any
issuance or sale thereof as a segregated asset account under Section 27-1-51,
Section 1, Class 1(c) of the Indiana Insurance Code and has registered or, prior
to any issuance or sale of the Contracts, will register each Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State of
Indiana and all applicable federal and state securities laws and that the Fund
is and shall remain registered under the 1940 Act. The Fund shall amend the
Registration Statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts will be treated
at the time of sale as endowment, life insurance or annuity contracts, under
applicable provisions of the Code and that it will make every effort to maintain
such treatment and that it will notify the Fund and the Underwriter immediately
upon having a reasonable basis for believing that the Contracts have ceased to
be so treated or that they might not be so treated in the future.
2.5. (a) With respect to the Fund's Initial Class shares, the
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may
make such payments in the future. The Fund has adopted a "no fee" or "defensive"
Rule 12b-1 Plan under which it makes no payments for distribution expenses. To
the extent that it decides to finance distribution expenses pursuant to Rule
12b-1, the Fund undertakes to have a board of trustees, a majority of whom are
not interested persons of the Fund, formulate and approve any plan under Rule
12b-1 to finance distribution expenses.
(b) With respect to the Fund's Service Class shares, the
Fund has adopted a Rule 12b-1 Plan under which it
makes payments to finance distribution expenses. The Fund represents and
warrants that it has a board of trustees, a majority of whom are not interested
persons of the Fund, which has formulated and approved the Fund's Rule 12b-1
Plan to finance distribution expenses of the Fund and that any changes to the
Fund's Rule 12b-1 Plan will be approved by a similarly constituted board of
trustees.
2.6. The Fund makes no representation as to whether any aspect
of its operations (including, but not limited to, fees and expenses and
investment policies) complies with the insurance laws or regulations of the
various states except that the Fund represents that the Fund's investment
policies, fees and expenses are and shall at all times remain in compliance with
the laws of the State of Indiana and the Fund and the Underwriter represent that
their respective operations are and shall at all times remain in material
compliance with the laws of the State of Indiana to the extent required to
perform this Agreement.
<PAGE>
2.7. The Underwriter represents and warrants that it is and will
remain a member in good standing of the NASD and is and will remain registered
as a broker-dealer with the SEC. The Underwriter further represents that it will
sell and distribute the Fund shares in accordance with the laws of the State of
Indiana and all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and
validly existing under the laws of the Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is
and shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the Commonwealth of Massachusetts and any applicable state and federal
securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, and that said bond is issued by a reputable bonding company, includes
coverage for larceny and embezzlement, and is in an amount not less than $5
million. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many
printed copies of the Fund's current prospectus and Statement of Additional
Information (including any supplements thereto) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
camera-ready film and/or computer diskette containing the Fund's prospectus and
Statement of Additional Information, and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or Statement of Additional Information for the Fund is amended
during the year) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document, and to have the Statement of
Additional Information for the Fund and the Statement of Additional Information
for the Contracts printed together in one document. Alternatively, the Company
may print the Fund's prospectus and/or its Statement of Additional Information
by itself or in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the Company chooses to receive camera-ready film in lieu
of receiving printed copies of the Fund's prospectus, the Fund will reimburse
the Company in an amount equal to the product of A and B where A is the number
of such prospectuses distributed to owners of the Contracts, and B is the Fund's
per unit cost of typesetting and printing the Fund's prospectus. The same
procedures shall be followed with respect to the Fund's Statement of Additional
Information.
<PAGE>
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with
copies of its proxy statements, reports to shareholders, and other
communications (except for prospectuses and Statements of Additional
Information, which are covered in Section 3.1) to shareholders in such quantity
as the Company shall reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the
same proportion as Fund shares of such portfolio
for which instructions have been received in that
separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either. The Fund and the Underwriter agree to
respond to any request for approval on a prompt and timely basis.
<PAGE>
4.3. The Fund, Underwriter, or its designee shall furnish, or
shall cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information
or make any representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the information or
representations contained in a registration statement or prospectus for the
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports for each Account which
are in the public domain or approved by the Company for distribution to Contract
owners, or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely basis.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales
literature or other promotional material" includes, but is not limited to, any
of the following that refer to the Fund or any affiliate of the Fund:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, on-line networks or
other public media), sales literature (i.e., any written communication
distributed or made generally available to customers or the public, including
brochures, circulars, research reports, market letters, form letters, seminar
texts, reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
registration statements, prospectuses, Statements of Additional Information,
shareholder reports, and proxy materials and any other material constituting
sales literature or advertising under the NASD rules, the 1933 Act or the 1940
Act.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other
compensation to the Company under this agreement, except that if the Fund or any
Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Underwriter may make payments to the Company or
to the underwriter for the Contracts if and in amounts agreed to by the
Underwriter in writing and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter or other
resources available to the Underwriter. No such payments shall be made directly
by the Fund.
<PAGE>
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus and annual and semiannual reports to owners of Contracts
issued by the Company. The Fund shall bear the costs of soliciting Fund proxies
from Contract owners, including the costs of mailing proxy materials and
tabulating proxy voting instructions. The Fund and the Underwriter shall not be
responsible for the costs of any proxy solicitations other than proxies
sponsored by the Fund.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts
in such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without limiting
the scope of the foregoing, the Fund will at all times comply with Section
817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
<PAGE>
7.3. If it is determined by a majority of the Board, or a
majority of its disinterested trustees, that a material irreconcilable conflict
exists, the Company and other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority of
the disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement,
a majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination, provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses), to which the Indemnified Parties may become subject
under any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of, or investment in, the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact contained in
the Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons
under its control, with respect to the sale or distribution of
the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon and in conformity with information furnished to the Fund by
or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement or to the Fund, whichever is applicable.
<PAGE>
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings, or complaints or actions
by regulatory authorities, against them in connection with the issuance or sale
of the Fund Shares or the Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of, or investment
in, the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement or
prospectus or sales literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter or Fund by
or on behalf of the Company for use in the Registration Statement or prospectus
for the Fund or in sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund shares;
or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not supplied by the Underwriter
or persons under its control) or wrongful conduct of the Fund, Adviser or
Underwriter or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
<PAGE>
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or sales
literature covering the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf of
the Fund or the Underwriter; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out of or
result from any other material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of
the commencement of any litigation or proceedings, or complaints or actions by
regulatory authorities, against it or any of its officers or directors in
connection with the issuance or sale of the Contracts or the operation of each
Account.
8.3. Indemnification By the Fund
<PAGE>
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of the Fund) or litigation (including legal and
other expenses) to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements result from the gross negligence, bad faith or
willful misconduct of the Board or any member thereof, are related to the
operations of the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements
specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any
other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify
the Fund of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party for any reason by ninety (90)
days' advance written notice delivered to the other
parties; or
(b) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio based
upon the Company's determination that shares of such
Portfolio are not reasonably available to meet the
requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event any of the Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or
federal law or such law precludes the use of such shares
as the underlying investment media of the Contracts issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
reasonably believes that the Fund may fail to so qualify;
or
(e) termination by the Company by written notice to the Fund
and the Underwriter with respect to any Portfolio in the
event that such Portfolio fails to meet the
diversification requirements specified in Article VI
hereof or if the company reasonably and in good faith
believes the Portfolio may fail to meet such requirements;
or
(f) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both of
the Fund or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the
Company and/or its affiliated companies has suffered a
material adverse change in its business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund
and the Underwriter, if the Company shall determine, in
its sole judgment exercised in good faith, that either the
Fund or the Underwriter has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written
notice to the Company, if the Company gives the Fund and
the Underwriter the written notice specified in Section
1.6(b) hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any
termination under this Section 10.1(h) shall be effective
thirty (30) days after the notice specified in Section
1.6(b) was given.
<PAGE>
10.2. Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to
the Contracts (as opposed to Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) or other evidence satisfactory to
the Fund and the Underwriter to the effect that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, except in cases
where permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts by (i) substituting another fund for the Fund; or
(ii) not offering the Fund under sales of new Contracts; or (iii) any other
legally permissible means, without first giving the Fund or the Underwriter 90
days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered
or certified mail, or other method agreed to in writing by the parties, to the
other party at the address of such party set forth below or at such other
address as such party may from time to time specify in writing to the other
party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
Attention: President
With a copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
<PAGE>
12.2 The Fund and the Underwriter acknowledge that the
identities of the customers of the Company or any of its affiliates
(collectively the "Protected Parties" for purposes of this section 12.2) and
information maintained by the Company regarding those customers are the valuable
property of the Protected Parties. The Fund and the Underwriter agree that if
they come into possession of any list or compilation of the identities of or
other information about the Protected Parties' customers, other than such
information as may be independently developed or independently compiled by the
Fund or the Underwriter, the Fund and the Underwriter will hold such information
or property in confidence and refrain from using, disclosing, or distributing
any of such information or other property except: (a) with the Company's prior
written consent; or (b) as required by law or judicial process. In addition,
subject to the requirements of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Contract and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement,
shall not disclose, disseminate or utilize such names and addresses and other
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience
of reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or
more counterparts, each of which taken together shall constitute one and the
same instrument.
12.5 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations
hereunder may not be assigned by any party without the prior written consent of
all parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be furnished,
to the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under
statutory accounting principles) and annual report
(prepared under generally accepted accounting
principles ("GAAP"), if any), as soon as practical
and in any event within 90 days after the end of
each fiscal year;
(b) the Company's quarterly statements (statutory)
(and GAAP, if any), as soon as practical and in
any event within 45 days after the end of each
quarterly period:
<PAGE>
(c) any financial statement, proxy statement, notice
or report of the Company sent to stockholders
and/or policyholders, as soon as practical after
the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and
financial reports of the Company filed with the
Securities and Exchange Commission or any state
insurance regulator, as soon as practical after
the filing thereof;
(e) any other nonconfidential report submitted to the
Company by independent accountants in connection
with any annual, interim or special audit made by
them of the books of the Company, as soon as
practical after the receipt thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative.
AMERICAN ENTERPRISE LIFE
INSURANCE COMPANY ATTEST
By: /s/ James E. Choat By: Mary Ellyn Minenko
James E. Choat Mary Ellyn Minenko
President Assistant Secretary
VARIABLE INSURANCE PRODUCTS FUND
By: /s/ Robert C. Pozen
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: /s/ Kevin J. Kelly
Kevin J. Kelly
Vice President
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Policy Form Numbers of Contracts
Date Established by Board of Directors Funded By Separate Account
American Enterprise Variable Annuity Account 43431, 44170 and state
(established July 15, 1987) variations thereof
American Enterprise Variable Life Account 37022 and state variations thereof
(established July 15, 1987)
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the Company may engage a third party to
perform the functions stated below and the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below. Expenses will be borne as stated in the Participation
Agreement.
1. The number of proxy proposals is given to the Company by the Underwriter
as early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At
this time the Underwriter will inform the Company of the Record, Mailing
and Meeting dates. This will be done verbally approximately two months
before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run",
or other activity, which will generate the names, addresses and number
of units which are attributed to each contractowner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in
the number of Customers to Fidelity, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by
the Company either before or together with the Customers' receipt of a
proxy statement. Underwriter will provide the last Annual Report to the
Company pursuant to the terms of Section 3.3 of the Agreement to which
this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card")
is provided to the Company by the Fund. The Company shall produce and
personalize the Voting Instruction Cards. The Legal Department of the
Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and
verification of votes (already on Cards as printed by
the Fund) (This and related steps may occur later in
the chronological process due to possible uncertainties
relating to the proposals.)
<PAGE>
5. During this time, Fidelity Legal will develop, produce, and the Fund
will pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided
and paid for by the Insurance Company). Contents of envelope sent to
Customers by Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed
to the Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a
small, single sheet of paper that requests Customers to
vote as quickly as possible and that their vote is
important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and
reviewed and approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness
and completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes
place in another department or another vendor depending on process used.
An often used procedure is to sort Cards on arrival by proposal into
vote categories of all yes, no, or mixed replies, and to begin data
entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure and has not been required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C.
Jones, Trustee," then that is the exact legal name to be printed
on the Card and is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not
signed properly, they are sent back to Customer with an explanatory
letter, a new Card and return envelope. The mutilated or illegible Card
is disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible)
of the procedure are "hand verified," i.e., examined as to why they did
not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted
to shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity
Legal must review and approve tabulation format.
<PAGE>
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston
time. Fidelity Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from
the Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company and listed on Schedule A:
Policy Form Number 43431 - American Express Signature Variable Annuitysm
Policy Form Number 37022 - American Express Signature Variable Universal Lifesm
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
AIM Variable Insurance Funds, Inc.
Alliance Variable Product Series
Baron Capital Funds
Franklin Templeton Variable Insurance Products Trust
Goldman Sachs Variable Insurance Trust
J.P. Morgan Series Trust II
Lazard Retirement Series, Inc.
MFS(R) Variable Insurance Trustsm
Putnam Variable Trust
Royce Capital Fund
Third Avenue Variable Series Trust
Wanger Advisors Trust
Warburg Pincus Trust
Policy Form Number 44170 - American Express Pinnacle Variable Annuitysm
AIM Variable Insurance Funds, Inc.
American Express(R) Variable Portfolio Funds
AXPsm Variable Portfolio - Investment Series, Inc.
AXPsm Variable Portfolio - Managed Series, Inc.
AXPsm Variable Portfolio - Money Market Series, Inc.
AXPsm Variable Portfolio - Income Series, Inc.
Franklin Templeton Variable Insurance Products Trust - Class 2
MFS(R) Variable Insurance Trustsm
Putnam Variable Trust
<PAGE>
SUB-LICENSE AGREEMENT
Agreement effective as of the 1st of September, 1999, by and between
Fidelity Distributors Corporation (hereinafter called "Fidelity"), a corporation
organized and existing under the laws of the Commonwealth of Massachusetts, with
a principal place of business at 82 Devonshire Street, Boston, Massachusetts,
and American Enterprise Life Insurance Company (hereinafter called "Company"), a
company organized and existing under the laws of the State of Indiana, with a
principal place of business at Minneapolis, Minnesota.
WHEREAS, FMR Corp., a Massachusetts corporation, the parent company of
Fidelity, is the owner of the trademark and the tradename "FIDELITY INVESTMENTS"
and is the owner of a trademark in a pyramid design (hereinafter, collectively
the "Fidelity Trademarks"), a copy of each of which is attached hereto as
Exhibit "A"; and
WHEREAS, FMR Corp. has granted a license to Fidelity (the "Master
License Agreement") to sub-license the Fidelity Trademarks to third parties for
their use in connection with Promotional Materials as hereinafter defined; and
WHEREAS, Company is desirous of using the Fidelity Trademarks in
connection with distribution of "sales literature and other promotional
material" with information, including the Fidelity Trademarks, printed in said
material (such material hereinafter called the Promotional Material). For the
purpose of this Agreement, "sales literature and other promotional material"
shall have the same meaning as in the certain Participation Agreement dated as
of the 1st day of September, 1999, among Fidelity, Company and Variable
Insurance Products Fund III (hereinafter "Participation Agreement"); and
WHEREAS, Fidelity is desirous of having the Fidelity Trademarks used in
connection with the Promotional Material.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy whereof is hereby acknowledged,
and of the mutual promises hereinafter set forth, the parties hereby agree as
follows:
1. Fidelity hereby grants to Company a non-exclusive, non-transferable
license to use the Fidelity Trademarks in connection with the promotional
distribution of the Promotional Material and Company accepts said license,
subject to the terms and conditions set forth herein.
2. Company acknowledges that FMR Corp. is the owner of all right, title
and interest in the Fidelity Trademarks and agrees that it will do nothing
inconsistent with the ownership of the Fidelity Trademarks by FMR Corp., and
that it will not, now or hereinafter, contest any registration or application
for registration of the Fidelity Trademarks by FMR Corp., nor will it, now or
hereafter, aid anyone in contesting any registration or application for
registration of the Fidelity Trademarks by FMR Corp.
3. Company agrees to use the Fidelity Trademarks only in the form and
manner approved by Fidelity and not to use any other trademark, service mark or
registered trademark in combination with any of the Fidelity Trademarks without
approval by Fidelity.
4. Company agrees that it will place all necessary and proper notices
and legends in order to protect the interests of FMR Corp. and Fidelity therein
pertaining to the Fidelity Trademarks on the Promotional Material including, but
not limited to, symbols indicating trademarks, service marks and registered
trademarks. Company will place such symbols and legends on the Promotional
Material as requested by Fidelity or FMR Corp. upon receipt of notice of same
from Fidelity or FMR Corp.
5. Company agrees that the nature and quality of all of the Promotional
Material distributed by Company bearing the Fidelity Trademarks shall conform to
standards set by, and be under the control of, Fidelity.
<PAGE>
6. Company agrees to cooperate with Fidelity in facilitating Fidelity's
control of the use of the Fidelity Trademarks and of the quality of the
Promotional Material to permit reasonable inspection of samples of same by
Fidelity and to supply Fidelity with reasonable quantities of samples of the
Promotional Material upon request.
7. Company shall comply with all applicable laws and regulations and
obtain any and all licenses or other necessary permits pertaining to the
distribution of said Promotional Material.
8. Company agrees to notify Fidelity of any unauthorized use of the
Fidelity Trademarks by others promptly as it comes to the attention of Company.
Fidelity or FMR Corp. shall have the sole right and discretion to commence
actions or other proceedings for infringement, unfair competition or the like
involving the Fidelity Trademarks and Company shall cooperate in any such
proceedings if so requested by Fidelity or FMR Corp.
9. This agreement shall continue in force until terminated by Fidelity.
This agreement shall automatically terminate upon termination of the Master
License Agreement. In addition, Fidelity shall have the right to terminate this
agreement at any time upon notice to Company, with or without cause. Upon any
such termination, Company agrees to cease immediately all use of the Fidelity
Trademarks and shall destroy, at Company's expense, any and all materials in its
possession bearing the Fidelity Trademarks, and agrees that all rights in the
Fidelity Trademarks and in the goodwill connected therewith shall remain the
property of FMR Corp. Unless so terminated by Fidelity, or extended by written
agreement of the parties, this agreement shall expire on the termination of that
certain Participation Agreement.
10. Company shall indemnify Fidelity and FMR Corp. and hold each of them
harmless from and against any loss, damage, liability, cost or expense of any
nature whatsoever, including without limitation, reasonable attorneys' fees and
all court costs, arising out of use of the Fidelity Trademarks by Company.
11. In consideration for the promotion and advertising of Fidelity as a
result of the distribution by Company of the Promotional Material, Company shall
not pay any monies as a royalty to Fidelity for this license.
12. This agreement is not intended in any manner to modify the terms and
conditions of the Participation Agreement. In the event of any conflict between
the terms and conditions herein and thereof, the terms and conditions of the
Participation Agreement shall control.
13. This agreement shall be interpreted according to the laws of the
Commonwealth of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the parties hereunto set their hands and seals, and
hereby execute this agreement, as of the date first above written.
FIDELITY DISTRIBUTORS CORPORATION
By: _____________________ By: /s/ Kevin J. Kelly
Name: Kevin J. Kelly
Title: President
Title: _____________________
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
ATTEST
By: /s/ Mary Ellyn Minenko By: /s/ James E. Choat
Name: Mary Ellyn Minenko Name: James E. Choat
Title: Assistant Secretary Title: President
<PAGE>
EXHIBIT A
Int. Cl.: 36
Prior U.S. Cls.: 101 and 102
Reg. No. 1,481,040
United States Patent and Trademark Office Registered Mar. 15, 1988
----------------------------------------------------------------------
SERVICE MARK
PRINCIPAL REGISTER
[GRAPHIC OMITTED] Fidelity
Investments
<TABLE>
<CAPTION>
<S> <C>
FMR CORP. (MASSACHUSETTS CORPORATION) FIRST USE 2-22-1984; IN COMMERCE 2-22-1984.
82 DEVONSHIRE STREET
BOSTON, MA 02109, ASSIGNEE OF FIDELITY DISTRIBUTORS NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE
CORPORATION (MASSACHUSETTS CORPORATION) BOSTON, MA "INVESTMENTS", APART FROM THE MARK AS SHOWN.
02109
SER. NO. 641,707, FILED 1-28-1987
FOR: MUTUAL FUND AND STOCK BROKERAGE SERVICES, IN CLASS
36 (U.S. CLS. 101 AND 102) RUSS HERMAN, EXAMINING ATTORNEY
</TABLE>
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of September,
1999, by and among ROYCE CAPITAL FUND, an open-end management investment company
organized as a Delaware business trust (the "Fund"), ROYCE & ASSOCIATES, INC., a
corporation organized under the laws of New York (the "Adviser"), and AMERICAN
ENTERPRISE LIFE INSURANCE COMPANY, an Indiana life insurance company (the
"Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement, as may be amended from time to
time, (each account referred to as the "Account").
WHEREAS, the Fund was established for the purpose of serving as the
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies that have entered into participation agreements with the
Fund and the Adviser (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and their
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and certain
qualified pension and retirement plans outside of the separate account context
(the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts and/or variable life insurance polices (the "Contracts") under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the portfolios named in
Schedule 2 to this Agreement, as may be amended from time to time, (the
"Portfolios") on behalf of the Account to fund the Contracts; and
WHEREAS, under the terms and conditions set forth in this Agreement,
the Adviser desires to make shares of the Fund available as investment options
under the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I. Sale and Redemption of Fund Shares
<PAGE>
1.1. The Fund will sell to the Company those shares of the Portfolios that each
Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt and acceptance by the Fund (or its
agent). Shares of a particular Portfolio of the Fund will be ordered in
such quantities and at such times as determined by the Company to be
necessary to meet the requirements of the Contracts. The Board of Trustees
of the Fund (the "Fund Board") may refuse to sell shares of any Portfolio
to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Fund Board, acting
in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2. The Fund will redeem any full or fractional shares of any Portfolio when
requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Fund (or its agent) of the request for
redemption, as established in accordance with the provisions of the then
current prospectus of the Fund.
1.3. For purposes of Sections 1.1 and 1.2, the Fund hereby appoints the Company
as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company will constitute receipt by the Fund
provided that: (a) such orders are received by the Company in good order
prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus; and (b) The Fund receives notice of such
orders by 10:00 a.m. Central Time on the next following Business Day.
"Business Day" will mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates its net asset value
pursuant to the rules of the SEC.
1.4. The Company will pay for a purchase order on the same Business Day as the
Fund receives notice of the purchase order in accordance with Section 1.3.
Notwithstanding the above, if the Fund receives notice of the purchase
order on a federal bank holiday, the Company will pay for the purchase
order on the next Business Day. The Fund will pay for a redemption order on
the same Business Day as the Fund receives notice of the redemption order
in accordance with Section 1.3 (or on the next Business Day if such
redemption order notice is received on a federal bank holiday) and in the
manner established from time to time by the Fund, except that the Fund
reserves the right to suspend payment consistent with Section 22(e) of the
Investment Company Act of 1940, as amended (the "1940 Act") and any rules
thereunder. In any event, absent extraordinary circumstances specified in
Section 22(e) of the 1940 Act, the Fund will make such payment within five
(5) calendar days after the date the redemption order is placed in order to
enable the Company to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be
required by law. All payments will be made in federal funds transmitted by
wire or other method agreed to by the parties.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.6. The Fund will furnish same day notice (by wire or telephone, followed by
written confirmation) to the Company of the declaration of any income,
dividends or capital gain distributions payable on each Portfolio's shares.
The Company hereby elects to receive all such dividends and distributions
as are payable on the Portfolio shares in the form of additional shares of
that Portfolio. The Fund will notify the Company of the number of shares so
issued as payment of such dividends and distributions.
<PAGE>
1.7. The Fund will make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and will use its best
efforts to make such net asset value per share available by 5:30 p.m.
Central Time, but in no event later than 6:00 p.m. Central Time each
Business Day. The Fund will notify the Company as soon as possible if it is
determined that the net asset value per share will be available after 6:00
p.m. Central Time on any Business Day, and the Fund and the Company will
mutually agree upon a final deadline for timely receipt of the net asset
value on such Business Day.
1.8. Any material errors in the calculation of net asset value, dividends or
capital gain information will be reported immediately upon discovery to the
Company. An error will be deemed "material" based on the Fund's
interpretation of the SEC's position and policy with regard to materiality,
as it may be modified from time to time. If the Company is provided with
materially incorrect net asset value information, the Company, on behalf of
the Account, will be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct net asset value per share.
Neither the Fund, the Adviser nor any of their affiliates will be liable
for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser.
1.9. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified
pension and retirement plans to the extent permitted by the Exemptive
Order. No shares of any Portfolio will be sold directly to the general
public. The Company agrees that Fund shares will be used only for the
purposes of funding the Contracts and Accounts listed in Schedule 1, as
amended from time to time.
1.10.The Fund agrees that all Participating Insurance Companies will have the
obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 3.4 and
Article IV of this Agreement.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing
under applicable law;
(b) it has legally and validly established or will legally and
validly establish each Account as a separate account under
applicable state law;
(c) it has registered or will register to the extent necessary
each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment
account for the Contracts;
(d) it has filed or will file to the extent necessary the
Contracts' registration statements under the Securities Act of
1933 (the "1933 Act") and these registration statements will
be declared effective by the SEC prior to the sale of any
Contracts;
(e) the Contracts will be filed and qualified and/or approved for
sale, as applicable, under the insurance laws and regulations
of the states in which the Contracts will be offered prior to
the sale of Contracts in such states; and
<PAGE>
(f) it will amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Account
from time to time as required in order to effect the continuous offering of
the Contracts or as may otherwise be required by applicable law, but in any
event it will maintain a current effective Contracts' and Account's
registration statement for so long as the Contracts are outstanding unless
the Company has supplied the Fund with an SEC no-action letter, opinion of
counsel or other evidence satisfactory to the Fund's counsel to the effect
that maintaining such registration statement on a current basis is no
longer required.
2.2. The Company represents and warrants that the Contracts are intended to
be treated as annuity or life insurance contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and that it will make every effort to
maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Fund represents and warrants that:
(a) it is duly organized and validly existing under applicable state law;
(b) it has registered with the SEC as an open-end management investment company
under the 1940 Act;
(c) Fund shares of the Portfolios offered and sold pursuant to this Agreement
will be registered under the 1933 Act and duly authorized for issuance in
accordance with applicable law;
(d) it is and will remain registered under the 1940 Act for as long as such
shares of the Portfolios are sold;
(e) it will amend the registration statement for its shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares;
(f) it is currently qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, it will make every effort to
maintain such qualification (under Subchapter M or any successor or similar
provision) and it will notify the Company immediately upon having a
reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future; and
(g) its investment objectives, policies and restrictions comply with applicable
state securities laws as they may apply to the Fund and it will register
and qualify the shares of the Portfolios for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by
the Fund. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies, objectives and restrictions) complies with the insurance laws and
regulations of any state. The Fund and the Adviser agree that they will
furnish, upon the Company's request, the information required by state
insurance laws so that the Company can obtain the authority needed to issue
the Contracts in the various states.
2.4. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it reserves the right to make such payments in the
future. To the extent that the Fund decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have its Fund
Board, a majority of whom are not "interested" persons of the Fund,
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
<PAGE>
2.5. The Fund and the Adviser represent and warrant that they will use their
best efforts to comply at all times with Section 817(h) of the Internal
Revenue Code and Treasury Regulation 1.817-5, as amended from time to
time, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation. In the event of a
breach of this representation and warranty by the Fund and/or the
Adviser, they will take all reasonable steps:
(a) to notify the Company of such breach; and
(b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation
1.817-5.
2.6. The Adviser represents and warrants that:
(a) it is and will remain duly registered under all applicable
federal and state securities laws; and
(b) it will perform its obligations for the Fund in accordance
with applicable state and federal securities laws and that it
will notify the Company promptly if for any reason it is
unable to perform its obligations under this Agreement.
2.7. Each party represents and warrants that, as applicable, all of its
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of
the Fund are and will continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is
issued by a reputable bonding company.
ARTICLE III. Obligations of the Parties
3.1. The Fund will prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses and statements of additional
information of the Fund. The Fund will bear the costs of registration and
qualification of its shares, preparation and filing of documents listed in
this Section 3.1 and all taxes to which an issuer is subject on the
issuance and transfer of its shares.
3.2. At the option of the Company, the Fund will either: (a) provide the Company
with as many copies of the Fund's current prospectus, statement of
additional information, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any
of the foregoing, as the Company will reasonably request; or (b) provide
the Company with a camera-ready copy, computer disk or other medium agreed
to by the parties of such documents in a form suitable for printing. The
Fund will bear the cost of typesetting and printing such documents and of
distributing such documents to existing Contract owners. The Company will
bear the cost of distributing such documents to prospective Contract owners
and applicants as required.
3.3. The Fund, at its expense, either will:
(a) distribute its proxy materials directly to the appropriate
Contract owners; or
(b) provide the Company or its mailing agent with copies of its
proxy materials in such quantity as the Company will
reasonably require and the Company will distribute the
materials to existing Contract owners and will bill the Fund
for the reasonable cost of such distribution. The Fund will
bear the cost of tabulation of proxy votes.
<PAGE>
3.4. If and to the extent required by law the Company will:
(a) provide for the solicitation of voting instructions
from Contract owners;
(b) vote the shares of the Portfolios held in the Account
in accordance with instructions received from
Contract owners; and
(c) vote shares of the Portfolios held in the Account for
which no timely instructions have been received, in
the same proportion as shares of such Portfolio for
which instructions have been received from the
Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent
permitted by law.
3.5. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, to
comply with Section 16(c) of the 1940 Act (although the Fund is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever
rules the SEC may promulgate with respect thereto.
3.6 The Company will prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices,
prospectuses and statements of additional information of the Contracts. The
Company will bear the cost of registration and qualification of the
Contracts and preparation and filing of documents listed in this Section
3.6. The Company also will bear the cost of typesetting, printing and
distributing the documents listed in this Section 3.6 to existing and
prospective Contract owners.
3.7. The Company will furnish, or will cause to be furnished, to the Fund or the
Adviser, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
3.8. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of
additional information for Fund shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in published reports for the Fund which are in the public domain
or approved by the Fund or the Adviser for distribution, or in sales
literature or other material provided by the Fund or by the Adviser, except
with permission of the Fund or the Adviser. The Fund and the Adviser agree
to respond to any request for approval on a prompt and timely basis.
Nothing in this Section 3.8 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Fund.
3.9. The Fund or the Adviser will furnish, or will cause to be furnished, to the
Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is named,
at least ten (10) Business Days prior to its use. No such material will be
used if the Company reasonably objects to such use within five (5) Business
Days after receipt of such material.
<PAGE>
3.10.The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or
statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or
other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
3.11.The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or the NASD.
3.12.The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above,
that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC or the NASD.
3.13.For purposes of this Article III, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical), radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication distributed or
made generally available to customers or the ----- public, including
brochures, circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
3.14.The Fund and the Adviser hereby consent to the Company's use of the name
Royce Capital Fund in connection with marketing the Contracts, subject to
the terms of Sections 3.7 and 3.8 of this Agreement. Such consent will
terminate with the termination of this Agreement.
3.15 The Adviser will be responsible for calculating the performance information
for the Fund. The Company will be responsible for calculating the
performance information for the Contracts. The Adviser will be liable to
the Company for any material mistakes it makes in calculating the
performance information for the Fund which cause losses to the Company. The
Company will be liable to the Adviser for any material mistakes it makes in
calculating the performance information for the Contracts which cause
losses to the Adviser. Each party will be liable for any material mistakes
it makes in reproducing the performance information for Contracts or the
Fund, as appropriate. The Fund and the Adviser agree to provide the Company
with performance information for the Fund on a timely basis to enable the
Company to calculate performance information for the Contracts in
accordance with applicable state and federal law.
ARTICLE IV. Potential Conflicts
<PAGE>
4.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Fund Board will promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications thereof. A majority of the Fund Board will
consist of persons who are not "interested" persons of the Fund.
4.2. The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Exemptive Order, by
providing the Fund Board with all information reasonably necessary for the
Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever Contract
owner voting instructions are to be disregarded. The Fund Board will record
in its minutes, or other appropriate records, all reports received by it
and all action with regard to a conflict.
4.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested trustees, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested trustees), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another
portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity contract owners or variable life ---- insurance contract
owners of one or more Participating Insurance Companies) that votes in
favor of such segregation, or offering to the affected contract owners the
option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such disregard
of voting instructions could conflict with the majority of contract owner
voting instructions, and the Company's judgment represents a minority
position or would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect to such
subaccount; provided, however, that such withdrawal and termination will be
limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested trustees of the
Fund Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice to the Company that this
provision is being implemented. Until the end of such six-month period the
Adviser and Fund will, to the extent permitted by law and any exemptive
relief previously granted to the Fund, continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the
Fund.
<PAGE>
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will
withdraw the affected subaccount of the Account's investment in the Fund
and terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested trustees of the Fund Board. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Contracts. The Company will not be required by this Article IV to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of Contract owners affected by the
irreconcilable material conflict.
4.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the
Exemptive Order, and said reports, materials and data will be submitted
more frequently if deemed appropriate by the Fund Board.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions
materially different from those contained in the Exemptive Order, then: (a)
the Fund and/or the Participating Insurance Companies, as appropriate, will
take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 4.1, 4.2, 4.3, 4.4, and 4.5 of this
Agreement will continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE V. Indemnification
5.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the Adviser,
and each person, if any, who controls or is associated with the Fund or the
Adviser within the meaning of such terms under the federal securities laws
(but not any Participating Insurance Companies) and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
<PAGE>
(1) arise out of or are based on any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Contracts or
contained in the Contracts or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated or
necessary to make such statements not misleading in light of the
circumstances in which they were made; provided that this agreement to
indemnify will not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by or on behalf
of the Adviser or the Fund for use in the registration statement,
prospectus or statement of additional information for the Contracts or in
the Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or are based on any untrue statement or alleged untrue
statement of a material fact contained in the Fund registration statement,
prospectus, statement of additional information or sales literature or
other promotional material of the Fund (or any amendment or supplement to
any of the foregoing), or the omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances in which they were made, if
such statement or omission was made in reliance upon and in conformity with
information furnished to the Fund or Adviser in writing by or on behalf of
the Company or persons under its control; or
(3) arise out of or are based on any wrongful conduct of, or violation of
applicable federal or state law by, the Company or persons under its
control or subject to its authorization, with respect to the purchase of
Fund shares or the sale, marketing or distribution of the Contracts; or
(4) arise as a result of any failure by the Company to provide the services and
furnish the materials under the terms of this Agreement; or
(5) arise out of any material breach of any representation and/or warranty made
by the Company in this Agreement or arise out of or result from any other
material breach of this Agreement by the Company or persons under its
control or subject to its authorization; except to the extent provided in
Sections 5.1(b) and 5.3 hereof. This indemnification will be in addition to
any liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
5.1(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
<PAGE>
5.2. Indemnification By The Adviser
(a) The Adviser agrees to indemnify and hold harmless the Company and each
person, if any, who controls or is associated with the Company within the
meaning of such terms under the federal securities laws and any director,
trustee, officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of this Section 5.2)
against any and all losses, claims, expenses, damages, liabilities
(including amounts paid in settlement with the written consent of the
Adviser) or litigation (including reasonable legal and other expenses), to
which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based on the
omission or alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser or Fund by or on behalf of
the Company for use in the registration statement,
prospectus or statement of additional information for
the Fund or in sales literature of the Fund (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Contract registration statement, prospectus or
statement of additional information or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
in which they were made, if such statement or
omission was made in reliance upon and in conformity
with information furnished to the Company in writing
by or on behalf of the Adviser or persons under its
control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal and state law by,
the Adviser or the Fund or persons under their
respective control or subject to their authorization
with respect to the sale of Fund shares; or
(4) arise as a result of any failure by the Fund, the
Adviser or persons under their respective control or
subject to their authorization to provide the
services and furnish the materials under the terms of
this Agreement including, but not limited to, a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements and procedures related thereto specified
in Section 2.5 of this Agreement or any material
errors in or untimely calculation or reporting of the
daily net asset value per share or dividend or
capital gain distribution rate (referred to in this
Section 5.2(a)(4) as an "error"); provided, that the
foregoing will not apply where such error is the
result of incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser, and
will be limited to (i) reasonable administrative
costs necessary to correct such error, and (ii)
amounts which the Company has paid out of its own
resources to make Contract owners whole as a result
of such error; or
<PAGE>
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund or persons under
their respective control or subject to their
authorization;
except to the extent provided in Sections 5.2(b) and 5.3 hereof.
(b) No party will be entitled to indemnification under Section
5.2(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
(d) It is understood that these indemnities shall have no effect
on any other agreements or arrangements between the Fund
and/or its series and the Adviser.
5.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article V
("Indemnifying Party" for the purpose of this Section 5.3) will not be
liable under the indemnification provisions of this Article V with
respect to any claim made against a party entitled to indemnification
under this Article V ("Indemnified Party" for the purpose of this
Section 5.3) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of
this Article V, except to the extent that the failure to notify results
in the failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of failure to give
such notice. In case any such action is brought against the Indemnified
Party, the Indemnifying Party will be entitled to participate, at its
own expense, in the defense thereof. The Indemnifying Party also will
be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Indemnifying Party
to the Indemnified Party of the Indemnifying Party's election to assume
the defense thereof, the Indemnified Party will bear the fees and
expenses of any additional counsel retained by it, and the Indemnifying
Party will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party
and the Indemnified Party will have mutually agreed to the retention of
such counsel; or (b) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify
the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. A successor by law of the parties to
this Agreement will be entitled to the benefits of the indemnification
contained in this Article V. The indemnification provisions contained
in this Article V will survive any termination of this Agreement.
<PAGE>
5.4 Limitation of Liability
Except as expressly stated herein, as between the parties, in no event
will any party to this Agreement be responsible to any other party for
any incidental, indirect, consequential, punitive or exemplary damages
of any kind arising from this Agreement, including without limitation,
lost revenues, loss of profits or loss of business.
5.5 Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be settled by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules and Title 9 of the U.S. Code. Judgment on the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The number of arbitrators will be three, one of
whom will be appointed by the Company or an affiliate; one of whom will
be appointed by the Fund and/or the Adviser or an affiliate; and the
third of whom will be selected by mutual agreement, if possible, within
30 days of the selection of the second arbitrator and thereafter by the
administering authority. The place of arbitration will be Minneapolis,
Minnesota. The arbitrators will have no authority to award punitive
damages or any other damages not measured by the prevailing party's
actual damages, and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions of this
Agreement. Any party may make an application to the arbitrators seeking
injunctive relief to maintain the status quo until such time as the
arbitration award is rendered or the controversy is otherwise resolved.
Any party may apply to any court having jurisdiction hereof and seek
injunctive relief in order to maintain the status quo until such time
as the arbitration award is rendered or the controversy is otherwise
resolved.
ARTICLE VI. Applicable Law
6.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota.
6.2. This Agreement will be subject to the provisions of the 1933 Act, the
Securities Exchange Act of 1934 and the 1940 Act, and the rules and
regulations and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE VII. Termination
7.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to some or
all of the Portfolios, upon sixty (60) days' advance written notice to the
other parties or, if later, upon receipt of any required exemptive relief
or orders from the SEC, unless otherwise agreed in a separate written
agreement among the parties;
(b) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Portfolio if shares of the
Portfolio are not reasonably available to meet the requirements of the
Contracts as determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts issued or to be
issued by Company; or
<PAGE>
(d) at the option of the Fund, upon receipt of the Fund's written notice by the
other parties, upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, provided
that the Fund determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse effect on the
Company's ability to perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's written notice
by the other parties, upon institution of formal proceedings against the
Fund or the Adviser by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, regarding the Fund's or
the Adviser's duties under this Agreement or related to the sale of Fund
shares or the administration of the Fund, provided that the Company
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Fund's or the
Adviser's ability to perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written notice
by the other parties, if the Fund ceases to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably and
in good faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Portfolio if the Fund fails to
meet the diversification requirements specified in Article II hereof or if
the Company reasonably and in good faith believes the Fund may fail to meet
such requirements; or
(h) at the option of any party to this Agreement, upon written notice to the
other parties, upon another party's material breach of any provision of
this Agreement; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that the Fund or the Adviser has suffered
a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse impact upon
the business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(j) at the option of the Fund, if the Fund determines in its sole judgment
exercised in good faith, that the Company has suffered a material adverse
change in its business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations
of the Fund, such termination to be effective sixty (60) days' after
receipt by the other parties of written notice of the election to
terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the Contract owners having an
interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying investment
media. The Company will give sixty (60) days' prior written notice to the
Fund of the date of any proposed vote or other action taken to replace the
Fund's shares; or
<PAGE>
(l) at the option of the Company or the Fund upon a determination by a majority
of the Fund Board, or a majority of the disinterested Fund Board members,
that an irreconcilable material conflict exists among the interests of: (i)
all contract owners of variable insurance products of all separate
accounts; or (ii) the interests of the Participating Insurance Companies
investing in the Fund as set forth in Article IV of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not issued
or sold in accordance with applicable federal and/or state law. Termination
will be effective immediately upon such occurrence without notice.
7.2. Notwithstanding any termination of this Agreement, the Fund and the Adviser
will, at the option of the Company, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts will be permitted
to reallocate investments in the Portfolios (as in effect on such date),
redeem investments in the Portfolios and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing Contracts.
The parties agree that this Section 7.2 will not apply to any terminations
under Article IV and the effect of such Article IV terminations will be
governed by Article IV of this Agreement.
7.3. The provisions of Article V will survive the termination of this Agreement
and as long as shares of the Fund are held under Existing Contracts in
accordance with Section 7.2, the provisions of this Agreement will survive
the termination of this Agreement with respect to those Existing Contracts.
ARTICLE VIII. Notices
Any notice will be deemed duly given when sent by registered or
certified mail (or other method agreed to by the parties) to each other party at
the address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other parties.
If to the Company:
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
Attn: President
With a Copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
If to the Fund:
John D. Diederich
Vice President
Royce Capital Fund
1414 Avenue of the Americas
New York, NY 10019
If to the Adviser:
John E. Denneen
Associate General Counsel
Royce & Associates, Inc.
1414 Avenue of the Americas
New York, NY 10019
<PAGE>
ARTICLE IX. Miscellaneous
9.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither
the directors, trustees, officers, partners, employees, agents or
shareholders assume any personal liability for obligations entered into
on behalf of the Fund.
9.2. The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 9.2), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Protected Parties or any of
their employees or agents in connection with the Company's performance of
its duties under this Agreement are the valuable property of the Protected
Parties. The Fund and the Adviser agree that if they come into possession
of any list or compilation of the identities of or other information about
the Protected Parties' customers, or any other information or property of
the Protected Parties, other than such information as may be independently
developed or compiled by the Fund or the Adviser from information supplied
to them by the Protected Parties' customers who also maintain accounts
directly with the Fund or the Adviser, the Fund and the Adviser will hold
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Company's prior written consent; or (b) as required by
law or judicial process. The Fund and the Adviser acknowledge that any
breach of the agreements in this Section 9.2 would result in immediate and
irreparable harm to the Protected Parties for which there would be no
adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way of temporary
and permanent injunctions, as well as such other relief as any court of
competent jurisdiction deems appropriate.
9.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
9.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the
same instrument.
9.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be affected thereby.
9.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
9.7. Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and will permit each
other and such authorities reasonable access to its books and records
in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
9.8. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as
applicable, by such party and when so executed and delivered this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
9.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund or other applicable terms of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date specified above.
ROYCE CAPITAL FUND ROYCE & ASSOCIATES, INC.
By: By:
Name: Name:
Title: Title:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY ATTEST:
By: By:
James E. Choat Mary Ellyn Minenko
President Assistant Secretary
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The following Accounts of American Enterprise Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account
American Enterprise Variable Life Account
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The Accounts shown on Schedule 1 may invest in the following Portfolios:
Royce Micro-Cap Portfolio
Royce Premier Portfolio
PARTICIPATION AGREEMENT
By and Among
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
CREDIT SUISSE ASSET MANAGEMENT, LLC
And
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC.
THIS AGREEMENT, made and entered into this 1st day of September, 1999
by and among American Enterprise Life Insurance Company, organized under the
laws of the State of Indiana (the "Company"), on its own behalf and on behalf of
each separate account of the Company named in Schedule 1 to this Agreement, as
may be amended from time to time (each account referred to as the "Account"),
Warburg Pincus Trust, an open-end management investment company and business
trust organized under the laws of the Commonwealth of Massachusetts (the
"Fund"); Credit Suisse Asset Management, LLC, a limited liability company
organized under the laws of the State of Delaware (the "Adviser"); and Credit
Suisse Asset Management Securities, Inc., a corporation organized under the laws
of the State of New York ("CSAMSI")
WHEREAS, the Fund engages in business as an open-end management
investment company and was established for the purpose of serving as the
investment vehicle for separate accounts established for variable life insurance
contracts and variable annuity contracts to be offered by insurance companies
that have entered into participation agreements similar to this Agreement (the
"Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and variable
annuity separate accounts and variable life insurance separate accounts relief
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity separate accounts and variable life
insurance separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and qualified pension and retirement plans outside of the
separate account context (the "Mixed and Shared Funding Exemptive Order"). The
parties to this Agreement agree that the conditions or undertakings specified in
the Mixed and Shared Funding Exemptive Order and that may be imposed on the
Company, the Fund, the Adviser and/or CSAMSI by virtue of the receipt of such
order by the SEC will be incorporated herein by reference, and such parties
agree to comply with such conditions and undertakings to the extent applicable
to each such party; and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable
annuity and variable life insurance contracts (the "Contracts") under the 1933
Act; and
WHEREAS, the Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company under the insurance laws of the State ofIndiana, to set aside and invest
assets attributable to the Contracts; and
WHEREAS, the Company has registered or will register the Account as a
unit investment trust under the 1940 Act; and
<PAGE>
WHEREAS, CSAMSI, the Fund's distributor, is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and is a member in good standing of the National Association
of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios named in
Schedule 2, as such schedule may be amended from time to time (the "Designated
Portfolios") on behalf of the Account to fund the Contracts, and the Fund is
authorized to sell such shares to unit investment trusts such as the Account at
net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
the Fund, the Adviser and CSAMSI agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Designated
Portfolios that each Account orders, executing such orders on a daily basis
at the net asset value next computed after receipt and acceptance by the
Fund or its designee of the order for the shares of the Fund. For purposes
of this Section 1.1, the Company will be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee will
constitute receipt by the Fund; provided that the Fund receives notice of
such order by 9:30 a.m. Eastern Time on the next following business day
("T+1"). "Business Day" will mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC.
1.2. The Company will pay for Fund shares on T+1 that an order to purchase Fund
shares is made in accordance with Section 1.1 above. Payment will be in
federal funds transmitted by wire. This wire transfer will be initiated by
12:00 p.m. Eastern Time.
1.3. The Fund agrees to make shares of the Designated Portfolios available for
purchase at the applicable net asset value per share by Participating
Insurance Companies and their separate accounts on those days on which the
Fund calculates its Designated Portfolio net asset value pursuant to rules
of the SEC; provided, however, that the Board of Trustees of the Fund (the
"Fund Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Fund Board, acting in good faith and in light
of its fiduciary duties under federal and any applicable state laws, in the
best interests of the shareholders of such Portfolio.
1.4 On each Business Day on which the Fund calculates its net asset value, the
Company will aggregate and calculate the net purchase or redemption orders
for each Account maintained by the Fund in which contractowner assets are
invested. Net orders will only reflect orders that the Company has received
prior to the close of regular trading on the New York Stock Exchange, Inc.
(the "NYSE") (currently 4:00 p.m., Eastern Time) on that Business Day.
Orders that the Company has received after the close of regular trading on
the NYSE will be treated as though received on the next Business Day. Each
communication of orders by the Company will constitute a representation
that such orders were received by it prior to the close of regular trading
on the NYSE on the Business Day on which the purchase or redemption order
is priced in accordance with Rule 22c-1 under the 1940 Act. Other
procedures relating to the handling of orders will be in accordance with
the prospectus and statement of information of the relevant Designated
Portfolio or with oral or written instructions that CSAMSI or the Fund will
forward to the Company from time to time.
<PAGE>
1.5. The Fund agrees that shares of the Fund will be sold only to Participating
Insurance Companies and their separate accounts, qualified pension and
retirement plans or such other persons as are permitted under applicable
provisions of the Internal Revenue Code of 1986, as amended, (the "Internal
Revenue Code"), and regulations promulgated thereunder, the sale to which
will not impair the tax treatment currently afforded the Contracts. No
shares of any Portfolio will be sold to the general public except as set
forth in this Section 1.5.
1.6. The Fund agrees to redeem for cash, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests
on a daily basis at the net asset value next computed after receipt and
acceptance by the Fund or its agent of the request for redemption. For
purposes of this Section 1.6, the Company will be the designee of the Fund
for receipt of requests for redemption from each Account and receipt by
such designee will constitute receipt by the Fund, provided the Fund
receives notice of request for redemption by 9:30 a.m. Eastern Time on the
next following Business Day. Payment will be in federal funds transmitted
by wire to the Company's account as designated by the Company in writing
from time to time, on the same Business Day the Fund receives notice of the
redemption order from the Company. The Fund reserves the right to delay
payment of redemption proceeds, but in no event may such payment be delayed
longer than the period permitted by the 1940 Act. The Fund will not bear
any responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds; the Company alone will be responsible for such action.
If notification of redemption is received after 9:30 a.m. Eastern Time,
payment for redeemed shares will be made on the next following Business
Day.
1.7. The Company agrees to purchase and redeem the shares of the Designated
Portfolios offered by the then current prospectus of the Fund in accordance
with the provisions of such prospectus.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.9. The Fund will furnish same day notice (by telecopier, followed by written
confirmation) to the Company of the declaration of any income, dividends or
capital gain distributions payable on each Designated Portfolio's shares.
The Company hereby elects to receive all such dividends and distributions
as are payable on the Designated Portfolio shares in the form of additional
shares of that Designated Portfolio. The Fund will notify the Company of
the number of shares so issued as payment of such dividends and
distributions. The Company reserves the right to revoke this election upon
reasonable prior notice to the Fund and to receive all such dividends and
distributions in cash.
1.10.The Fund will make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will use
its best efforts to make such net asset value per share available by 6:00
p.m., Eastern Time, but in no event later than 7:00 p.m., Eastern Time,
each business day.
1.11 In the event adjustments are required to correct any error in the
computation of the net asset value of the Fund's shares, the Fund or CSAMSI
will notify the Company as soon as practicable after discovering the need
for those adjustments that result in an aggregate reimbursement of $150 or
more to any one Account maintained by a Designated Portfolio (or, if
greater, result in an adjustment of $10 or more to each contractowner's
account). Any such notice will state for each day for which an error
occurred the incorrect price, the correct price and, to the extent
communicated to the Fund's shareholders, the reason for the price change.
The Company may send this notice or a derivation thereof (so long as such
derivation is approved in advance by CSAMSI or the Adviser) to
contractowners whose accounts are affected by the price change. The parties
will negotiate in good faith to develop a reasonable method for effecting
such adjustments.
<PAGE>
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act and that the Contracts will be issued and
sold in compliance with all applicable federal and state laws, including
state insurance suitability requirements. The Company further represents
and warrants that it is an insurance company duly organized and in good
standing under applicable law and that it has legally and validly
established each Account as a separate account under applicable state law
and has registered the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment
account for the Contracts, and that it will maintain such registration for
so long as any Contracts are outstanding. The Company will amend the
registration statement under the 1933 Act for the Contracts and the
registration statement under the 1940 Act for the Account from time to time
as required in order to effect the continuous offering of the Contracts or
as may otherwise be required by applicable law. The Company will register
and qualify the Contracts for sale in accordance with the securities laws
of the various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents that the Contracts are currently and at the time of
issuance will be treated as annuity or life insurance contracts under
applicable provisions of the Internal Revenue Code, and that it will make
every effort to maintain such treatment and that it will notify the Fund
and the Adviser immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be
so treated in the future.
2.3. The Company represents and warrants that it will not purchase shares of the
Designated Portfolios with assets derived from tax-qualified retirement
plans except, indirectly, through Contracts purchased in connection with
such plans.
2.4. The Fund represents and warrants that Fund shares of the Designated
Portfolios sold pursuant to this Agreement will be registered under the
1933 Act and duly authorized for issuance in accordance with applicable law
and that the Fund is and will remain registered under the 1940 Act for as
long as such shares of the Designated Portfolios are sold. The Fund will
amend the registration statement for its shares under the 1933 Act and the
1940 Act from time to time as required in order to effect the continuous
offering of its shares. The Fund will register and qualify the shares of
the Designated Portfolios for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.5. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, and
that it will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that it will notify
the Company immediately upon having a reasonable basis for believing that
it has ceased to so qualify or that it might not so qualify in the future.
2.6. The Fund represents and warrants that in performing the services described
in this Agreement, the Fund will comply with all applicable laws, rules and
regulations. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies with the
insurance laws and regulations of any state. The Fund and CSAMSI agree that
upon request they will use their best efforts to furnish the information
required by state insurance laws so that the Company can obtain the
authority needed to issue the Contracts in the various states.
2.7. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although
it reserves the right to make such payments in the future. To the extent
that it decides to finance distribution expenses pursuant to Rule 12b-1,
the Fund undertakes to have its Fund Board, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses in accordance with the
1940 Act.
<PAGE>
2.8. CSAMSI represents and warrants that it will distribute the Fund shares of
the Designated Portfolios in accordance with all applicable federal and
state securities laws including, without limitation, the 1933 Act, the 1934
Act and the 1940 Act.
2.9. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and
will comply in all material respects with applicable provisions of the 1940
Act.
2.10.CSAMSI represents and warrants that it is and will remain duly registered
under all applicable federal and state securities laws and that it will
perform its obligations for the Fund in accordance in all material respects
with any applicable state and federal securities laws.
2.11.The Fund and CSAMSI represent and warrant that all of their trustees,
officers, employees, investment advisers, and other individuals/entities
having access to the funds and/or securities of the Fund are and continue
to be at all times covered by a blanket fidelity bond or similar coverage
for the benefit of the Fund in an amount not less than the minimal coverage
as required currently by Rule 17g-(1) of the 1940 Act or related provisions
as may be promulgated from time to time. The aforesaid bond includes
coverage for larceny and embezzlement and is issued by a reputable bonding
company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Fund or CSAMSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the current Fund prospectus for
the Designated Portfolios as the Company may reasonably request for
distribution, at the Company's expense, to prospective contractowners and
applicants. The Fund or CSAMSI will provide, at the Fund's or its
affiliate's expense, as many copies of said prospectus as necessary for
distribution, at the Company's expense, to existing contractowners. The
Fund or CSAMSI will provide the copies of said prospectus to the Company or
to its mailing agent. If requested by the Company in lieu thereof, the Fund
or CSAMSI will provide such documentation, including a computer diskette
(or other medium agreed to by the parties) or a final copy of a current
prospectus set in type at the Fund's or its affiliate's expense, and such
other assistance as is reasonably necessary in order for the Company at
least annually (or more frequently if the Fund prospectus is amended more
frequently) to have the Fund's prospectus and the prospectuses of other
mutual funds in which assets attributable to the Contracts may be invested
printed together in one document, in which case the Fund or its affiliate
will bear its reasonable share of expenses as described above, allocated
based on the proportionate number of pages of the Fund's and other funds'
respective portions of the document.
3.2. The Fund or CSAMSI will provide the Company, at the Fund's or its
affiliate's expense, with as many copies of the statement of additional
information as the Company may reasonably request for distribution, at the
Company's expense, to prospective contractowners and applicants. The Fund
or CSAMSI will provide, at the Fund's or its affiliate's expense, as many
copies of said statement of additional information as necessary for
distribution, at the Company's expense, to any existing contractowner who
requests such statement or whenever state or federal law otherwise requires
that such statement be provided. The Fund or CSAMSI will provide the copies
of said statement of additional information to the Company or to its
mailing agent.
3.3. The Fund or CSAMSI, at the Fund's or its affiliate's expense, will provide
the Company or its mailing agent with copies of its proxy material, if any,
reports to shareholders and other communications to shareholders in such
quantity as the Company will reasonably require. The Company will
distribute this proxy material, reports and other communications to
existing contractowners and tabulate the votes.
<PAGE>
3.4. If and to the extent required by law the Company will:
(a) solicit voting instructions from contractowners;
(b) vote the shares of the Designated Portfolios held in
the Account in accordance with instructions received
from contractowners; and
(c) vote shares of the Designated Portfolios held in the
Account for which no timely instructions have been
received, as well as shares it owns, in the same
proportion as shares of such Designated Portfolio for
which instructions have been received from the
Company's contractowners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contractowners. Except as set forth above, the Company reserves the
right to vote Fund shares held in any segregated asset account in its
own right, to the extent permitted by law. The Company will be
responsible for assuring that each of its separate accounts
participating in the Fund calculates voting privileges in a manner
consistent with all legal requirements, including the Mixed and Shared
Funding Exemptive Order.
3.5. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund either will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) or, as the Fund currently intends, to
comply with Section 16(c) of the 1940 Act (although the Fund is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section
16(a) with respect to periodic elections of trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. CSAMSI will provide the Company on a timely basis with investment
performance information for each Designated Portfolio in which the Company
maintains an Account, including total return for the preceding calendar
month and calendar quarter, the calendar year to date, and the prior
one-year, five-year, and ten-year (or life of the Fund) periods. The
Company may, based on the SEC-mandated information supplied by CSAMSI,
prepare communications for contractowners ("Contractowner Materials"). The
Company will provide copies of all Contractowner Materials concurrently
with their first use for CSAMSI's internal recordkeeping purposes. It is
understood that neither CSAMSI nor any Designated Portfolio will be
responsible for errors or omissions in, or the content of, Contractowner
Materials except to the extent that the error or omission resulted from
information provided by or on behalf of CSAMSI or the Designated Portfolio.
Any printed information that is furnished to the Company other than each
Designated Portfolio's prospectus or statement of additional information
(or information supplemental thereto), periodic reports and proxy
solicitation materials is CSAMSI's sole responsibility and not the
responsibility of any Designated Portfolio or the Fund. The Company agrees
that the Portfolios, the shareholders of the Portfolios and the officers
and governing Board of the Fund will have no liability or responsibility to
the Company in these respects.
<PAGE>
4.2. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of
additional information for Fund shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in published reports for the Fund which are in the public domain
or approved by the Fund or CSAMSI for distribution, or in sales literature
or other material provided by the Fund or by CSAMSI, except with permission
of the Fund or CSAMSI. The Fund and CSAMSI agree to respond to any request
for approval on a prompt and timely basis. Nothing in this Section 4.2 will
be construed as preventing the Company or its employees or agents from
giving advice on investment in the Fund.
4.3. The Fund, the Adviser or CSAMSI will furnish, or will cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account is named,
at least ten (10) business days prior to its use. No such material will be
used if the Company reasonably objects to such use within five (5) business
days after receipt of such material.
4.4. The Fund, the Adviser and CSAMSI will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or
statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved by the
Company for distribution to contractowners, or in sales literature or other
material provided by the Company, except with permission of the Company.
The Company agrees to respond to any request for approval on a prompt and
timely basis.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the
SEC, the NASD or other regulatory authority.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above,
that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC, the NASD or other regulatory
authority.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media,
(e.g., on-line networks such as the Internet or other electronic messages),
sales literature (i.e., any written communication distributed or made
generally available to customers or the ----- public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any
other material constituting sales literature or advertising under the NASD
rules, the 1933 Act or the 1940 Act.
<PAGE>
4.8. The Fund and CSAMSI hereby consent to the Company's use of the names
Warburg Pincus Trust (followed by the names of the Designated Portfolios
listed on Schedule 2, as may be amended from time to time) andCredit Suisse
Asset Management, LLC in connection with the marketing of the Contracts,
subject to the terms of Sections 4.1 and 4.2 of this Agreement. Such
consent will terminate with the termination of this Agreement.
ARTICLE V. Fees and Expenses
5.1. The Fund, the Adviser and CSAMSI will pay no fee or other compensation to
the Company under this Agreement except if the Fund or any Designated
Portfolio adopts and implements a plan pursuant to Rule 12b-1 under the
1940 Act to finance distribution expenses, then, subject to obtaining any
required exemptive orders or other regulatory approvals, the Fund may make
payments to the Company if and in such amounts agreed to by the Fund in
writing.
5.2. All expenses incident to performance by the Fund of this Agreement will be
paid by the Fund to the extent permitted by law. The Fund will bear the
expenses for the cost of registration and qualification of the Fund's
shares; preparation and filing of the Fund's prospectus, statement of
additional information and registration statement, proxy materials and
reports; setting in type and printing the Fund's prospectus; setting in
type and printing proxy materials and reports by it to contractowners
(including the costs of printing a Fund prospectus that constitutes an
annual report); the preparation of all statements and notices required by
any federal or state law; all taxes on the issuance or transfer of the
Fund's shares; any expenses permitted to be paid or assumed by the Fund
pursuant to a plan, if any, under Rule 12b-1 under the 1940 Act; and all
other expenses set forth in Article III of this Agreement.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a manner
as to ensure that the Contracts will be treated as variable annuity or
variable life insurance contracts under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the foregoing,
the Fund will comply with Section 817(h) of the Internal Revenue Code and
Treasury Regulation 1.817-5, as amended from time to time, relating to the
diversification requirements for variable annuity, endowment, or life
insurance contracts and any amendments or other modifications to such
Section or Regulation. In the event of a breach of this Article VI by the
Fund, it will take all reasonable steps: (a) to notify the Company of such
breach; and (b) to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Treasury Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
7.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contractowners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contractowners; or (f) a decision by an insurer to disregard the
voting instructions of contractowners. The Fund Board will promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications thereof.
<PAGE>
7.2. The Company will report any potential or existing conflicts of which it
is aware to the Fund Board. The Company agrees to assist the Fund Board
in carrying out its responsibilities, as delineated in the Mixed and
Shared Funding Exemptive Order, by providing the Fund Board with all
information reasonably necessary for the Fund Board to consider any
issues raised. This includes, but is not limited to, an obligation by
the Company to inform the Fund Board whenever contractowner voting
instructions are to be disregarded. The Company's responsibilities
hereunder will be carried out with a view only to the interest of
contractowners.
7.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company will, at its expense and to the extent reasonably practicable
(as determined by a majority of the disinterested directors), take whatever
steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (a) withdrawing the assets allocable to some
or all of the Accounts from the Fund or any Portfolio and reinvesting such
assets in a different investment medium, including (but not limited to)
another Portfolio of the Fund, or submitting the question whether such
segregation should be implemented to a vote of all affected contractowners
and, as appropriate, segregating the assets of any appropriate group (i.e.,
---- variable annuity contractowners or variable life insurance
contractowners of one or more Participating Insurance Companies) that votes
in favor of such segregation, or offering to the affected contractowners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard contractowner voting instructions, and the Company's
judgment represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the
affected subaccount of the Account's investment in the Fund and terminate
this Agreement with respect to such subaccount; provided, however, that
such withdrawal and termination will be limited to the extent required by
the foregoing irreconcilable material conflict as determined by a majority
of the disinterested directors of the Fund Board. No charge or penalty will
be imposed as a result of such withdrawal.
7.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will
withdraw the affected subaccount of the Account's investment in the Fund
and terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested directors of the Fund Board. No charge or
penalty will be imposed as a result of such withdrawal.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund or the Adviser (or any other investment
adviser to the Fund) be required to establish a new funding medium for the
Contracts. The Company will not be required by Section 7.3 to establish a
new funding medium for the Contracts if an offer to do so has been declined
by vote of a majority of contractowners materially affected by the
irreconcilable material conflict.
7.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the
Mixed and Shared Funding Exemptive Order, and said reports, materials and
data will be submitted more frequently if deemed appropriate by the Fund
Board.
<PAGE>
7.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Mixed and Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the Mixed
and Shared Funding Exemptive Order, then: (a) the Fund and/or the
Participating Insurance Companies, as appropriate, will take such steps as
may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement will
continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as
so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the Adviser,
CSAMSI, and each person, if any, who controls or is associated with the
Fund, the Adviser or CSAMSI within the meaning of such terms under the
federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties"
for purposes of this Section 8.1) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including reasonable
legal and other expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statements
or alleged untrue statements of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with written
information furnished to the Company by the Fund, the
Adviser or CSAMSI for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations by or on behalf of the Company or
wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of
the Contracts or Fund shares; or
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the Fund
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of the Fund (or amendment or
supplement) or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make such statements not
misleading in light of the circumstances in which
they were made, if such a statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of
the Company or persons under its control; or
<PAGE>
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach by the Company of this
Agreement;
except to the extent provided in Sections 8.1(b) and 8.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
8.1(a) to the extent such loss, claim, damage, liability or
litigation is due to the willful misfeasance, bad faith, or
gross negligence in the performance of such party's duties
under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by
the party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
8.2. Indemnification By The Adviser, the Fund and CSAMSI
(a) The Adviser, the Fund and CSAMSI, in each case solely to the extent
relating to such party's responsibilities hereunder, agree to indemnify and
hold harmless the Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms under the
federal securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the "Indemnified Parties"
for purposes of this Section 8.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including reasonable
legal and other expenses) to which the Indemnified Parties may become
subject under any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(1) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser, CSAMSI or the Fund by or on
behalf of the Company for use in the registration
statement, prospectus or statement of additional
information for the Fund or in sales literature of
the Fund (or any amendment or supplement thereto) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or as a result of statements or
representations or wrongful conduct of the Adviser,
the Fund or CSAMSI or persons under the control of
the Adviser, the Fund or CSAMSI respectively, with
respect to the sale of the Fund shares; or
<PAGE>
(3) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, statement of
additional information or sales literature or other
promotional material covering the Contracts (or any
amendment or supplement thereto), or the omission or
alleged omission to state therein a material fact
required to be stated or necessary to make such
statement or statements not misleading in light of
the circumstances in which they were made, if such
statement or omission was made in reliance upon and
in conformity with written information furnished to
the Company by the Adviser, the Fund or CSAMSI or
persons under the control of the Adviser, the Fund or
CSAMSI; or
(4) arise as a result of any failure by the Fund, the
Adviser or CSAMSI to provide the services and furnish
the materials under the terms of this Agreement
(including a failure, whether unintentional or in
good faith or otherwise, to comply with the
diversification requirements and procedures related
thereto specified in Article VI of this Agreement);
or
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser, the Fund or CSAMSI in this Agreement, or
arise out of or result from any other material breach
of this Agreement by the Adviser, the Fund or CSAMSI;
except to the extent provided in Sections 8.2(b) and 8.4 hereof.
(b) No party will be entitled to indemnification under Section
8.2(a) to the extent such loss, claim, damage, liability or
litigation is due to the willful misfeasance, bad faith, or
gross negligence in the performance of such party's duties
under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by
the party seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser, the
Fund and CSAMSI of the commencement of any litigation,
proceedings, complaints or actions by regulatory authorities
against them in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.4. Indemnification Procedure
Any person obligated to provide indemnification under this Article VIII
("Indemnifying Party" for the purpose of this Section 8.4) will not be
liable under the indemnification provisions of this Article VIII with
respect to any claim made against a party entitled to indemnification
under this Article VIII ("Indemnified Party" for the purpose of this
Section 8.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of
this Article VIII, except to the extent that the failure to notify
results in the failure of actual notice to the Indemnifying Party and
such Indemnifying Party is damaged solely as a result of failure to
give such notice. In case any such action is brought against the
Indemnified Party, the Indemnifying Party will be entitled to
participate, at its own expense, in the defense thereof. The
Indemnifying Party also will be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After
notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election to assume the defense thereof, the
Indemnified Party will bear the fees and expenses of any additional
counsel retained by it, and the Indemnifying Party will not be liable
to such party under this Agreement for any legal or other expenses
subsequently incurred
<PAGE>
by such party independently in connection with the defense thereof
other than reasonable costs of investigation, unless: (a) the
Indemnifying Party and the Indemnified Party will have mutually agreed
to the retention of such counsel; or (b) the named parties to any such
proceeding (including any impleaded parties) include both the
Indemnifying Party and the Indemnified Party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party will
not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify
the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. A successor by law of the parties to
this Agreement will be entitled to the benefits of the indemnification
contained in this Article VIII. The indemnification provisions
contained in this Article VIII will survive any termination of this
Agreement.
ARTICLE IX. Applicable Law
9.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota.
9.2. This Agreement will be subject to the provisions of the 1933 Act, the
1934 Act and the 1940 Act, and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant (including, but not limited to, the
Mixed and Shared Funding Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE X. Termination
10.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with respect to some or
all of the Designated Portfolios, upon ninety (90) days' advance written
notice to the other parties or, if later, upon receipt of any required
exemptive relief or orders from the SEC, unless otherwise agreed in a
separate written agreement among the parties; or
(b) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Designated Portfolio if shares of
the Designated Portfolio are not reasonably available to meet the
requirements of the Contracts as determined in good faith by the Company;
or
(c) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Designated Portfolio in the event
any of the Designated Portfolio's shares are not registered, issued or sold
in accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment media of the
Contracts issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's written notice by the
other parties, upon institution of formal proceedings against the Company
by the NASD, the SEC, the insurance commission of any state or any other
regulatory body regarding the Company's duties under this Agreement or
related to the sale of the Contracts, the administration of the Contracts,
the operation of the Account, or the purchase of the Fund shares, provided
that the Fund determines in its sole judgment, exercised in good faith,
that any such proceeding would have a material adverse effect on the
Company's ability to perform its obligations under this Agreement; or
<PAGE>
(e) at the option of the Company, upon receipt of the Company's written notice
by the other parties, upon institution of formal proceedings against the
Fund or CSAMSI by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided that the Company
determines in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Fund's or CSAMSI's
ability to perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's written notice
by the other parties, if the Fund ceases to qualify as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code, or
under any successor or similar provision, or if the Company reasonably and
in good faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's written notice
by the other parties, with respect to any Designated Portfolio if the Fund
fails to meet the diversification requirements specified in Article VI
hereof or if the Company reasonably and in good faith believes the Fund may
fail to meet such requirements; or
(h) at the option of any party to this Agreement, upon written notice to the
other parties, upon another party's material breach of any provision of
this Agreement; or
(i) at the option of the Company, if the Company determines in its sole
judgment exercised in good faith, that either the Fund, the Adviser or
CSAMSI has suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is the subject
of material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Company, such termination to
be effective sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(j) at the option of the Fund or CSAMSI, if the Fund or CSAMSI respectively,
determines in its sole judgment exercised in good faith, that the Company
has suffered a material adverse change in its business, operations or
financial condition since the date of this Agreement or is the subject of
material adverse publicity which is likely to have a material adverse
impact upon the business and operations of the Fund or the Adviser, such
termination to be effective sixty (60) days' after receipt by the other
parties of written notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the contractowners having an
interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Designated Portfolio
shares of the Fund in accordance with the terms of the Contracts for which
those Designated Portfolio shares had been selected to serve as the
underlying investment media. The Company will give sixty (60) days' prior
written notice to the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
(l) at the option of the Company or the Fund upon a determination by a majority
of the Fund Board, or a majority of the disinterested Fund Board members,
that an irreconcilable material conflict exists among the interests of: (1)
all contractowners of variable insurance products of all separate accounts;
or (2) the interests of the Participating Insurance Companies investing in
the Fund as set forth in Article VII of this Agreement; or
(m) at the option of the Fund in the event any of the Contracts are not issued
or sold in accordance with applicable federal and/or state law. Termination
will be effective immediately upon such occurrence without notice.
<PAGE>
10.2. Notice Requirement
No termination of this Agreement will be effective unless and until the
party terminating this Agreement gives prior written notice to all
other parties of its intent to terminate, which notice will set forth
the basis for the termination.
10.3. Effect of Termination
Notwithstanding any termination of this Agreement, the Fund and CSAMSI
will, at the option of the Company, continue to make available
additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts.") . Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the
Portfolios (as in effect on such date), redeem investments in the
Portfolios and/or invest in the Portfolios upon the making of
additional purchase payments under the Existing Contracts.
10.4 Surviving Provisions
Notwithstanding any termination of this Agreement, each party's
obligations under Article VIII to indemnify other parties will survive
and not be affected by any termination of this Agreement. In addition,
each party's obligations under Section 12.7 will survive and not be
affected by any termination of this Agreement. Finally, with respect to
Existing Contracts, all provisions of this Agreement also will survive
and not be affected by any termination of this Agreement.
ARTICLE XI. Notices
11.1 Any notice will be deemed duly given when sent by registered or
certified mail to the other party at the address of such party set
forth below or at such other address as such party may from time to
time specify in writing to the other parties.
If to the Company:
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
Attn: James E. Choat
President
With a simultaneous copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
If to the Fund, the Adviser and/or CSAMSI:
466 Lexington Avenue
New York, NY 10017
Attn: Legal Department
ARTICLE XII. Miscellaneous
12.1.All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund. No Portfolio or series of the Fund will be liable for the obligations
or liabilities of any other Portfolio or series.
<PAGE>
12.2.The Fund, the Adviser and CSAMSI acknowledge that the identities of the
customers of the Company or any of its affiliates (collectively the
"Company Protected Parties" for purposes of this Section 12.2), information
maintained regarding those customers, and all computer programs and
procedures or other information developed or used by the Company Protected
Parties or any of their employees or agents in connection with the
Company's performance of its duties under this Agreement are the valuable
property of the Company Protected Parties. The Fund, the Adviser and CSAMSI
agree that if they come into possession of any list or compilation of the
identities of or other information about the Company Protected Parties'
customers, or any other information or property of the Company Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Fund, the Adviser or CSAMSI from
information supplied to them by the Company Protected Parties' customers
who also maintain accounts directly with the Fund, the Adviser or CSAMSI,
the Fund, the Adviser and CSAMSI will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with the Company's prior written
consent; or (b) as required by law or judicial process. The Company
acknowledges that the identities of the customers of the Fund, the Adviser,
CSAMSI or any of their affiliates (collectively the "Adviser Protected
Parties" for purposes of this Section 12.2), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Adviser Protected Parties or any
of their employees or agents in connection with the Funds', the Adviser's
or CSAMSI's performance of their respective duties under this Agreement are
the valuable property of the Adviser Protected Parties. The Company agrees
that if it comes into possession of any list or compilation of the
identities of or other information about the Adviser Protected Parties'
customers, or any other information or property of the Adviser Protected
Parties, other than such information as is publicly available or as may be
independently developed or compiled by the Company from information
supplied to them by the Adviser Protected Parties' customers who also
maintain accounts directly with the Company, the Company will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with the
Fund's, the Adviser's or CSAMSI's prior written consent; or (b) as required
by law or judicial process. Each party acknowledges that any breach of the
agreements in this Section 12.2 would result in immediate and irreparable
harm to the other parties for which there would be no adequate remedy at
law and agree that in the event of such a breach, the other parties will be
entitled to equitable relief by way of temporary and permanent injunctions,
as well as such other relief as any court of competent jurisdiction deems
appropriate.
12.3.The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4.This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
12.5.If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
12.6.This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties except that CSAMSI may assign, in whole
or in part, its responsibilities hereunder, as distributor, to a third
party which replaces CSAMSI as distributor.
<PAGE>
12.7 Each party to this Agreement will maintain all records required by law,
including records detailing the services it provides. Such records will be
preserved, maintained and made available to the extent required by law and
in accordance with the 1940 Act and the rules thereunder. Each party to
this Agreement will cooperate with each other party and all appropriate
governmental authorities (including without limitation the SEC, the NASD
and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Upon request by the Fund or CSAMSI, the Company agrees
to promptly make copies or, if required, originals of all records
pertaining to the performance of services under this Agreement available to
the Fund or CSAMSI, as the case may be. The Fund agrees that the Company
will have the right to inspect, audit and copy all records pertaining to
the performance of services under this Agreement pursuant to the
requirements of any state insurance department. Each party also agrees to
promptly notify the other parties if it experiences any difficulty in
maintaining the records in an accurate and complete manner. This provision
will survive termination of this Agreement.
12.8.Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been duly
authorized by all necessary corporate or board action, as applicable, by
such party and when so executed and delivered this Agreement will be the
valid and binding obligation of such party enforceable in accordance with
its terms.
12.9 The parties to this Agreement acknowledge and agree that all liabilities of
the Fund arising, directly or indirectly, under this agreement, will be
satisfied solely out of the assets of the Fund and that no trustee,
officer, agent or holder of shares of beneficial interest of the Fund will
be personally liable for any such liabilities.
12.10. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts, the
Accounts or the Designated Portfolios of the Fund or other applicable terms
of this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
SEAL By:
Name:
Title:
ATTEST:
By:
Name:
Title:
WARBURG PINCUS TRUST
SEAL By:
Name:
Title:
CREDIT SUISSE ASSET MANAGEMENT, LLC
SEAL By:
Name:
Title:
CREDIT SUISSE ASSET MANAGEMENT SERCURITIES, INC.
SEAL By:
Name:
Title:
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
CREDIT SUISSE ASSET MANAGEMENT, LLC
And
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC.
The following separate accounts of American Enterprise Life Insurance Company
are permitted in accordance with the provisions of this Agreement to invest in
Designated Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account, established July 15, 1987
American Enterprise Variable Life Account established July 15, 1987
____, 1999
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
And
WARBURG PINCUS TRUST
And
CREDIT SUISSE ASSET MANAGEMENT, LLC
And
CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC.
The Separate Account(s) shown on Schedule 1 may invest in the following
Designated Portfolios of the Warburg Pincus Trust:
Emerging Growth Portfolio
____, 1999
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this 5th day of October 1999, by
and among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, an Indiana corporation
(the "Company") on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act"),
and its shares are registered or will be registered under the Securities Act of
1933, as amended (the " 1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into
several series of shares. each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to
the Company and the Accounts are set forth on Schedule A attached hereto (each
a "Portfolio," and, collectively. the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
law, and is the Trust's investment adviser:
WHEREAS, the Company will issue certain variable annuity and/or
variable life insurance contracts (individually, the "Policy" or, collectively,
the "Policies") which, if required by applicable law, will be registered under
the 1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid variable
annuity and/or variable life insurance contracts that are allocated to the
Accounts (the Policies and the Accounts covered by this Agreement, and each
corresponding Portfolio covered by this Agreement in which the Accounts invest,
is specified in Schedule A attached hereto as may be modified from time to
time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Fund Distributors, Inc. (the "Underwriter") is registered
as a broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the " 1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD");
WHEREAS, American Express Financial Advisors, Inc., the underwriter for
the individual variable annuity and the variable life policies, is registered as
a broker-dealer with the SEC under the 1934 Act and is a member in good standing
of the NASD; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations. the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust,
MFS, and the Company agree as follows:
ARTICLE 1. SALE OF TRUST SHARES
1. 1 The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that
Business Day, as defined below) and which are available for purchase by
such Accounts, executing such orders on a daily basis at the net asset
value next computed after receipt by the Trust or its designee of the
order for the Shares. For purposes of this Section 1. 1, the Company
shall be the designee of the Trust for receipt of such orders from
Policy owners and receipt by such designee shall constitute receipt by
the Trust; provided that the Trust receives notice of such orders by
10:00 a.m. New York time on the next following Business Day. "Business
Day" shall mean any day on which the New York Stock Exchange, Inc. (the
"NYSE") is open for trading and on which the Trust calculates its net
asset value pursuant to the rules of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and
the Accounts on those days on which the Trust calculates its net asset
value pursuant to rules of the SEC and the Trust shall calculate such
net asset value on each day which the NYSE is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Trust (the
"Board") may refuse to sell any Shares to the Company and the Accounts,
or suspend or terminate the offering of the Shares if such action is
required by law or by regulatory authorities having jurisdiction or is,
in the sole discretion of the Board acting in good faith and in light
of its fiduciary duties under federal and any applicable state laws,
necessary in the best interest of the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements
with the Trust and MFS (the "Participating Insurance Companies") and
their separate accounts, qualified pension and retirement plans and MFS
or its affiliates. The Trust and MFS will not sell Trust shares to any
insurance company or separate account unless an agreement containing
provisions substantially the same as Articles III and VII of this
Agreement is in effect to govern such sales. The Company will not
resell the Shares except to the Trust or its agents.
1.4. The Trust agrees to redeem for cash. on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed
by Policy owners on that Business Day), executing such requests on a
daily basis at the net asset value next computed after receipt by the
Trust or its designee of the request for redemption. For purposes of
this Section 1.4, the Company shall be the designee of the Trust for
receipt of requests for redemption from Policy owners and receipt by
such designee shall constitute receipt by the Trust; provided that the
Trust receives notice of such request for redemption by 10:00 a.m. New
York time on the next following Business Day.
<PAGE>
1.5. Purchase, redemption and exchange orders for each subaccount of the
Accounts that invest in each Portfolio shall be netted against each
other, and one net order per subaccount Portfolio shall be submitted by
the Company to the Trust or its designee. With respect to payment of the
purchase price by the Company and of redemption proceeds by the Trust,
the Company and the Trust shall net purchase, exchange and redemption
orders against each other with respect to all Portfolios and shall
transmit one net payment for all of the Portfolios in accordance with
Section 1.6 hereof
1.6 In the event of net purchases, the Company's bank shall initiate the
wire of payment of the Shares by 2:00 p.m. New York time on the next
Business Day after an order to purchase the Shares is made in accordance
with the provisions of Section L I. hereof. In the event of net
redemptions, the Trust's bank shall initiate the wire of payment of
shall pay the redemption proceeds by 3:00 p.m. New York time on the next
Business Day after an order to redeem the shares is made in accordance
with the provisions of Section 1.4. hereof All such payments shall be in
federal funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts.
The Shares ordered from the Trust will be recorded in an appropriate
title for the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on
a Portfolio's Shares in additional Shares of that Portfolio. The Trust
shall notify the Company of the number of Shares so issued as payment of
such dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon
as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value
per share available by 6:30 p.m. New York time. The Trust shall notify
the Company as soon as possible if it is determined that the net asset
value per share will be available after 6:30 p.m. New York time on any
Business Day, and the Trust and the Company will mutually agree upon a
final deadline for timely receipt of the net asset value on such
Business Day. In the event that the Trust is unable to meet the 6:30
p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust
takes to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the
Trust shall make an adjustment to the number of shares purchased or
redeemed for the Accounts to reflect the correct net asset value per
share. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gains information shall be reported
promptly upon discovery to the Company.
ARTICLE 11. CERTAIN REPRESENTATIONS. WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will
be registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold,
and distributed in compliance in all material respects with all
applicable state and federal laws, including without limitation the
1933 Act, the Securities Exchange Act of 1934, as amended (the " 1934
Act"), and the 1940 Act. The Company further represents and warrants
that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established
the Account as a segregated asset account under applicable law and has
registered or, prior to any issuance or sale of the Policies, will
register the Accounts as unit investment trusts in accordance with the
provisions of the 1940 Act (unless exempt therefrom) to serve as
segregated investment accounts for the Policies, and that it will
maintain such registration for so long as any Policies are outstanding.
The Company shall amend the registration statements
<PAGE>
under the 1933 Act for the Policies and the registration statements
under the 1940 Act for. the Accounts from time to time as required in
order to effect the continuous offering of the Policies or as may
otherwise be required by applicable law. The Company shall register and
qualify the Policies for sales in accordance with the securities laws
of the various states only if and to the extent deemed necessary by the
Company.
2.2. The Company represents and warrants that the Policies are
currently and at the time of issuance are intended to be treated as
life insurance, endowment or annuity contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), that it will maintain such treatment and that it will notify
the Trust or MFS immediately upon having a reasonable basis for
believing that the Policies have ceased to be so treated or that they
might not be so treated in the future.
2.3. The Company represents and warrants that American Express
Financial Advisors, Inc., the underwriter for the individual variable
annuity and the variable life policies. is a member in good standing of
the NASD and is a registered broker-dealer with the SEC. The Company
represents and warrants that the Company and American Express Financial
Advisors, Inc. will sell and distribute such policies in accordance in
all material respects with all applicable state and federal securities
laws, including without limitation the 1933 Act, the 1934 Act, and the
1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of The
Commonwealth of Massachusetts and all applicable federal and state
securities laws and that the Trust is and shall remain registered under
the 1940 Act. The Trust shall amend the registration statement for its
Shares under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares. The
Trust shall register and qualify the Shares for sale in accordance with
the laws of the various states only if and to the extent deemed
necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is and shall
remain a member in good standing of the NASD and is and shall remain
registered as a broker-dealer with the SEC. The Trust and MFS represent
that the Trust and the Underwriter will sell and distribute the Shares
in accordance in all material respects with all applicable state and
federal securities laws, including without limitation the 1933 Act, the
1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that
it does and will comply in all material respects with the 1940 Act and
any applicable regulations thereunder.
2.7. MFS represents and warrants-that it is and shall remain duly
registered under all applicable federal securities laws and that it
shall perform its obligations for the Trust in compliance in all
material respects with any applicable federal securities laws and with
the securities laws of The Commonwealth of Massachusetts. MFS
represents and warrants that it is not subject to state securities laws
other than the securities laws of The Commonwealth of Massachusetts and
that it is exempt from registration as an investment adviser under the
securities laws of The Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably
request so that it may carry out fully the obligations imposed upon it
by the conditions contained in the exemptive application pursuant to
which the SEC has granted exemptive relief to permit mixed and shared
funding (the "Mixed and Shared Funding Exemptive Order").
<PAGE>
ARTICLE 111. PROSPECTUS AND PROXY STATEMENTS, VOTING
3.1. At least annually, the Trust or its designee shall provide the Company,
free of charge, with as many copies of the current prospectus (describing
only the Portfolios listed in Schedule A hereto) for the Shares as the
Company may reasonably request for distribution to existing Policy owners
whose Policies are funded by such Shares. The Trust or its designee shall
provide the Company, at the Company's expense, with as many copies of the
current prospectus for the Shares as the Company may reasonably request for
distribution to prospective purchasers of Policies. If requested by the
Company in lieu thereof the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) or other medium agreed to by the parties and
other assistance as is reasonably necessary in order for the parties hereto
once each year (or more frequently if the prospectus for the Shares is
supplemented or amended) to have the prospectus for the Policies and the
prospectus for the Shares printed together; the expenses of such printing
to be apportioned between (a) the Company and (b) the Trust or its designee
in proportion to the number of pages of the Policy and Shares'
prospectuses, taking account of other relevant factors affecting the
expense of printing, such as covers, columns, graphs and charts; the Trust
or its designee to bear the cost of printing the Shares' prospectus portion
of such document for distribution to owners of existing Policies funded by
the Shares and the Company to bear the expenses of printing the portion of
such document relating to the Accounts; provided, however, that the Company
shall bear all printing expenses of any combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the event that the Company requests that the
Trust or its designee provides the Trust's prospectus in a "camera ready,"
diskette or other format, the Trust shall be responsible for providing the
prospectus in the format in which it or MFS is accustomed to formatting
prospectuses and shall bear the expense of providing the prospectus in such
format (e.g., typesetting expenses), and the Company shall bear the expense
of adjusting or changing the format to conform with any of its
prospectuses.
3.2. The prospectus for the Shares shall state that the statement of additional
information for the Shares is available from the Trust or its designee. The
Trust or its designee, at its expense, shall print and provide such
statement of additional information to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to any
owner of a Policy funded by the Shares. The Trust or its designee, at the
Company's expense, shall print and provide such statement to the Company
(or a master of such statement suitable for duplication by the Company) for
distribution to a prospective purchaser who requests such statement or to
an owner of a Policy not funded by the Shares.
3.3. The Trust or its designee shall provide the Company free of charge copies,
if and to the extent applicable to the Shares, of the Trust's reports to
Shareholders and other communications to Shareholders in such quantity as
the Company shall reasonably require for distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or of
Article V below, the Company shall pay the expense of printing or providing
documents to the extent such cost is considered a distribution expense.
Distribution expenses would include by way of illustration, but are not
limited to, the printing of the Shares' prospectus or prospectuses for
distribution to prospective purchasers or to owners of existing Policies
not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to include
in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
<PAGE>
3.6. If and to the extent required by law, the Company shall:
a (a) solicit voting instructions from Policy owners;
b
c (b) vote the Shares accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been
received in the same proportion as the Shares of such
Portfolio for which instructions have been received
from Policy owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass through voting privileges for variable contract
owners. The Company will in no way recommend action in connection with
or oppose or interfere with the solicitation of proxies for the Shares
held for such Policy owners. The Company reserves the right to vote
shares held in any segregated asset account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts holding
Shares calculates voting privileges in the manner required by the Mixed
and Shared Funding Exemptive Order. The Trust and MFS will notify the
Company of any changes of interpretations or amendments to the Mixed and
Shared Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other
promotional material in which the Trust, MFS, any other investment
adviser to the Trust, or any affiliate of MFS are named, at least three
(3) Business Days prior to its use. No such material shall be used if
the Trust, MFS, or their respective designees reasonably objects to such
use within three (3) Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of the Trust, MFS, any other
investment adviser to the Trust, or any affiliate of MFS or concerning
the Trust or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
registration statement, prospectus or statement of additional
information for the Shares, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports or proxy statements for the Trust, or
in sales literature or other promotional material approved by the Trust,
MFS or their respective designees, except with the permission of the
Trust, MFS or their respective designees. The Trust, MFS or their
respective designees each agrees to respond to any request for approval
on a prompt and timely basis. The Company shall adopt and implement
procedures reasonably designed to ensure that information concerning the
Trust, MFS or any of their affiliates which is intended for use only by
brokers or agents selling the Policies (i.e., information that is not
intended for distribution to Policy owners or prospective Policy owners)
is so used, and neither the Trust, MFS nor any of their affiliates shall
be liable for any losses, damages or expenses relating to the improper
use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or the
Accounts is named, at least three (3) Business Days prior to its use. No
such material shall be used if the Company or its designee reasonably
objects to such use within three (3) Business Days after receipt of such
material.
<PAGE>
4.4. The Trust and MFS shall not give, and agree that the Underwriter
shall not give, any information or make any representations or
statements on behalf of the Company or concerning the Company, the
Accounts, or the Policies in connection with the sale of the Policies
other than the information or representations contained in a
registration statement, prospectus, or statement of additional
information for the Policies, as such registration statement, prospectus
and statement of additional information may be amended or supplemented
from time to time, or in reports for the Accounts, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company. The Company or its
designee agrees to respond to any request for approval on a prompt and
timely basis. The parties hereto agree that this Section 4.4. is neither
intended to designate nor otherwise imply that MFS is an underwriter or
distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company
or the Trust, as appropriate) will each provide to the other at least
one complete copy of all registration statements, prospectuses,
statements of additional information, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above,
that relate to the Policies, or to the Trust or its Shares, prior to or
contemporaneously with the filing of such document with the SEC or other
regulatory authorities. The Company and the Trust shall also each
promptly inform the other of the results of any examination by the SEC
(or other regulatory authorities) that relates to the Policies, the
Trust or its Shares, and the party that was the subject of the
examination shall provide the other party with a copy of relevant
portions of any "deficiency letter" or other correspondence or written
report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as
is reasonably practicable of any proxy solicitation for any Portfolio,
and of any material change in the Trust's registration statement,
particularly any change resulting in change to the registration
statement or prospectus or statement of additional information for any
Account. The Trust and MFS will cooperate with the Company so as to
enable the Company to assist in the solicitation of proxies from Policy
owners or to make changes to its prospectus, statement of additional
information or registration statement, in an orderly manner. The Trust
and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VHI, the phrase "sales
literature or other promotional material" includes but is not limited
to advertisements (such as material published, or designed for use in,
a newspaper, magazine, or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards,
motion pictures, or other public media e.g., online networks such as
the internet or other electronic messages), and sales literature (such
as brochures, circulars, reprints or excerpts or any other
advertisement, sales literature, or published articles), distributed or
made generally available to customers or the public, educational or
training materials or communications distributed or made generally
available to some or all agents or employees.
<PAGE>
ARTICLE V. FEES AND EXPENSES
5.1. The Trust shall pay no fee or other compensation to the Company
under this Agreement, and the Company shall pay no fee or other
compensation to the Trust, except that if the Trust or any Portfolio
adopts and implements a plan pursuant to Rule l2b-I under the 1940 Act
to finance distribution and Shareholder servicing expenses, then,
subject to obtaining any required exemptive orders or regulatory
approvals, the Trust may make payments to the Company or to the
underwriter for the Policies if and in amounts agreed to by the Trust
in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expenses initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent
the parties hereto from otherwise agreeing to perform, and arranging
for appropriate compensation for, other services relating to the Trust
and/or to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable
federal and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration
fees; preparation and filing of the Trust's proxy materials and reports
to Shareholders; setting in type and printing its prospectus and
statement of additional information (to the extent provided by and as
determined in accordance with Article III above); setting in type and
printing the proxy materials and reports to Shareholders (to the extent
provided by and as determined in accordance with Article III above);
the preparation of all statements and notices required of the Trust by
any federal or state law with respect to its Shares; all taxes on the
issuance or transfer of the Shares; and the costs of distributing the
Trust's prospectuses and proxy materials to owners of Policies funded
by the Shares and any expenses permitted to be paid or assumed by the
Trust pursuant to a plan, if any, under Rule 12b-I under the 1940 Act.
The Trust shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies
and of distributing the Trust's Shareholder reports to Policy owners.
The Company shall bear all expenses associated with the registration,
qualification, and filing of the Policies under applicable federal
securities and state insurance laws; the cost of preparing, printing
and distributing the Policy prospectus and statement of additional
information: and the cost of preparing, printing and distributing
annual individual account statements for Policy owners as required by
state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. The Trust and MFS represent and warrant that each Portfolio of the
Trust will meet the diversification requirements of Section 817 (h) (1)
of the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance
contracts, as they may be amended from time to time (and any revenue
rulings, revenue procedures, notices, and other published announcements
of the Internal Revenue Service interpreting these sections), as if
those requirements applied directly to each such Portfolio. In the
event of a breach of this representation and warranty by the Trust
and/or MFS, they will take all reasonable steps to: (a) notify the
Company of such breach; and (b) adequately diversify the Trust so as to
achieve compliance within the grace period afforded by Treasury
Regulation 1.817.5.
6.2. The Trust and WS represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the
Code and that they will maintain such qualification (under Subchapter M
or any successor or similar provision), and will notify the Company
immediately upon having a reasonable basis for believing that they
might not so qualify in the future.
<PAGE>
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. The Trust agrees that the Board. constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for
the existence of any material irreconcilable conflict between the
interests of the variable annuity contract owners and the variable life
insurance policy owners of the Company and/or affiliated companies
("contract owners") investing in the Trust. The Board shall have the
sole authority to determine if a material irreconcilable conflict
exists, and such determination shall be binding on the Company only if
approved in the form of a resolution by a majority of the Board, or a
majority of the disinterested trustees of the Board. The Board will
give prompt notice of any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set
forth in the Trust's exemptive application pursuant to which the SEC
has granted the Mixed and Shared Funding Exemptive Order by providing
the Board, as it may reasonably request, with all information necessary
for the Board to consider any issues raised and agrees that it will be
responsible for promptly reporting any potential or existing conflicts
of which it is aware to the Board including, but not limited to, an
obligation by the Company to inform the Board whenever contract owner
voting instructions are disregarded. The Company also agrees that, if a
material irreconcilable conflict arises, it will at its own cost remedy
such conflict up to and including (a) withdrawing the assets allocable
to some or all of the Accounts from the Trust or any Portfolio and
reinvesting such assets in a different investment medium, including
(but not limited to) another Portfolio of the Trust, or submitting to a
vote of all affected contract owners whether to withdraw assets from
the Trust or any Portfolio and reinvesting such assets in a different
investment medium and, as appropriate, segregating the assets
attributable to any appropriate group of contract owners that votes in
favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their
contracts or policies, and (b) establishing a new registered management
investment company and segregating the assets underlying the Policies,
unless a majority of Policy owners materially adversely affected by
the conflict have voted to decline the offer to establish a new
registered management investment company.
7.3. A majority of the disinterested trustees of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
determines that any proposed action does not adequately remedy any
material irreconcilable conflict, the Company will withdraw from
investment in the Trust each of the Accounts designated by the
disinterested trustees and terminate this Agreement within six (6)
months after the Board informs the Company in writing of the foregoing
determination; provided, however, that such withdrawal and termination
shall be limited to the extent required to remedy any such material
irreconcilable conflict as determined by a majority of the disinterested
trustees of the Board. No charge or penalty will be imposed as a result
of such withdrawal.
7.4. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Mixed and Shared Funding
Exemptive Order) on terms and conditions materially different from those
contained in the Mixed and Shared Funding Exemptive Order, then (a) the
Trust and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules
are applicable; and (b) Sections 3.5, .3.6, 7.1, 7.2, 7.3 and 7.4 of
this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in
such Rule(s) as so amended or adopted.
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification by the Company
The Company agrees to indemnify and hold harmless the Trust.
MFS, any affiliates of MFS, and each of their respective
directors/trustees, officers and each person, if any, who controls the
Trust or MFS within the meaning of Section 15 of the 1933 Act, and any
directors, trustees, officers, agents or employees of the foregoing
(each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or expenses (including reasonable
counsel fees) to which any Indemnified Party may become subject under
any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus or statement of additional information for the Policies or
contained in the Policies or sales literature or other promotional material
for the Policies (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished to the Company
or its designee by or on behalf of the Trust or MFS for use in the
registration statement, prospectus or statement of additional information
for the Policies or in the Policies or sales literature or other
promotional material (or any amendment or supplement) or otherwise for use
in connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or
other promotional material of the Trust not supplied by the Company or its
designee, or persons under its control and on which the Company has
reasonably relied) or wrongful conduct of the Company or persons under its
control, with respect to the sale or distribution of the Policies or
Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature
of the Trust, or any amendment thereof or supplement thereto, or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or statements therein
not misleading, if such statement or omission was made in reliance upon
information furnished to the Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of or
result from any other material breach of this Agreement by the Company; or
(e) arise as a result of any failure by the Company to provide the services and
furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
<PAGE>
8.2. Indemnification by the Trust
The Trust agrees to indemnify and hold harmless the Company and
each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act, and any directors, trustees, officers,
partners, agents or employees of the foregoing (each an "Indemnified
Party," or collectively, the "Indemnified. Parties" for purposes of
this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees)
to which any Indemnified Party may become subject under any statute, at
common law or otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or settlements:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement,
prospectus, statement of additional information or sales literature or
other promotional material of the Trust (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statement therein not misleading, provided
that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission
was made in reasonable reliance upon and in conformity with information
furnished to the Trust, MFS, the Underwriter or their respective designees
by or on behalf of the Company for use in the registration statement,
prospectus or statement of additional information for the Trust or in sales
literature or other promotional material for the Trust (or any amendment or
supplement) or otherwise for use in connection with the sale of the
Policies or Shares; or
(b) arise out of or as a result of statements or representations (other than
statements or representations contained in the registration statement,
prospectus, statement of additional information or sales literature or
other promotional material for the Policies not supplied by the Trust, MFS,
the Underwriter or any of their respective designees or persons under their
respective control and on which any such entity has reasonably relied) or
wrongful conduct of the Trust or persons under its control, with respect to
the sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, prospectus, statement of
additional information, or sales literature or other promotional literature
of the Accounts or relating to the Policies, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Trust, MFS or the Underwriter; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of this Agreement) or
arise out of or result from any other material breach of this Agreement by
the Trust; or
(e) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or dividend
or capital gain distribution rate; or
<PAGE>
(f) arise as a result of any failure by the Trust to provide the services and
furnish the materials under the terms of the Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including without
limitation, the Company, or any Participating Insurance Company or any
Policy holder, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any
representation, warranty, and/or covenant made by the Company hereunder or
by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the indemnification
provisions contained in this Agreement with respect to any losses, claims,
damages, liabilities or expenses to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's willful
misfeasance, willful misconduct. or gross negligence in the performance of
such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section 8.5. of
notice of commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under
this section, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any Indemnified Party otherwise
than under this section. In case any such action is brought against any
Indemnified Party, and it notified the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, at its own expense and, to the extent that it may
wish, assume the defense thereof, with counsel satisfactory to such
Indemnified Party. After notice from the indemnifying party of its
intention to assume the defense of an action, the Indemnified Party shall
bear the expenses of any additional counsel obtained by it, and the
indemnifying party shall not be liable to such Indemnified Party under this
section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the indemnifying party and
the Indemnified Party will have mutually agreed to the retention of such
counsel; or (b) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the Indemnified
Party and representation of both parties by the came counsel would be
inappropriate due to actual or potential differing interests between them.
The indemnifying party will not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there is a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled to
the benefits of the indemnification contained in this Article VM. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
<PAGE>
8.8. Except as expressly stated herein, as between the parties, in no event will
any party to this Agreement be responsible to any other party for any
incidental, indirect, consequential, punitive or exemplary damages of any
kind arising from this Agreement, including without limitation, lost
revenues, loss of profits or loss of business.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder. including
such exemptions from those statutes, rules and regulations as the SEC may
grant and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. TERMINATION
11.1. This Agreement shall terminate with respect to the Accounts, or
one, some, or all Portfolios:
(a) at the option of any part), upon ninety (90) days' advance written notice
to the other parties or, if later, upon receipt of any required exemptive
relief or orders from the SEC unless otherwise agreed in a separate written
agreement by the parties; or
(b) at the option of the Company to the extent that the Shares of Portfolios
are not reasonably available to meet the requirements of the Policies or
are not "appropriate funding vehicles" for the Policies, as reasonably
determined by the Company. Without limiting the generality of the
foregoing, the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the diversification or
other requirements referred to in Article VI hereof; or if the Company
would be permitted to disregard Policy owner voting instructions pursuant
to Rule 6e-2 or 6e-3(T) under the 1940 Act. Prompt notice of the election
to terminate for such cause and an explanation of such cause shall be
furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal proceedings
against the Company by the NASD, the SEC, or any insurance department or
any other regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Policies, the operation of the
Accounts, or the purchase of the Shares provided that MFS or the Trust
determine in its sole judgment, exercised in good faith, that any such
proceeding would have a material adverse effect on the Company's ability to
perform its obligations under this Agreement; or
<PAGE>
(d) at the option of the Company upon institution of formal proceedings against
the Trust by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body regarding the Trust's or MFS'
duties under this Agreement or related to the sale of the Shares provided
that MFS or the Company determine in its sole judgment. exercised in good
faith, that any such proceeding would have a material adverse effect on the
Trust's ability to perform its obligations under this Agreement: or
(e) at the option of the Company, the Trust or MFS upon receipt of any
necessary regulatory approvals and/or the vote of the Policy owners having
an interest in the Accounts (or any subaccounts) to substitute the shares
of another investment company for the corresponding Portfolio Shares in
accordance with the terms of the Policies for which those Portfolio Shares
had been selected to serve as the underlying investment media. The Company
will give thirty (30) days' prior written notice to the Trust of the Date
of any proposed vote or other action taken to replace the Shares; or
(f) termination by either the Trust or MFS by written notice to the Company, if
either one or both of the Trust or MFS respectively, shall determine, in
their sole judgment exercised in good faith, that the Company has suffered
a material adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject of material
adverse publicity; or
(g) termination by the Company by written notice to the Trust and MFS, if the
Company shall determine, in its sole judgment exercised in good faith, that
the Trust or MFS has suffered a material adverse change in this business,
operations, financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) at the option of any party to this Agreement upon another party's material
breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written consent of
the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies
and, if applicable, the Accounts as to which the Agreement is to be
terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11. 1 (a) may be exercised
for cause or for no cause.
<PAGE>
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations,
the Company shall not redeem the Shares attributable to the Policies
(as opposed to the Shares attributable to the Company's assets held in
the Accounts), and the Company shall not prevent Policy owners from
allocating payments to a Portfolio that was otherwise available under
the Policies, until thirty (30) days after the Company shall have
notified the Trust of its intention to do so.
11.5.Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this
Agreement, for all Policies in effect on the effective date of termination
of this Agreement (the "Existing Policies"), except as otherwise provided
under Article VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in any
Portfolio and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies. As long as shares of the Portfolios
are held under Existing Policies in accordance with this Section 11.5, the
provisions of this Agreement will survive the termination of this Agreement
with respect to those Existing Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight courier or facsimile (or any other method agreed to by
the parties) to the other party at the address of such party set forth below or
at such other address as such party may from time to time specify in writing to
the other party.
If to the Trust:
MFS Variable Insurance Trust
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, Secretary
If to the Company:
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
Facsimile No.: 612-671-
Attn: James E. Chase, President
With a copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South Street Minneapolis. MN 55402
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Facsimile No.: (617) 954-6624
Attn: Stephen E. Cavan, General Counsel
<PAGE>
ARTICLE XM. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory authority, each
party hereto shall treat as confidential the names and addresses of the owners
of the Policies and all information reasonably identified as confidential in
writing by any other party hereto and, except as permitted by this Agreement or
as otherwise required by applicable law or regulation, shall not disclose,
disseminate or utilize such names and addresses and other confidential
information without the express written consent of the affected party until such
time as it may come into the public domain. The parties acknowledge that any
breach of the agreements in this Section 13.1 would result in Immediate and
irreparable harm which there would be no adequate remedy at law and agree that
in the event of such a breach, the injured party would be entitled to equitable
relief by way of temporary and permanent injunctions, as well as such other
relief as any court of competent jurisdiction deems appropriate.
13.2. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more counterparts,
each of which taken together shall constitute one and the same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in connection with
inquiries by appropriate governmental authorities (including without limitation
the SEC, the NASD, and state insurance regulators) and will permit each other
and such authorities reasonable access to its books and records in connection
with any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the Secretary
of State of The Commonwealth of Massachusetts. The Company acknowledges that the
obligations of or arising out of this instrument are not binding upon any of the
Trust's trustees, officers, employees, agents or shareholders individually, but
are binding solely upon the assets and property of the Trust in accordance with
its proportionate interest hereunder. The Company further acknowledges that the
assets and liabilities of each Portfolio are separate and distinct and that the
obligations of or arising out of this instrument are binding solely upon the
assets or property of the Portfolio on whose behalf the Trust has executed this
instrument. The Company also agrees that the obligations of each Portfolio
hereunder shall be several and not joint, in accordance with its proportionate
interest hereunder, and the Company agrees not to proceed against any Portfolio
for the obligations of another Portfolio.
13.9. The Company shall not use any designation comprised in whole or in part of
the names or marks "Massachusetts Financial Services Company," "MFS Investment
Management" or "MFS" or any other trademark relating to MFS without the prior
written consent of WS. Upon termination of this Agreement for any reason, each
party shall cease all use of any such name or mark of the other parties as soon
as reasonably practicable.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified above.
American Enterprise Life Insurance Company
By its authorized officer
Attest:
By:
Title:
MFS VARIABLE FINANCIAL SERVICES COMPANY
On behalf of the Portfolios
By its authorized officer and not individually
By:
James R. Bordewick, Jr.
Assistant Secretary
MASSACHUSETTS FINACIAL SERVICES COMPANY
By its authorized officer
By:
Jeffrey L. Shames
Chairman and Chief Executive Officer
<PAGE>
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TOTHE PARTICIPATION AGREEMENT
<TABLE>
<CAPTION>
- ------------------------------------- ------------------------------------------- -----------------------------------
<S> <C> <C>
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
- ------------------------------------- ------------------------------------------- -----------------------------------
MFS New Discovery Series
American Enterprise American Express Signature Variable MFS Research Series
Variable Annuity Account, Annuitysm MFS Utilities Series
July 15, 1987 MFS Growth with Income Series
American Express Signature Variable MFS Total Return Series
American Enterprise Universal Lifesm
Variable Life Account,
July 15, 1987 American Express Pinnacle Variable
Annuitysm
Wells Fargo Advantage Variable
Annuitysm
Wells Fargo Advantage Credit
Variable Annuitysm
- ------------------------------------- ------------------------------------------- -----------------------------------
</TABLE>
FUND PARTICIPATION AGREEMENT
This Agreement is entered into as of the 1st day of September, 1999, by
and among American Enterprise Life Insurance Company ("Insurer"), a life
insurance company organized under the laws of the State of Indiana, American
Express Financial Advisors Inc. a Delaware corporation ("Contract Distributor"),
LAZARD ASSET MANAGEMENT ("LAM"), a division of Lazard Freres & Co. LLC, a New
York limited liability company ("LF & Co."), and LAZARD RETIREMENT SERIES, INC.
("Fund"), a Maryland corporation (collectively, the "Parties").
ARTICLE 1.
DEFINITIONS
The following terms used in this Agreement shall have the meanings set
out below:
1.1. "Act" shall mean the Investment Company Act of 1940, as amended.
1.2. "Board" shall mean the Fund's Board of Directors having the
responsibility for management and control of Fund.
1.3. "Business Day" shall mean any day for which Fund calculates net
asset value per share as described in a Portfolio Prospectus.
1.4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5. "Commission" shall mean the Securities and Exchange Commission.
1.6. "Contract" shall mean a variable annuity or variable life insurance
contract that uses a Portfolio or Fund as an underlying investment
medium and that is named on Schedule I hereto, as the Parties may
amend in writing from time to time by mutual agreement ("Schedule
1").
1.7. "Contract Prospectus" shall mean the prospectus and, if applicable,
statement of additional information, as currently in effect with the
Commission, with respect to the Contracts, including any supplements
or amendments thereto. All references to "Contract Prospectuses"
shall be deemed to also include all offering documents and other
materials relating to any Contract that is not registered under the
Securities Act of 1933, as amended ("1933 Act").
1.8. "Contractholder" shall mean any person that is a party to a Contract
with a Participating Company. Individuals who participate under a
group Contract are "Participants."
1.9. "Disinterested Board Members" shall mean those members of the
Board that are not deemed to be "interested persons" of Fund, as
defined by the Act.
1.10. "General Account" shall mean the general account of Insurer.
1.11 "Participating Company" shall mean any insurance company, including
Insurer, that offers variable annuity and/or variable life insurance
contracts to the public and that has entered into an agreement with
Fund for the purpose of making Fund shares available to serve as the
underlying investment medium for Contracts.
1.12 "Portfolio" shall mean each series of Fund named on Schedule 1
1.13. "Portfolio Prospectus" shall mean the prospectus and statement of
additional information, as currently in effect with the Commission,
with respect to the Portfolios, including any supplements or
amendments thereto.
<PAGE>
1.14. "Separate Account" shall mean a separate account duly established by
Insurer in accordance with the laws of the State of Indiana and named
on Schedule 1.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1. Insurer represents and warrants that:
(a) it is an insurance company duly organized and in good standing
under Indiana law;
(b) it has legally and validly established and shall maintain each
Separate Account pursuant to the insurance laws and
regulations of the State of Indiana;
(c) it has registered or shall register and shall maintain the
registration of each Separate Account as a unit investment
trust under the Act, to the extent required by the Act, to
serve as a segregated investment account for the Contracts;
(d) each Separate Account is and at all times shall be eligible to
invest in shares of Fund without such investment disqualifying
Fund as an investment medium for insurance company separate
accounts supporting variable annuity contracts and/or variable
life insurance contracts;
(e) each Separate Account is and at all times shall be a
"segregated asset account," and interests in each Separate
Account that are offered to the public shall be issued
exclusively through the purchase of a Contract that is and at
all times shall be a "variable contract" within the meaning of
such terms under Section 817 of the Code and the regulations
thereunder. Insurer agrees to notify Fund and LAM immediately
upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be
met in the future;
(f) the Contracts are intended to be treated as life insurance
endowment or annuity contracts under applicable provisions of
the Code, and it shall make every effort to maintain such
treatment and shall notify Fund immediately upon having a
reasonable basis for believing that the Contracts have ceased
to be so treated or that they might not be so treated in the
future; and
(g) all of its employees and agents who deal with the money and/or
securities of Fund are and at all times shall be covered by a
blanket fidelity bond or similar coverage in an amount not less
than the coverage required to be maintained by Rule l7g-1 of
the Act or related provisions as may be promulgated from time
to time. The aforesaid bond shall include coverage for larceny
and embezzlement and shall be issued by a reputable bonding
company.
2.2. Insurer and Distributor represent and warrant that (a) units of interest in
each Separate Account available through the purchase of Contracts are or
shall be registered under the 1933 Act, to the extent required thereby; (b)
the Contracts shall be issued and sold in compliance in all material
respects with all applicable federal and state laws; and (c) the sale of
the Contracts shall comply in all material respects with applicable state
insurance law requirements. Insurer agrees to inform Fund promptly of any
investment restrictions imposed by state insurance law and applicable to
Fund of which it becomes aware.
<PAGE>
2.3. Distributor represents and warrants that it is and at all times shall
be: (a) registered with the Commission as a broker-dealer, (b) a
member in good standing of the National Association of Securities
Dealers, Inc. ("NASD"); and (c) a Delaware corporation duly
organized, validly existing, and in good standing under the laws of
the State of Delaware, with full power, authority, and legal right to
execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
2.4. Fund represents and warrants that:
(a) it is and shall remain registered with the Commission as an
open-end, management investment company under the Act to the
extent required thereby;
(b) its shares are registered under the 1933 Act to the
extent required thereby;
(c) it possesses, and shall maintain, all legal and regulatory
licenses, approvals, consents and/or exemptions required for
it to operate and offer its shares as an underlying
investment medium for the Contracts;
(d) each Portfolio is qualified as a regulated investment
company under Subchapter M of the Code, it shall make every
effort to maintain such qualification, and it shall notify
Insurer immediately upon having a reasonable basis for
believing that any Portfolio invested in by the Separate
Account has ceased to so qualify or that it might not so
qualify in the future;
(e) each Portfolio's assets shall be managed and invested in a
manner that complies with the requirements of Section 817(h)
of the Code and the regulations thereunder, to the extent
applicable. In the event of a breach of this representation
and warranty by Fund, it will take all reasonable steps to
(i) notify Insurer of such breach; and (ii) adequately
diversify Fund so as to achieve compliance within the grace
period afforded by Treasury Regulation 1.817-5. ; and
(f) all of its directors, officers, employees, investment
advisers, and other individuals/entities who deal with the
money and/or securities of Fund are and shall continue to be
at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than
that required by Rule 17g-1 under the Act. The aforesaid
bond shall include coverage for larceny and embezzlement and
shall be issued by a reputable bonding company and
(g) its investment objectives, policies and restrictions comply
with applicable state securities laws as they may apply to
Fund and it will register and qualify the shares of the
Portfolios for sale in accordance with the laws of the various
states to the extent deemed advisable by Fund. Fund makes no
representation as to whether any aspect of its operations
(including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies
with the insurance laws and regulations of any state. Fund and
LAM agree that they will furnish the information reasonably
required by state insurance laws so that the Insurer can
obtain the authority needed to issue the Contracts in the
various states.
<PAGE>
2.5. LAM represents and warrants that LF & Co., the principal underwriter of
each Portfolio's shares, that it is and at all times shall be: (a)
registered with the Commission as a broker-dealer, (b) a member in good
standing of the NASD; and (c) a New York limited liability company duly
organized, validly existing, and in good standing under the laws of the
State of New York, with full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement. LAM further represents and warrants that it shall sell the
shares of the Portfolios to Insurer in compliance in all material respects
with all applicable federal and state securities laws.
ARTICLE lll.
FUND SHARES
3.1. Fund agrees to make the shares of each Portfolio available for
purchase by Insurer and each Separate Account at net asset value and
without sales charge, subject to the terms and conditions of this
Agreement. Fund may refuse to sell the shares of any Portfolio to
any person, or suspend or terminate the offering of the shares of
any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the
Board, acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary and in the
best interests of the shareholders of such Portfolio.
3.2. Fund agrees that it shall sell shares of the Portfolios. only to
persons eligible to invest in the Portfolios in accordance with
Section 817(h) of the Code and the regulations thereunder, to the
extent such Section and regulations are applicable.
3.3. Except as noted in this Article III, Fund and Insurer agree that
orders and related payments to purchase and redeem Portfolio shares
shall be processed in the manner set out in Schedule 2 hereto, as the
Parties may amend in writing from time to time by mutual agreement.
3.4. Fund shall confirm in writing each purchase or redemption order made
by Insurer. Transfer of Portfolio shares shall be by book entry only.
No share certificates shall be issued to Insurer. Shares ordered from
Fund shall be recorded in an appropriate title for Insurer, on behalf
of each Separate or General Account.
3.5. Fund shall promptly notify Insurer (on the same day by wire or
telephone, followed by written confirmation) of the amount of
dividend and capital gain, if any, per share of each Portfolio to
which Insurer is entitled. Insurer hereby elects to reinvest all
dividends and capital gains of any Portfolio in additional shares of
that Portfolio at the applicable net asset value, until Insurer
otherwise notifies Fund in writing. Insurer reserves the right to
revoke this election and to receive all such income dividends and
capital gain distributions in cash.
ARTICLE IV.
STATEMENTS AND REPORTS
4.1. Fund shall provide Insurer with monthly statements of account by the
fifteenth (15th) Business Day of the following month.
<PAGE>
4.2. At least annually, Fund or its designee shall provide Insurer, free of
charge, with as many Portfolio Prospectuses as Insurer may reasonably
request for distribution by Insurer to existing Contractholders and
Participants that have invested in that Portfolio. Fund or its designee
shall provide Insurer, at Insurer's expense, with as many Portfolio
Prospectuses as Insurer may reasonably request for distribution by Insurer
to prospective purchasers of Contracts. If requested by Insurer in lieu
thereof, Fund or its designee shall provide such documentation (including a
"camera ready" copy of each Portfolio Prospectus as set in type or, at the
request of Insurer, as a diskette in the form sent to the financial printer
or other medium agreed to by the parties) and other assistance as is
reasonably necessary in order for the Parties once a year (or more
frequently if the Portfolio Prospectuses are supplemented or amended) to
have the Portfolio Prospectuses printed.
4.3. Fund shall provide Insurer with copies of each Portfolio's notices,
periodic reports and other printed materials (which the Portfolio
customarily provides to its shareholders) in quantities as Insurer may
reasonably request for distribution by Insurer to each Contractholder
and Participant that has invested in that Portfolio. Fund, at its
expense, either shall
(a) distribute its proxy materials directly to the appropriate
Contract owners, or
(b) provide Insurer or its mailing agent with copies of its proxy
materials in such quantity as Insurer will reasonably require
and Insurer will distribute the materials to existing Contract
owners and will bill Fund for the reasonable cost of such
distribution. Fund will bear the cost of tabulation of proxy
votes.
4.4. Fund shall provide to Insurer at least one complete copy of all
registration statements, Portfolio Prospectuses, reports, proxy
statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to Fund or its shares,
contemporaneously with the filing of such document with the Commission
or other regulatory authorities.
4.5. Insurer shall provide to Fund at least one copy of all registration
statements, Contract Prospectuses, reports, proxy statements, sales
literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any
of the above, that relate to the Contracts or a Separate Account,
contemporaneously with the filing of such document with the
Commission or the NASD.
ARTICLE V.
EXPENSES
5.1. Except as otherwise specifically provided herein, each Party will
bear all expenses incident to its performance under this Agreement.
ARTICLE VI.
EXEMPTIVE RELIEF
6.1. Insurer acknowledges that it has reviewed a copy of Fund's mixed and shared
funding exemptive order ("Order") and, in particular, has reviewed the
conditions to the relief set forth in the related notice ("Notice"). As
required by the conditions set forth in the Notice, Insurer shall report
any potential or existing conflicts of which it is aware promptly to the
Board. In addition, Insurer shall be responsible for assisting the Board in
carrying out its responsibilities under the Order by providing the Board
with all information reasonably necessary for the Board to consider any
issues raised, including, without limitation, information whenever Contract
voting instructions are
<PAGE>
disregarded. Insurer, at least annually, shall submit to the Board such
reports, materials, or data as the Board may reasonably request so that
the Board may carry out fully the obligations imposed upon it by the
Order. Insurer agrees to carry out such responsibilities with a view to
the interests of existing Contractholders.
6.2. If a majority of the Board, or a majority of Disinterested Board Members,
determines that a material irreconcilable conflict exists with regard to
Contractholder investments in Fund, the Board shall give prompt notice to
all Participating Companies. If the Board determines that Insurer is a
Participating Insurance Company for whom the conflict is relevant, Insurer
shall at its sole cost and expense, and to the extent reasonably
practicable (as determined by a majority of the Disinterested Board
Members), take such action as is necessary to remedy or eliminate the
irreconcilable material conflict. Such necessary action may include, but
shall not be limited to:
(a) Withdrawing the assets allocable to some or all Separate
Accounts from Fund or any Portfolio and reinvesting such
assets in a different investment medium, or submitting the
question of whether such segregation should be implemented to
a vote of all affected Contractholders and, as appropriate,
segregating the assets of any appropriate group (i.e.
variable annuity or variable life insurance contract owners)
that votes in favor of such segregation; and/or
(b) Establishing a new registered management investment company
or managed separate account.
6.3. If a material irreconcilable conflict arises as a result of a decision by
Insurer to disregard Contractholder voting instructions and that decision
represents a minority position or would preclude a majority vote by all
Contractholders having an interest in Fund, Insurer may be required, at the
Board's election, to withdraw the investments of its Separate Accounts in
Fund provided, however, that such withdrawal shall be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested directors of the Board. No charge or
penalty shall be imposed as a result of such withdrawal.
6.4. For the purpose of this Article, a majority of the Disinterested Board
Members shall determine whether any proposed action adequately remedies any
material irreconcilable conflict. In no event shall Fund or LAM or any
other investment adviser of Fund be required to bear the expense of
establishing a new funding medium for any Contract. Insurer shall not be
required by this Article to establish a new funding medium for any Contract
if an offer to do so has been declined by vote of a majority of the
Contractholders materially and adversely affected by the material
irreconcilable conflict.
6.5. No action by Insurer taken or omitted, and no action by the Separate
Account or Fund taken or omitted as a result of any act or failure to act
by Insurer pursuant to this Article VI shall relieve Insurer of its
obligations under or otherwise affect the operation of Article V.
<PAGE>
ARTICLE V11.
VOTING OF FUND SHARES
7.1. Insurer shall provide pass-through voting privileges to all Contractholders
or Participants as long as and to the extent that the Commission continues
to interpret the Act as requiring pass-through voting privileges for
Contractholders or Participants. Accordingly, Insurer, where applicable,
shall vote shares of a Portfolio held in each Separate Account in a manner
consistent with voting instructions timely received from its
Contractholders or Participants. Insurer shall be responsible for assuring
that the Separate Account calculates voting privileges in a manner
consistent with other Participating Companies. Insurer shall vote shares
for which it has not received timely voting instructions, as well as shares
it owns, in the same proportion as it votes those shares for which it has
received voting instructions.
7.2. If and to the extent Rule 6e-2 and Rule 6e-3(T) under the Act are amended,
or if Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules thereunder with respect to mixed and shared funding
on terms and conditions materially different from any exemptions granted in
the Order, then Fund, and/or the Participating Companies, as appropriate,
shall take such steps as may be necessary to comply with Rule 6e-2 and Rule
6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such Rules
are applicable.
ARTICLE VIII.
MARKETING
8.1. Fund or LF & Co. shall periodically furnish Insurer with Portfolio
Prospectuses and sales literature or other promotional materials for each
Portfolio, in quantities as Insurer may reasonably request for distribution
to prospective purchasers of Contract. Expenses for the printing and
distribution of such documents shall be borne by Insurer.
8.2. Insurer shall designate certain persons or entities that shall have the
requisite licenses to solicit applications for the sale of Contracts.
Insurer shall make reasonable efforts to market the Contracts and shall
comply with all applicable federal and state laws in connection therewith.
8.3. Insurer shall furnish, or shall cause to be furnished, to Fund, each piece
of sales literature or other promotional material in which Fund, LAM, LF &
Co., Fund's administrator is named, at least fifteen (15) Business Days
prior to its use. No such material shall be used unless Fund or its
designee approves such material. Such approval (if given) or any
disapproval must be in writing. Fund shall use all reasonable efforts to
respond within ten (10) days of receipt of such material.
8.4. Insurer shall not give any information or make any representations or
statements on behalf of Fund, LAM, LF & Co., or concerning Fund or any
Portfolio in connection with the sale of the Contracts other than the
information or representations contained in the registration statement or a
Portfolio Prospectus, as the same may be amended or supplemented from time
to time, or in reports or proxy statements for each Portfolio, or in sales
literature or other promotional material approved by Fund. Nothing in this
Section 8.4 shall be construed as preventing Insurer or its employees or
agents from giving advice on investment in the Fund.
8.5. Fund shall furnish, or shall cause to be furnished, to Insurer, each piece
of the Fund's sales literature or other promotional material in which
Insurer or a Separate Account is named, at least fifteen (15) Business Days
prior to its use. No such material shall be used unless Insurer approves
such material. Such approval (if given) or any disapproval - must be in
writing. Insurer shall use all reasonable efforts to respond within ten
days of receipt of such material.
<PAGE>
8.6. Fund shall not, in connection with the sale of Portfolio shares, give any
information or make any representations or statements on behalf of Insurer
or concerning Insurer, a Separate Account, or the Contracts other than the
information or representations contained in a registration statement for
the Contracts or the Contract Prospectus, as the same may be amended or
supplemented from time to time, or in published reports for each Separate
Account that are in the public domain or approved by Insurer for
distribution to Contractholders or Participants, or in sales literature or
other promotional material approved by Insurer.
8.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without
limitation, advertisements (such as material published, or designed for
use, in a newspaper, magazine or other periodical, radio, television,
telephone or tape recording, videotape display, signs or billboards, motion
pictures or other public media, e.g. on-line networks such as the Internet
or other electronic messages), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, or reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any
other material constituting sales literature or advertising under the rules
of the National Association of Securities Dealers, Inc. ("NASD"), the Act
or the 1933 Act.
8.8 Fund and LAM hereby consent to Insurer's use of the name Lazard or its logo
in connection with marketing the Contracts, subject to the terms of
Sections 8.3 and 8.4 of this Agreement. Such consent shall terminate with
the termination of this Agreement.
ARTICLE IX.
INDEMNIFICATION
9.1. Insurer and Distributor each agree to indemnify and hold harmless Fund,
LAM, any sub-investment adviser of a Portfolio, and their affiliates, and
each person, if any, who controls or is associated with any of the
foregoing entities or persons within the meaning of the 1933 Act each of
their respective directors, trustees, general members, officers, employees,
agents and (collectively, the "Indemnified Parties" for purposes of this
Section), against any and all losses, claims, damages or liabilities joint
or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement
of, any action, suit or proceeding or any claim asserted) (collectively,
"Losses") for which the Indemnified Parties may become subject, under the
1933 Act or otherwise, insofar as such Losses (or actions in respect to
thereof):
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact (collectively
"materially untrue statement") contained in any registration
statement, Contract Prospectus, Contract, or sales literature
or other promotional material relating to a Separate Account
or the Contracts (collectively, "Account documents"), or arise
out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading
(collectively "material omission");
<PAGE>
(b) arise out of or are based upon any materially untrue statement
or material omission made in any registration statement,
Portfolio Prospectus, or sales literature or other promotional
material relating to Fund or a Portfolio (collectively,
"Portfolio documents"), provided such statement or omission
was made in reliance upon and in conformity with information
provided in writing to Fund by or on behalf of Insurer
specifically for use therein;
(c) arise out of or as a result of statements or representations
(other than statements or representations contained in any
Portfolio document on which Insurer or Distributor have
reasonably relied) or wrongful conduct of Insurer,
Distributor, their respective agents, and persons under their
respective control, with respect to the sale and distribution
of Contracts or Portfolio shares;
(d) arise out of any material breach of any representation and/or
warranty made by Insurer or Distributor in this Agreement, or
arise out of or result from any other material breach of this
Agreement by Insurer or Distributor; or
(e) arise out of Insurer's incorrect calculation and/or untimely
reporting of net purchase or redemption orders.
Insurer and Distributor shall reimburse any Indemnified Party in
connection with investigating or defending any Loss (or actions in
respect to thereof); provided, however, that with respect to clause
(a) above neither Insurer nor Distributor shall be liable in any such
case to the extent that any Loss arises out of or is based upon any
materially untrue statement or material omission made in any Account
documents, which statement or omission was made in reliance upon and
in conformity with written information furnished to Insurer by or on
behalf of Fund specifically for use therein. This indemnity agreement
shall be in addition to any liability that Insurer or Distributor may
otherwise have. In no event shall Insurer be liable for any
consequential, incidental, special or indirect damages resulting to
Fund or LAM hereunder.
9.2. Fund and LAM each agree to indemnify and hold harmless Insurer and
Distributor and each person, if any, who controls Insurer or
Distributor within the meaning of the 1933 Act and each of their
respective directors, trustees, officers, partners, employees, or
agents (collectively, "Indemnified Parties" for purposes of this
Section) and against any Losses to which they or any Indemnified
Party may become subject, under the 1933 Act or otherwise, insofar as
such Losses (or actions in respect thereof):
(a) arise out of or are based upon any materially untrue statement or
any material omission made in any Portfolio document;
(b) arise out of or are based upon any materially untrue statement or
any material omission made in any Account document provided such
statement or omission was made in reliance upon and in conformity
with information provided in writing to Insurer by or on behalf
of Fund specifically for use therein;
(c) arise out of or as a result of statements or representations
(other than statements or representations contained in any
Account document on which Fund or LAM have reasonably relied) or
wrongful conduct of Fund, LAM, their respective agents, and
persons under their respective control, with respect to the sale
of Portfolio Shares; or
(d) arise out of any material breach of any representation and/or
warranty made by Fund or LAM in this Agreement, or arise out of
or result from any other material breach of this Agreement by
Fund or LAM.
<PAGE>
Fund and LAM shall reimburse any legal or other expenses reasonably
incurred by any Indemnified Party in connection with investigating or
defending any such Loss; provided, however, that with respect to
clause (a) above neither Fund nor LAM shall be liable in any such
case to the extent that any such Loss arises out of or is based upon
a materially untrue statement or material omission made in any
Portfolio document, which statement or omission was made in reliance
upon and in conformity with written information furnished to Fund by
or on behalf of Insurer specifically for use therein. This indemnity
agreement shall be in addition to any liability that Fund or LAM may
otherwise have. In no event will either Fund or LAM be liable for any
consequential, special or indirect damages resulting to Insurer.
9.3. Fund and LAM shall indemnify and hold Insurer harmless against any Loss
that Insurer may incur, suffer or be required to pay due to Fund's
incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate of a Portfolio or incorrect or untimely
reporting of the same; provided, however, that Fund shall have no
obligation to indemnify and hold harmless Insurer if the incorrect
calculation or incorrect or untimely reporting was the result of incorrect
or untimely information furnished by or on behalf of Insurer or otherwise
as a result of or relating to Insurer's breach of this Agreement. In no
event shall Fund be liable for any consequential, incidental, special or
indirect damages resulting to Insurer hereunder.
9.4. Notwithstanding anything herein to the contrary, in no event shall Fund or
LAM be liable to any individual or entity, including without limitation,
Insurer, or any Participating Insurance Company or any Contractholder, with
respect to any Losses that arise out of or result from:
(a) a breach of any representation, warranty, and/or covenant
made by Insurer hereunder or by any Participating Insurance
Company under an agreement containing substantially similar
representations, warranties and covenants;
(b) the failure by Insurer or any Participating Insurance Company
to maintain its separate account (which invests in any
Portfolio) as a legally and validly established segregated
asset account under applicable state law and as a duly
registered unit investment trust under the provisions of the
Act (unless exempt therefrom); or
(c) the failure by Insurer or any Participating Insurance
Company to maintain its variable annuity and/or variable
life insurance contracts (with respect to which any
Portfolio serves as an underlying funding vehicle) as life
insurance, endowment or annuity contracts under applicable
provisions of the Code.
9.5. Further, neither Fund nor LAM shall have any liability for any failure or
alleged failure to comply with the diversification requirements of Section
817(h) of the Code or the regulations thereunder if Insurer fails to comply
with any of the following clauses, and such failure is shown to have
materially contributed to the liability:
(a) In the event the Internal Revenue Service ("IRS") asserts in
writing in connection with any governmental audit or review
of Insurer or, to Insurer's knowledge, of any
Contractholder, that any Portfolio has failed or allegedly
failed to comply with the diversification requirements of
Section 817(h) of the Code or the regulations thereunder or
Insurer otherwise becomes aware of any facts that could give
rise to any claim against Fund or its affiliates as a result
of such a failure or alleged failure,
(i) Insurer shall promptly notify Fund of such assertion or potential
claim subject to the confidentiality provisions of Section 13.5 as to
any Contract holder;
<PAGE>
(ii) Insurer shall consult with Fund as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
(iii) Insurer shall use its best efforts to minimize any liability of
Fund or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations Section
1.817-5(a)(2), to the Commissioner of the IRS that such failure was
inadvertent;
(iv) Insurer shall permit Fund, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any Contractholder
or any other claimant regarding any claims that could give rise to
liability to Fund or its affiliates as a result of such a failure or
alleged failure provided, however, that Insurer shall retain control of
the conduct of such conferences, discussions, proceedings, contests or
appeals;
(v) any written materials to be submitted by Insurer to the IRS, any
Contractholder or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any
such materials to be submitted to the IRS pursuant to Treasury
Regulations Section 1.817-5(a)(2)), shall be provided by Insurer to
Fund (together with any supporting information or analysis) subject to
the confidentiality provisions of Section 13.5 at least ten (10)
Business Days prior to the day on which such proposed materials are to
be submitted and shall not be submitted by Insurer to any such person
without the express written consent of Fund which shall not be
unreasonably withheld;
(vi) Insurer shall provide Fund or its affiliates and their accounting
and legal advisors with such cooperation as Fund shall reasonably
request (including, without limitation, by permitting Fund and its
accounting and legal advisors to review the relevant books and records
of Insurer) in order to facilitate review by Fund or its advisors of
any written submissions provided to it pursuant to the preceding clause
or its assessment of the validity or amount of any claim against its
arising from such a failure or alleged failure; and
(vii) Insurer shall not with respect to any claim of the IRS or any
Contractholder that would give rise to a claim against Fund or its
affiliates compromise or settle any claim, accept any adjustment on
audit, or forego any allowable judicial appeals, without the express
written consent of Fund or its affiliates, which shall not be
unreasonably withheld, provided that Insurer shall not be required to
appeal any adverse judicial decision unless Fund or its affiliates
shall have provided an opinion of independent counsel to the effect
that a reasonable basis
exists for taking such appeal and provided further that the
costs of any such appeal shall be borne equally by the
parties thereto. Should Fund or its affiliates refuse to give
written consent to any compromise of settlement of any claim
or liability hereunder, Insurer may, in its discretion,
authorize Fund or its affiliates to act in the name of
Insurer in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals thereof, and in
that event Fund or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that
it is authorized to control.
Promptly after receipt by an indemnified party under this
Article of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to
be made against the indemnifying party under this Article,
notify the indemnifying party of the commencement thereof.
The failure to so notify the indemnifying party shall not
relieve the indemnifying party from any liability under this
Article IX, except to the extent that the omission results in
a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the
failure to give such notice. In case any such action is
brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the
indemnifying party shall be
<PAGE>
entitled to participate therein, at its own expense, and, to
the extent that it may wish, assume the defense thereof, with
counsel satisfactory to such indemnified party, and to the
extent that the indemnifying party has given notice to such
effect to the indemnified party and is performing its
obligations under this Article, the indemnifying party shall
not be liable for any legal or other expenses subsequently
incurred by such indemnified party in connection with the
defense thereof, other than reasonable costs of
investigation. Notwithstanding the foregoing, in any such
proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such indemnified party
unless (a) the indemnifying party and the indemnified party
shall have mutually agreed to the retention of such counsel
or (b) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or
potential differing interests between them. The indemnifying
party shall not be liable for any settlement of any
proceeding effected without its written consent.
A successor by law of any Party to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article IX,
which shall survive any termination of this Agreement.
9.7. Any controversy or claim arising out of or relating to this Agreement, or
the breach thereof, will be settled by arbitration administered by the
American Arbitration Association in accordance with its Commercial
Arbitration Rules and Title 9 of the U.S. Code. Judgment on the award
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The number of arbitrators will be three, one of whom will be
appointed by Insurer or an affiliate; and the third of whom will be
selected by mutual agreement, if possible, within 30 days of the selection
of the second arbitrator and thereafter by the administering authority. The
place of arbitration will be Minneapolis, Minnesota. The arbitrators will
have no authority to award punitive damages or any other damages not
measured by the prevailing party's actual damages, and may not, in any
event, make any ruling, finding or award that does not conform to the terms
and conditions of this Agreement. Any party may make an application to the
arbitrators seeking injunctive relief to maintain the status quo until such
time as the arbitration award is rendered or the controversy is otherwise
resolved. Any party may apply to any court having jurisdiction hereof and
seek injunctive relief in order to maintain the status quo until such time
as the arbitration award is rendered or the controversy is otherwise
resolved.
ARTICLE X.
COMMENCEMENT AND TERMINATION
10.1. This Agreement shall be effective as of the date hereof and
shall continue in force until terminated in accordance with the
provisions herein.
10.2 This Agreement shall terminate without penalty as to one or more
Portfolios:
(a) At the option of Insurer, Distributor, Fund, or LAM at any time from
the date hereof upon 90 days' notice, unless a shorter time is agreed
to by the Parties;
(b) At the option of Insurer if it determines that shares of any Portfolio
are not reasonably available to meet the requirements of the
Contracts. Insurer shall furnish prompt notice of election to
terminate and termination shall be effective ten days after receipt of
notice unless Fund makes available a sufficient number of shares to
meet the requirements of the Contracts within such ten day period;
<PAGE>
(c) At the option of Insurer or Fund, upon the institution of formal
proceedings against the other or their respective affiliates by the
Commission, the NASD or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in the Insurer's or
Fund's reasonable judgment, exercised in good faith, materially impair the
other's ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by Insurer or
Fund, as the case may be, with termination to be effective upon receipt of
notice;
(d) At the option of Insurer or Fund, if either shall determine, in its sole
judgment reasonably exercised in good faith, that the other has suffered a
material adverse change in its business or financial condition or is the
subject of material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material adverse impact upon
the business and operation of the Insurer, Fund or LAM, as the case may be.
Insurer or Fund shall notify the other in writing of any such determination
and its intent to terminate this Agreement, which termination shall be
effective on the sixtieth (60th) day following the giving of such notice,
provided the determination of Insurer or Fund, as the case may be,
continues to apply on that date.
(e) Upon termination of the Investment Management Agreement between Fund, on
behalf of its Portfolios, and LAM or its successors unless Insurer
specifically approves the selection of a new investment adviser for the
Portfolios. Fund shall promptly furnish notice of such termination to
Insurer;
(f) In the event Portfolio shares are not registered, issued or sold in
accordance with applicable federal law, or such law precludes the use of
such shares as the underlying investment medium of Contracts issued or to
be issued by Insurer. Termination shall be effective immediately upon such
occurrence without notice;
(g) At the option of Fund upon a determination by the Board in good faith that
it is no longer advisable and in the best interests of shareholders for
Fund to continue to operate pursuant to this Agreement. Termination shall
be effective upon notice by Fund to Insurer of such termination;
(h) At the option of Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies, as applicable, under the Code, or if
Fund reasonably believes that the Contracts may fail to so qualify.
Termination shall be effective immediately upon such occurrence or
reasonable belief without notice;
(i) At the option of any Party, upon another's breach of any material provision
this Agreement, which breach has not been cured to the satisfaction of the
non breaching Parties within ten days after written notice of such breach
is delivered to the breaching Party;
(j) At the option of Fund, if the Contracts are not registered, issued or sold
in accordance with applicable federal and/or state law. Termination shall
be effective immediately upon such occurrence without notice;
(k) Upon assignment of this Agreement, unless made with the written consent of
the non-assigning Parties.
Any such termination pursuant to this Article X shall not affect the
operation of Articles V or IX of this Agreement. The Parties agree that any
termination pursuant to Article VI shall be governed by that Article.
<PAGE>
10.3.Notwithstanding any termination of this Agreement pursuant to Section 10.2
hereof, Fund and LAM shall continue to make available additional Portfolio
shares pursuant to the terms and conditions of this Agreement as provided
below, for all Contracts in effect on the effective date of termination of
this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts or
Insurer, whichever shall have legal authority to do so, shall be permitted
to reallocate investments among the Portfolios, redeem investments in the
Portfolios and/or invest in the Portfolios upon the making of additional
purchase payments under the Existing Contracts. The provisions of this
Agreement shall remain in effect and thereafter either Fund or Insurer may
terminate the Agreement, as so continued pursuant to this Section 10.3,
upon prior written notice to the other Parties, such notice to be for a
period that is reasonable under the circumstances but, if given by Fund,
need not be for more than six months.
10.4.In the event of any termination of this Agreement pursuant to Section 10.2
hereof, the Parties agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose
of ensuring that a Separate Account owns no shares of a Portfolio beyond
six months from the date of termination. Such steps may include, without
limitation, substituting other mutual fund shares for those of the affected
Portfolio.
ARTICLE XI.
AMENDMENTS
11.1. Any changes in the terms of this Agreement shall be made by agreement
in writing by the Parties hereto.
ARTICLE X11.
NOTICE
12.1. Each notice required by this Agreement shall be given by certified
mail, return receipt requested or other method agreed to by the
parties, to the appropriate Parties at the following addresses:
Insurer: American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, NIN 55402
Attention: James E. Choat
President
Distributor: American Express Financial Advisors, Inc.
105 Tower 10
Minneapolis, MN 55440
Attention: Karl J. Breyer
Corporate Senior Vice President
With copies to: Law Department (Unit 52)
105 Tower 10
Minneapolis, MN 55440
Fund: Lazard Retirement Series, Inc.
30 Rockefeller Plaza
New York, New York 10112
Attention: Steven Swain
<PAGE>
LAM: Lazard Asset Management
30 Rockefeller Plaza
New York, New York 10112
Attention: William Butterly
with copies to: Stroock & Stroock & Lavan LLP
180 Maiden Lane
New York, New York 10038-4982
Attn: Stuart H. Coleman, Esq.
Notice shall be deemed to be given on the date of receipt by the
addresses as evidenced by the return receipt.
ARTICLE XIII.
MISCELLANEOUS
13.1. This Agreement has been executed on behalf of the Parties by the
undersigned duly authorized officers in their capacities as officers of
Insurer, Distributor, LAM, and Fund.
13.2. If any provision of this Agreement is held or made invalid by a court
decision, statute, rule, or otherwise, the remainder of this Agreement
will not be affected thereby.
13.3. The rights, remedies, and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, that the Parties are entitled to
under federal and state laws.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.5.Fund and LAM acknowledge that the identities of the customers of Insurer
or any of its affiliates (collectively the "Protected Parties" for purposes
of this Section 13.5), information maintained regarding those customers,
and all computer programs and procedures or other information developed or
used by the Protected Parties or any of their employees or agents in
connection with Insurer's performance of its duties under this Agreement
are the valuable property of the Protected Parties, Fund and LAM agree that
if they come into possession of any list or compilation of the identities
of or other information about the Protected Parties' customers, or any
other information or property of the Protected Parties, other than such
information as may be independently developed or compiled by Fund or LAM.
Fund and LAM will hold such information or property in confidence and
refrain from using, disclosing or distributing any of such information or
other property except: (a) with Insurer's prior written consent; or (b) as
required by law or judicial process. Fund and LAM acknowledge that any
breach of the agreements in this Section 13.5 would result in immediate and
irreparable harm to the Protected Parties for which there would be no
adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way or temporary
and permanent injunctions, as well as such other relief as any court of
competent jurisdiction deems appropriate.
ARTICLE XIV.
LAW
14.1. This Agreement shall be construed in accordance with the internal laws
of the State of New York, without giving effect to principles of
conflict of laws.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to
be duly executed and attested as of the date first above written.
American Enterprise Life Insurance Company
By:
Attest:
American Express Financial Advisors Inc.
By:
Attest:
Lazard Retirement Series, Inc.
By:
Attest:
Lazard Asset Management, LLC
a division of Lazard Freres & Co., LLC
By:
Attest:
<PAGE>
SCHEDULE 1
Portfolios
Lazard Retirement Equity Portfolio
Lazard Retirement International Equity Portfolio
Separate Accounts and Contracts
American Enterprise Variable Annuity Account
Contract Form # 43431 and state variations thereof
American Enterprise Variable Life Account
Contract Form # 37022 and state variations thereof
<PAGE>
SCHEDULE 2
PORTFOLIO SHARE ORDER PROCESSING
Timely Pricing and Orders
1. Each Business Day, Fund shall use its best efforts to make each Portfolio's
closing net asset value per share ("NAV") on that Day available to Insurer
by 6:30 p.m. New York time, but in no event later than 7:00 p.m. New York
time. Fund shall notify Insurer as soon as possible if it is determined
that the net asset value per share will be available after 7:00 p.m. New
York time on any Business Day, and Fund and Insurer shall mutually
2. At the end of each Business Day, Insurer shall use the information
described above to calculate each Separate Account's unit values for that
Day. Using this unit value, Insurer shall process that Day's Contract and
Separate Account transactions to determine the net dollar amount of each
Portfolio's shares to be purchased or redeemed.
3. Insurer shall use its best efforts to transmit net purchase or redemption
orders to Fund or its designee by 9:30 a.m. New York time, but in no event
later than 10:00 a.m. New York time on the Business Day next following
Insurer's receipt of the information relating to such orders in accordance
with paragraph I above; provided, however, that Fund shall provide
additional time to Insurer in the event Fund is unable to meet the 6:30
p.m. deadline stated above. Such additional time shall be equal to the
additional time that Fund takes to make the net asset values available to
Insurer. In addition, to the extent practicable, Insurer shall use its best
efforts to notify Fund in advance of any unusually large purchase or
redemption orders.
Timely Payments
4. Insurer shall initiate the wire to pay for any net purchase order in
Federal Funds to Fund or its designated custodial account by 12:00 noon New
York time on the same Business Day it transmits the order to Fund pursuant
to paragraph 3 above.
5. Fund shall pay for any net redemption order by wiring the redemption
proceeds to Insurer, on the same Business Day as Fund receives notice of
the redemption order or, upon notice to Insurer, such longer period as
permitted by the Act or the rules, orders or regulations thereunder. In the
case of any net redemption order valued at or greater than $1 million, Fund
shall wire such amount to Insurer within five days of the order. In the
case of any net redemption order requesting the application of proceeds
from the redemption of one Portfolio's shares to the purchase of another
Portfolio's shares, Fund shall so apply such proceeds the same Business Day
that Insurer transmits such order to Fund.
Applicable Price
6. Fund shall execute purchase and redemption orders for a Portfolio's shares
that relate to Contract transactions at that Portfolio's NAV next
determined after Fund or its designated agent receives the order. For this
purpose, Fund hereby appoints Insurer as its agent for the limited purpose
of receiving orders for the purchase and redemption of shares of each
Portfolio for each Separate Account; provided that Fund receives both the
notice of the order in accordance with paragraph 3 above and any related
purchase payments in acccordance with paragraph 4 above.
<PAGE>
7. Fund shall execute purchase and redemption orders for a Portfolio's shares
that relate to Insurer's General Account, or that do not relate to Contract
transactions, at that Portfolio's NAV next determined after Fund (not
Insurer) receives the order and any related purchase payments in accordance
with paragraph 4 above.
8. Fund shall execute purchase and redemption orders for a Portfolio Shares
that relate to Contracts funded by registered and unregistered Separate
Accounts in the same manner, but only to the extent that Insurer represents
and warrants that it is legally or contractually obligated to treat such
orders in the same manner. Each order for Portfolio shares placed by
Insurer that is attributable, in whole or in part, to Contracts funded by
an unregistered Separate Account, shall be deemed to constitute such
representation and warranty by Insurer unless the order specifically states
to the contrary. Otherwise, Fund shall treat orders attributable to
unregistered Separate Account Contracts in the same manner as orders for
Insurer's General Account. For these purposes, a registered Separate
Account is one that is registered under the Act; an unregistered Separate
Account is one that is not.
9. Fund shall execute purchase or redemption orders for a Portfolio's shares
that do not satisfy the conditions specified in paragraphs 3 and 4 above,
as applicable, at the Portfolio's NAV next determined after such conditions
have been satisfied and in accordance with paragraphs 6 or 7, whichever
applies.
10. If Fund does not receive payment in Federal Funds for any net purchase
order in accordance with paragraph 4 above, Insurer shall promptly, upon
Fund's request, reimburse Fund for any charges, costs, fees, interest or
other expenses incurred by Fund in connection with any advances to, or
borrowings or overdrafts by, Fund, or any similar expenses incurred by
Fund, as a result of portfolio transactions effected by Fund based upon
such purchase request.
11. If Fund provides Insurer with materially incorrect net asset value per
share information through no fault of Insurer, Insurer, on behalf of the
Separate Account, shall be entitled to an adjustment to the number of
shares purchased or redeemed to reflect the correct net asset value per
share in accordance with Fund's current policies for correcting pricing
errors. Any material error in the calculation of net asset value per share,
dividend or capital gain information shall be reported promptly upon
discovery to Insurer.
PARTICIPATION AGREEMENT
By and Among
BARON CAPITAL FUNDS TRUST
And
BAMCO, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of September,
1999, by and between BARON CAPITAL FUNDS TRUST, an open-end management
investment company organized under the laws of Delaware (the "Fund"), BAMCO,
Inc., a corporation organized under the laws of New York (the "Adviser"), and
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, an Indiana life insurance company
(the "Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement, as may be amended from time to
time, (each account referred to as the "Account").
WHEREAS, the Fund was established for the purpose of serving as the
investment vehicle for insurance company separate accounts supporting variable
annuity contracts and variable life insurance policies to be offered by
insurance companies that have entered into participation agreements with the
Fund and the Adviser (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund are divided into series of
shares, each representing the interest in a particular managed portfolio of
securities and other assets and each series offering two classes of stock, one
for sale to Participating Insurance Companies ("Insurance Shares") and one for
sale to certain qualified retirement plans; and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and their
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and certain
qualified pension and retirement plans outside of the separate account context
(the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable
annuity contracts and/or variable life insurance polices (the "Contracts") under
the 1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the portfolios named in
Schedule 2 to this Agreement, as may be amended from time to time, (the
"Portfolios") on behalf of the Account to fund the Contracts; and
WHEREAS, under the terms and conditions set forth in this Agreement, the
Adviser desires to make shares of the Fund available as investment options under
the Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties agree as
follows:
<PAGE>
ARTICLE I. Sale and Redemption of Fund Shares
1.1. The Fund will sell to the Company those shares of the Portfolios that each
Account orders, executing such orders on a daily basis at the net asset
value next computed after receipt and acceptance by the Fund (or its
agent). Shares of a particular Portfolio of the Fund will be ordered in
such quantities and at such times as determined by the Company to be
necessary to meet the requirements of the Contracts. The Board of Trustees
of the Fund (the "Fund Board") may refuse to sell shares of any Portfolio
to any person, or suspend or terminate the offering of shares of any
Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Fund Board, acting
in good faith and in light of its fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
1.2. The Fund will redeem any full or fractional shares of any Portfolio when
requested by the Company on behalf of an Account at the net asset value
next computed after receipt by the Fund (or its agent) of the request for
redemption, as established in accordance with the provisions of the then
current prospectus of the Fund.
1.3. For purposes of Sections 1.1 and 1.2, the Fund hereby appoints the Company
as its agent for the limited purpose of receiving and accepting purchase
and redemption orders resulting from investment in and payments under the
Contracts. Receipt by the Company will constitute receipt by the Fund
provided that: (a) such orders are received by the Company in good order
prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus; and (b) the Fund (or its agent) receives
notice of such orders by 10:00 a.m. Central Time on the next following
Business Day. "Business Day" will mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC.
1.4. The Company will pay for a purchase order on the same Business Day as the
Fund receives notice of the purchase order in accordance with Section 1.3.
The Fund will pay for a redemption order on the same Business Day as the
Fund receives notice of the redemption order in accordance with Section 1.3
and in the manner established from time to time by the Fund, except that
the Fund reserves the right to suspend payment consistent with Section
22(e) of the Investment Company Act of 1940, as amended (the "1940 Act")
and any rules thereunder. In any event, absent extraordinary circumstances
specified in Section 22(e) of the 1940 Act, the Fund will make such payment
within five (5) calendar days after the date the redemption order is placed
in order to enable the Company to pay redemption proceeds within the time
specified in Section 22(e) of the 1940 Act or such shorter period of time
as may be required by law. All payments will be made in federal funds
transmitted by wire or other method agreed to by the parties.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of each
Account.
1.6. The Fund will furnish same day notice (by wire or telephone, followed by
written confirmation) to the Company of the declaration of any income,
dividends or capital gain distributions payable on each Portfolio's shares.
The Company hereby elects to receive all such dividends and distributions
as are payable on the Portfolio shares in the form of additional shares of
that Portfolio. The Company reserves the right to revoke this election and
to receive all such dividends and distributions in cash. The Fund will
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
<PAGE>
1.7. The Fund will make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical
after the net asset value per share is calculated and will use its best
efforts to make such net asset value per share available by 5:30 p.m.
Central Time, but in no event later than 6:00 p.m. Central Time each
Business Day. The Fund will notify the Company as soon as possible if it is
determined that the net asset value per share will be available after 6:00
p.m. Central Time on any Business Day, and the Fund and the Company will
mutually agree upon a final deadline for timely receipt of the net asset
value on such Business Day.
1.8. Any material errors in the calculation of net asset value, dividends or
capital gain information will be reported immediately upon discovery to the
Company. An error will be deemed "material" based on the Fund's
interpretation of the SEC's position and policy with regard to materiality,
as it may be modified from time to time. If the Company is provided with
materially incorrect net asset value information, the Company will be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct net asset value per share. Neither the Fund, the
Adviser nor any of their affiliates will be liable for any information
provided to the Company pursuant to this Agreement which information is
based on incorrect information supplied by or on behalf of the Company to
the Fund or the Adviser.
1.9. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain qualified
pension and retirement plans to the extent permitted by the Exemptive
Order. No shares of any Portfolio will be sold directly to the general
public. The Company agrees that Fund shares will be used only for the
purposes of funding the Contracts and Accounts listed in Schedule 1, as
amended from time to time.
1.10.The Fund agrees that all Participating Insurance Companies will have the
obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 3.4 and
Article IV of this Agreement.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing
under applicable law;
(b) it has legally and validly established or will legally and
validly establish each Account as a separate account under
applicable state law;
(c) it has registered or will register to the extent necessary
each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment
account for the Contracts;
(d) it has filed or will file to the extent necessary the
Contracts' registration statements under the Securities Act of
1933 (the "1933 Act") and these registration statements will
be declared effective by the SEC prior to the sale of any
Contracts;
(e) the Contracts will be filed and qualified and/or approved for
sale, as applicable, under the insurance laws and regulations
of the states in which the Contracts will be offered prior to
the sale of Contracts in such states; and
<PAGE>
(f) it will amend the registration statement under the 1933 Act
for the Contracts and the registration statement under the
1940 Act for the Account from time to time as required in
order to effect the continuous offering of the Contracts or as
may otherwise be required by applicable law, but in any event
it will maintain a current effective Contracts' and Account's
registration statement for so long as the Contracts are
outstanding unless the Company has supplied the Fund with an
SEC no-action letter, opinion of counsel or other evidence
satisfactory to the Fund's counsel to the effect that
maintaining such registration statement on a current basis is
no longer required.
2.2. The Company represents and warrants that the Contracts are intended to
be treated as annuity or life insurance contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and that it will make every effort to
maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Fund represents and warrants that:
(a) it is duly organized and validly existing under applicable
state law;
(b) it has registered with the SEC as an open-end management
investment company under the 1940 Act;
(c) Fund shares of the Portfolios offered and sold pursuant to
this Agreement will be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law;
(d) it is and will remain registered under the 1940 Act for as
long as such shares of the Portfolios are sold;
(e) it will amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares;
(f) it is currently qualified as a Regulated Investment Company
under Subchapter M of the Internal Revenue Code, it will make
every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and it will notify
the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might
not so qualify in the future; and
(g) its investment objectives, policies and restrictions comply
with applicable state securities laws as they may apply to the
Fund and it will register and qualify the shares of the
Portfolios for sale in accordance with the laws of the various
states to the extent deemed advisable by the Fund. The Fund
makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses
and investment policies, objectives and restrictions) complies
with the insurance laws and regulations of any state. The Fund
and the Adviser agree that they will furnish the information
required by state insurance laws so that the Company can
obtain the authority needed to issue the Contracts in the
various states.
2.4. The Fund has adopted a plan pursuant to Rule 12b-1 under the 1940 Act to
finance distribution expenses with respect to the Insurance Shares.
<PAGE>
2.5. The Fund and the Adviser represent and warrant that they will invest
money from the Contracts in such a manner as to ensure that the
Contracts will be treated as variable annuity contracts and variable
life insurance policies under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund and the Adviser further represent and warrant that
they will comply with Section 817(h) of the Internal Revenue Code and
Treasury Regulation 1.817-5, as amended from time to time, relating to
the diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other modifications to
such Section or Regulation. In the event of a breach of this
representation and warranty by the Fund and/or the Adviser, they will
take all reasonable steps:
(a) to notify the Company of such breach; and
(b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation
1.817-5.
2.6. The Adviser represents and warrants that:
(a) it is and will remain duly registered under all applicable
federal and state securities laws; and
(b) it will perform its obligations for the Fund in accordance
with applicable state and federal securities laws and that it
will notify the Company promptly if for any reason it is
unable to perform its obligations under this Agreement.
2.7. Each party represents and warrants that, as applicable, all of its
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of
the Fund are and will continue to be at all times covered by a blanket
fidelity bond or similar coverage in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act
or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is
issued by a reputable bonding company.
ARTICLE III. Obligations of the Parties
3.1. The Fund will prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of
additional information of the Fund. The Fund will bear the costs of
registration and qualification of its shares, preparation and filing of
documents listed in this Section 3.1 and all taxes to which an issuer
is subject on the issuance and transfer of its shares.
3.2. At the option of the Company, the Fund will either: (a) provide the
Company with as many copies of the Fund's current prospectus, statement
of additional information, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to
any of the foregoing, as the Company will reasonably request; or (b)
provide the Company with a camera-ready copy, computer disk or other
medium agreed to by the parties of such documents in a form suitable
for printing. The Fund will bear the cost of typesetting and printing
such documents and of distributing such documents to existing Contract
owners. The Company will bear the cost of distributing such documents
to prospective Contract owners and applicants as required.
<PAGE>
3.3. The Fund, at its expense, either will:
(a) distribute its proxy materials directly to the appropriate
Contract owners; or
(b) provide the Company or its mailing agent with copies of its
proxy materials in such quantity as the Company will
reasonably require and the Company will distribute the
materials to existing Contract owners and will bill the Fund
for the reasonable cost of such distribution. The Fund will
bear the cost of tabulation of proxy votes.
3.4. If and to the extent required by law the Company will:
(a) provide for the solicitation of voting instructions from
Contract owners;
(b) vote the shares of the Portfolios held in the Account in
accordance with instructions received from Contract owners;
and
(c) vote shares of the Portfolios held in the Account for which no
timely instructions have been received, in the same proportion
as shares of such Portfolio for which instructions have been
received from the Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent
permitted by law.
3.5. The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular, the Fund will provide for annual
meetings (except insofar as the SEC may interpret Section 16 of the 1940
Act not to require such meetings) and will comply with Sections 16(a) and,
if and when applicable, 16(b). Further, the Fund will act in accordance
with the SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
3.6. The Company will prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all shareholder reports, notices,
prospectuses and statements of additional information of the Contracts. The
Company will bear the cost of registration and qualification of the
Contracts and preparation and filing of documents listed in this Section
3.6. The Company also will bear the cost of typesetting, printing and
distributing the documents listed in this Section 3.6 to existing and
prospective Contract owners.
3.7. The Company will furnish, or will cause to be furnished, to the Fund or the
Adviser, each piece of sales literature or other promotional material in
which the Fund or the Adviser is named, at least ten (10) Business Days
prior to its use. No such material will be used if the Fund or the Adviser
reasonably objects to such use within five (5) Business Days after receipt
of such material.
3.8. The Company will not give any information or make any representations or
statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement, prospectus or statement of
additional information for Fund shares, as such registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the
Fund, or in published reports for the Fund which are in the public domain
or approved by the Fund or the Adviser for distribution, or in sales
literature or other material provided by the Fund or by the Adviser, except
with permission of the Fund or the Adviser. The Fund and the Adviser agree
to respond to any request for approval on a prompt and timely basis.
Nothing in this Section 3.8 will be construed as preventing the Company or
its employees or agents from giving advice on investment in the Fund.
<PAGE>
3.9. The Fund or the Adviser will furnish, or will cause to be furnished, to the
Company or its designee, each piece of sales literature or other
promotional material in which the Company or its separate account is named,
at least ten (10) Business Days prior to its use. No such material will be
used if the Company reasonably objects to such use within five (5) Business
Days after receipt of such material.
3.10.The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, each Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or
statement of additional information for the Contracts, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in published reports for each
Account or the Contracts which are in the public domain or approved by the
Company for distribution to Contract owners, or in sales literature or
other material provided by the Company, except with permission of the
Company. The Company agrees to respond to any request for approval on a
prompt and timely basis.
3.11.The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Fund or
its shares, contemporaneously with the filing of such document with the SEC
or the NASD.
3.12.The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for exemptions,
requests for no action letters, and all amendments to any of the above,
that relate to the Contracts or each Account, contemporaneously with the
filing of such document with the SEC or the NASD.
3.13.For purposes of this Article III, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such
as material published, or designed for use in, a newspaper, magazine, or
other periodical), radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public
media, (e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication
---------distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports,
and proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act.
3.14.The Fund and the Adviser hereby consent to the Company's use of the name
Baron in connection with marketing the Contracts, subject to the terms of
Sections 3.7 and 3.8 of this Agreement. Such consent will terminate with
the termination of this Agreement.
3.15.The Adviser will be responsible for calculating the performance
information for the Fund. The Company will be responsible for calculating
the performance information for the Contracts. The Adviser will be liable
to the Company for any material mistakes it makes in calculating the
performance information for the Fund which cause losses to the Company. The
Company will be liable to the Adviser for any material mistakes it makes in
calculating the performance information for the Contracts which cause
losses to the Adviser. Each party will be liable for any material mistakes
it makes in reproducing the performance information for Contracts or the
Fund, as appropriate. The Fund and the Adviser agree to provide the Company
with performance information for the Fund on a timely basis to enable the
Company to calculate performance information for the Contracts in
accordance with applicable state and federal law.
<PAGE>
ARTICLE IV. Potential Conflicts
4.1. The Fund Board will monitor the Fund for the existence of any
irreconcilable material conflict among the interests of the contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by
any state insurance regulatory authority; (b) a change in applicable
federal or state insurance, tax, or securities laws or regulations, or a
public ruling, private letter ruling, no-action or interpretative letter,
or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
proceeding; (d) the manner in which the investments of any Portfolio are
being managed; (e) a difference in voting instructions given by
Participating Insurance Companies or by variable annuity and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Fund Board will promptly inform
the Company if it determines that an irreconcilable material conflict
exists and the implications thereof. A majority of the Fund Board will
consist of persons who are not "interested" persons of the Fund.
4.2. The Company will report any potential or existing conflicts of which it is
aware to the Fund Board. The Company agrees to assist the Fund Board in
carrying out its responsibilities, as delineated in the Exemptive Order, by
providing the Fund Board with all information reasonably necessary for the
Fund Board to consider any issues raised. This includes, but is not limited
to, an obligation by the Company to inform the Fund Board whenever Contract
owner voting instructions are to be disregarded. The Fund Board will record
in its minutes, or other appropriate records, all reports received by it
and all action with regard to a conflict.
4.3. If it is determined by a majority of the Fund Board, or a majority of its
disinterested directors, that an irreconcilable material conflict exists,
the Company and other Participating Insurance Companies will, at their
expense and to the extent reasonably practicable (as determined by a
majority of the disinterested directors), take whatever steps are necessary
to remedy or eliminate the irreconcilable material conflict, up to and
including: (a) withdrawing the assets allocable to some or all of the
Accounts from the Fund or any Portfolio and reinvesting such assets in a
different investment medium, including (but not limited to) another
portfolio of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity contract owners or variable life insurance contract owners
of one or more Participating Insurance ----- Companies) that votes in favor
of such segregation, or offering to the affected contract owners the option
of making such a change; and (b) establishing a new registered management
investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by the
Company to disregard Contract owner voting instructions, and such disregard
of voting instructions could conflict with the majority of contract owner
voting instructions, and the Company's judgment represents a minority
position or would preclude a majority vote, the Company may be required, at
the Fund's election, to withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect to such
subaccount; provided, however, that such withdrawal and termination will be
limited to the extent required by the foregoing irreconcilable material
conflict as determined by a majority of the disinterested directors of the
Fund Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice to the Company that this
provision is being implemented. Until the end of such six-month period the
Adviser and Fund will, to the extent permitted by law and any exemptive
relief previously granted to the Fund, continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of the
Fund.
<PAGE>
4.5. If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state insurance regulators, then the Company will
withdraw the affected subaccount of the Account's investment in the Fund
and terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the extent
required by the foregoing irreconcilable material conflict as determined by
a majority of the disinterested directors of the Fund Board. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice to the Company that this provision is being implemented.
Until the end of such six-month period the Adviser and Fund will, to the
extent permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a majority of
the disinterested members of the Fund Board will determine whether any
proposed action adequately remedies any irreconcilable material conflict,
but in no event will the Fund be required to establish a new funding medium
for the Contracts. The Company will not be required by this Article IV to
establish a new funding medium for the Contracts if an offer to do so has
been declined by vote of a majority of Contract owners affected by the
irreconcilable material conflict.
4.7. The Company will at least annually submit to the Fund Board such reports,
materials or data as the Fund Board may reasonably request so that the Fund
Board may fully carry out the duties imposed upon it as delineated in the
Exemptive Order, and said reports, materials and data will be submitted
more frequently if deemed appropriate by the Fund Board.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions
materially different from those contained in the Exemptive Order, then: (a)
the Fund and/or the Participating Insurance Companies, as appropriate, will
take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are
applicable; and (b) Sections 3.4, 3.5, 4.1, 4.2, 4.3, 4.4, and 4.5 of this
Agreement will continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE V. Indemnification
5.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund, the Adviser,
and each person, if any, who controls or is associated with the Fund or the
Adviser within the meaning of such terms under the federal securities laws
(but not any Participating Insurance Companies) and any director, trustee,
officer, partner, employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 5.1) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Company) or litigation
(including reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) or settlements:
<PAGE>
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Adviser or the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Fund registration statement, prospectus,
statement of additional information or sales
literature or other promotional material of the Fund
(or any amendment or supplement to any of the
foregoing), or the omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund or Adviser in
writing by or on behalf of the Company or persons
under its control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal or state law by,
the Company or persons under its control or subject
to its authorization, with respect to the purchase of
Fund shares or the sale, marketing or distribution of
the Contracts; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach of this Agreement by the
Company or persons under its control or subject to
its authorization;
except to the extent provided in Sections 5.1(b) and 5.3
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
5.1(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
<PAGE>
5.2. Indemnification By The Adviser
(a) The Adviser agrees to indemnify and hold harmless the Company
and each person, if any, who controls or is associated with
the Company within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 5.2)
against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation (including
reasonable legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at
common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect
thereof) or settlements:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material of
the Fund (or any amendment or supplement to any of
the foregoing), or arise out of or are based on the
omission or alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Adviser or Fund by or on behalf of
the Company for use in the registration statement,
prospectus or statement of additional information for
the Fund or in sales literature of the Fund (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund
shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Contract registration statement, prospectus or
statement of additional information or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
in which they were made, if such statement or
omission was made in reliance upon and in conformity
with information furnished to the Company in writing
by or on behalf of the Adviser or persons under its
control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal and state law by,
the Adviser or the Fund or persons under their
respective control or subject to their authorization
with respect to the sale of Fund shares; or
(4) arise as a result of any failure by the Fund, the
Adviser or persons under their respective control or
subject to their authorization to provide the
services and furnish the materials under the terms of
this Agreement including, but not limited to, a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements and procedures related thereto specified
in Section 2.5 of this Agreement or any material
errors in or untimely calculation or reporting of the
daily net asset value per share or dividend or
capital gain distribution rate (referred to in this
Section 5.2(a)(4) as an "error"); provided, that the
foregoing will not apply where such error is the
result of incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser, and
will be limited to (i) reasonable administrative
costs necessary to correct such error, and (ii)
amounts which the Company has paid out of its own
resources to make Contract owners whole as a result
of such error; or
<PAGE>
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund or persons under
their respective control or subject to their
authorization;
except to the extent provided in Sections 5.2(b) and 5.3 hereof.
(b) No party will be entitled to indemnification under Section
5.2(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
5.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article V
("Indemnifying Party" for the purpose of this Section 5.3) will not be
liable under the indemnification provisions of this Article V with
respect to any claim made against a party entitled to indemnification
under this Article V ("Indemnified Party" for the purpose of this
Section 5.3) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of the indemnification provision of
this Article V, except to the extent that the failure to notify results
in the failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged solely as a result of failure to give
such notice. In case any such action is brought against the Indemnified
Party, the Indemnifying Party will be entitled to participate, at its
own expense, in the defense thereof. The Indemnifying Party also will
be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Indemnifying Party
to the Indemnified Party of the Indemnifying Party's election to assume
the defense thereof, the Indemnified Party will bear the fees and
expenses of any additional counsel retained by it, and the Indemnifying
Party will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party
and the Indemnified Party will have mutually agreed to the retention of
such counsel; or (b) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify
the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. A successor by law of the parties to
this Agreement will be entitled to the benefits of the indemnification
contained in this Article V. The indemnification provisions contained
in this Article V will survive any termination of this Agreement.
<PAGE>
5.4. Limitation of Liability
Except as expressly stated herein, as between the parties, in no event
will any party to this Agreement be responsible to any other party for
any incidental, indirect, consequential, punitive or exemplary damages
of any kind arising from this Agreement, including without limitation,
lost revenues, loss of profits or loss of business.
5.5. Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be settled by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules and Title 9 of the U.S. Code. Judgment on the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The number of arbitrators will be three, one of
whom will be appointed by the Company or an affiliate; one of whom will
be appointed by the Fund and/or the Adviser or an affiliate; and the
third of whom will be selected by mutual agreement, if possible, within
30 days of the selection of the second arbitrator and thereafter by the
administering authority. The place of arbitration will be Minneapolis,
Minnesota. The arbitrators will have no authority to award punitive
damages or any other damages not measured by the prevailing party's
actual damages, and may not, in any event, make any ruling, finding or
award that does not conform to the terms and conditions of this
Agreement. Any party may make an application to the arbitrators seeking
injunctive relief to maintain the status quo until such time as the
arbitration award is rendered or the controversy is otherwise resolved.
Any party may apply to any court having jurisdiction hereof and seek
injunctive relief in order to maintain the status quo until such time
as the arbitration award is rendered or the controversy is otherwise
resolved.
ARTICLE VI. Applicable Law
6.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota.
6.2. This Agreement will be subject to the provisions of the 1933 Act, the
Securities Exchange Act of 1934 and the 1940 Act, and the rules and
regulations and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE VII. Termination
7.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Portfolios, upon sixty (60)
days' advance written notice to the other parties or, if
later, upon receipt of any required exemptive relief or orders
from the SEC, unless otherwise agreed in a separate written
agreement among the parties;
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if shares of the Portfolio are not reasonably
available to meet the requirements of the Contracts as
determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts
issued or to be issued by Company; or
<PAGE>
(d) at the option of the Fund, upon receipt of the Fund's written
notice by the other parties, upon institution of formal
proceedings against the Company by the NASD, the SEC, the
insurance commission of any state or any other regulatory body
regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the administration of the
Contracts, the operation of the Account, or the purchase of
the Fund shares, provided that the Fund determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Company's ability
to perform its obligations under this Agreement; or
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of
formal proceedings against the Fund or the Adviser by the
NASD, the SEC, or any state securities or insurance department
or any other regulatory body, regarding the Fund's or the
Adviser's duties under this Agreement or related to the sale
of Fund shares or the administration of the Fund, provided
that the Company determines in its sole judgment, exercised in
good faith, that any such proceeding would have a material
adverse effect on the Fund's or the Adviser's ability to
perform its obligations under this Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code, or under any successor or
similar provision, or if the Company reasonably and in good
faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if the Fund fails to meet the diversification
requirements specified in Article II hereof or if the Company
reasonably and in good faith believes the Fund may fail to
meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material
breach of any provision of this Agreement; or
(i) at the option of the Company, if the Company determines in its
sole judgment exercised in good faith, that the Fund or the
Adviser has suffered a material adverse change in its
business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity
which is likely to have a material adverse impact upon the
business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties
of written notice of the election to terminate; or
(j) at the option of the Fund, if the Fund determines in its sole
judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations
or financial condition since the date of this Agreement or is
the subject of material adverse publicity which is likely to
have a material adverse impact upon the business and
operations of the Fund, such termination to be effective sixty
(60) days' after receipt by the other parties of written
notice of the election to terminate; or
(k) at the option of the Company or the Fund upon receipt of any
necessary regulatory approvals and/or the vote of the Contract
owners having an interest in the Account (or any subaccount)
to substitute the shares of another investment company for the
corresponding Portfolio shares of the Fund in accordance with
the terms of the Contracts for which those Portfolio shares
had been selected to serve as the underlying investment media.
The Company will give sixty (60) days' prior written notice to
the Fund of the date of any proposed vote or other action
taken to replace the Fund's shares; or
<PAGE>
(l) at the option of the Company or the Fund upon a determination
by a majority of the Fund Board, or a majority of the
disinterested Fund Board members, that an irreconcilable
material conflict exists among the interests of: (i) all
contract owners of variable insurance products of all separate
accounts; or (ii) the interests of the Participating Insurance
Companies investing in the Fund as set forth in Article IV of
this Agreement; or
(m) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal
and/or state law. Termination will be effective immediately
upon such occurrence without notice.
7.2. Notwithstanding any termination of this Agreement, the Fund and the Adviser
will, at the option of the Company, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement,
for all Contracts in effect on the effective date of termination of this
Agreement (hereinafter referred to as "Existing Contracts"). Specifically,
without limitation, the owners of the Existing Contracts will be permitted
to reallocate investments in the Portfolios (as in effect on such date),
redeem investments in the Portfolios and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing Contracts.
The parties agree that this Section 7.2 will not apply to any terminations
under Article IV and the effect of such Article IV terminations will be
governed by Article IV of this Agreement.
7.3. The provisions of Article V will survive the termination of this Agreement
and as long as shares of the Fund are held under Existing Contracts in
accordance with Section 7.2, the provisions of this Agreement will survive
the termination of this Agreement with respect to those Existing Contracts.
ARTICLE VIII. Notices
Any notice will be deemed duly given when sent by registered or
certified mail (or other method agreed to by the parties) to each other party at
the address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other parties.
If to the Company:
James E. Choat
President and Chief Executive Officer
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
With a copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
80 South 8th Street
Minneapolis, MN 55402
If to the Fund:
Baron Capital Funds Trust
767 Fifth Avenue - 49th Floor
New York, NY 10153
ATTN: Matt Kelly
CC: Linda S. Martinson, Esq.
<PAGE>
If to the Adviser:
BAMCO, Inc.
767 Fifth Avenue - 49th Floor
New York, NY 10153
ATTN: Matt Kelly
CC: Linda S. Martinson, Esq.
ARTICLE IX. Miscellaneous
9.1. All persons dealing with the Fund must look solely to the property of the
Fund for the enforcement of any claims against the Fund as neither the
directors, trustees, officers, partners, employees, agents or shareholders
assume any personal liability for obligations entered into on behalf of the
Fund.
9.2. The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 9.2), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Protected Parties or any of
their employees or agents in connection with the Company's performance of
its duties under this Agreement are the valuable property of the Protected
Parties. The Fund and the Adviser agree that if they come into possession
of any list or compilation of the identities of or other information about
the Protected Parties' customers, or any other information or property of
the Protected Parties, other than such information as may be independently
developed or compiled by the Fund or the Adviser from information supplied
to them by the Protected Parties' customers who also maintain accounts
directly with the Fund or the Adviser, the Fund and the Adviser will hold
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Company's prior written consent; or (b) as required by
law or judicial process. The Fund and the Adviser acknowledge that any
breach of the agreements in this Section 9.2 would result in immediate and
irreparable harm to the Protected Parties for which there would be no
adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way of temporary
and permanent injunctions, as well as such other relief as any court of
competent jurisdiction deems appropriate.
9.3. The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
9.4. This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
9.5. If any provision of this Agreement will be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of the Agreement will
not be affected thereby.
9.6. This Agreement will not be assigned by any party hereto without the prior
written consent of all the parties.
<PAGE>
9.7. Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and will permit each
other and such authorities reasonable access to its books and records
in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
9.8. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as
applicable, by such party and when so executed and delivered this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
9.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund or other applicable terms of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative as of
the date specified above.
BARON CAPITAL FUNDS TRUST BAMCO, INC.
By:_______________________ By:___________________________
Name:_____________________ Name:_________________________
Title:____________________ Title:________________________
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY ATTEST
By:_______________________ By:___________________________
Name:_____________________ Name:_________________________
Title:____________________ Title:________________________
<PAGE>
Schedule 1
PARTICIPATION AGREEMENT
By and Among
BARON CAPITAL FUNDS TRUST
And
BAMCO, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The following Accounts of American Enterprise Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account
American Enterprise Variable Life Account
<PAGE>
Schedule 2
PARTICIPATION AGREEMENT
By and Among
BARON CAPITAL FUNDS TRUST
And
BAMCO, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The Accounts shown on Schedule 1 may invest in the following Portfolios:
Baron Capital Asset Fund
[American Express logo]
American Enterprise Life
[Signature] Life Insurance Application
American Enterprise Life Insurance Company
Administrative Offices:
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440
SECTION A - INSURED
Insured's Name (First) (Full Middle) (Last)
- -------------------------------------------------
Previous Name if Changed in the Last 5 Years
- -------------------------------------------------
Home Address (Street)
- -------------------------------------------------
City, State, Zip
- -------------------------------------------------
Social Security No. Driver's License No. and State
- --------------------- ---------------------------
Birthdate State of Birth Male Female
- ---------------- ---------
Please provide both day and evening telephone numbers
Day__________________ Evening __________________
Marital Status ______ Citizenship
U.S. Other _____________________
Occupation
- -------------------------------------------------
Individual Occ. Income Net Worth Household Income
$----------------- $--------------- $---------------
Employer Name
- -------------------------------------------------
Will the proposed life insurance policy replace any existing annuity or life
insurance?
Yes No
If Yes, please state company name, insurance amount and contract number
- -------------------------------------------------
- -------------------------------------------------
<PAGE>
SECTION B - OWNER (COMPLETE IF THE OWNER IS DIFFERENT THAN THE INSURED)
Owner's Name (First) (Full Middle) (Last)
- -------------------------------------------------
Address (Street)
- -------------------------------------------------
City State, Zip
- -------------------------------------------------
Male Female Citizenship
U.S. Other ________________________
Birthdate Relationship to Insured
- ------------------------- --------------------------------------
Bus. Tax ID, Taxpr. ID or Social Security No.
- -------------------------------------------------
SECTION C - LIFE INSURANCE PLAN
Plan Applied For _________________ Specified Amount $ ________________ Death
Benefit Option 1: Initial death benefit is specified amount.
Death Benefit Option 2: Initial death benefit is specified amount plus
accumulated cash value.
Riders Applied For
Term Insurance of $ ___________________
Additional Insured (AIR)
Waiver of Monthly Deduction
Children's Insurance (CIR)
Accidental Death Benefit of $ _________________ (If applying for AIR or CIR,
complete supplemental application)
Annual Scheduled Premium $_______________
Premium Payment Frequency
Monthly
Semiannually
Quarterly
Annually
Amount Paid With Application
$ ----------------------
Lump-Sum Amount to Be Paid on Delivery of Policy
$ ----------------------
Method of Payment:
Systematic Investment Plan (Complete SIP form.)
Direct Billing
Other _________________________________________
<PAGE>
SECTION D - LIFE INSURANCE BENEFICIARY
Option A. Beneficiary is: Insured's designated spouse, if living, otherwise the
beneficiaries are the lawful children of the Insured and they will receive equal
shares of the proceeds. Option B. Beneficiary is: Insured's designated spouse,
if living, otherwise the beneficiaries are the lawful children of the Insured
and they will receive equal shares of the proceeds; provided, however, that if a
child of the Insured has died before the Insured, the share which the child
would have received if he/she survived the Insured will be paid to his/her
living children in equal shares.
Option A Option B Inured's spouse's full name _______________
Other designation ____________________________________________________________
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECTION E - SUITABILITY AND PREMIUM PAYMENT ALLOCATION Check each of the
following to indicate your acknowledgement:
Adequate information. You have received the current prospectuses for the
policy.
Purpose. You agree that this variable type of insurance is in accord with your
insurance and financial objectives.
Variable values. The policy's value may increase or decrease daily depending on
investment results. There is no guaranteed minimum
policy value. The amount and duration of the death benefit may increase or
decrease depending on investment results. However, the proceeds payable upon
death, as long as the policy is inforce, will never be less than the specified
amount in effect on the date of death minus indebtedness on the policy.
Premium Payment Allocations*
Fixed
____% AEL Fixed Account
Money Market
____% AXPSM VP Cash Management Fund
Low/Medium Yield Bonds
____% Alliance U.S. Govt./High Grade Securities Portfolio (Class B)
____% AXPSM VP Bond Fund
____% AXPSM VP Federal Income Fund
____% Goldman Sachs VIT Global Income Fund
High Yield Bonds
____% AXPSM VP Extra Income Fund
Large Cap Stocks
____% AIM V.I. Value Fund
____% Alliance Premier Growth Portfolio (Class B)
____% Alliance Technology Portfolio (Class B)
____% AXPSM VP Blue Chip Advantage Fund
____% AXPSM VP Diversified Equity Income Fund
____% AXPSM VP Growth Fund
____% AXPSM VP Managed Fund
____% AXPSM VP New Dimensions Fund
____% Fidelity VIP III Growth & Income Portfolio: Service Class
____% FT VIP Mutual Shares Securities Fund - Class 2
<PAGE>
____% Goldman Sachs VIT Capital Growth Fund
____% Goldman Sachs VIT CORESM U.S. Equity Fund
____% J.P. Morgan U.S. Disciplined Equity Portfolio
____% Lazard Retirement Equity Portfolio
____% Putnam VT Growth & Income Fund - Class 1B
Mid Cap Stocks
____% AIM V.I. Capital Appreciation Fund
____% AXPSM VP Capital Resource Fund
____% Fidelity VIP III Mid Cap Portfolio: Service Class ____% FT VIP Real Estate
Fund - Class 2 ____% MFS(R) Research Series ____% MFS(R) Utilities Series ____%
Third Avenue Value Portfolio ____% Warburg Pincus Trust - Emerging - Growth
Portfolio
Small Cap Stocks
____% AIM V.I. Capital Development Fund
____% AXPSM VP Small Cap Advantage Fund
____% Baron Capital Asset Fund
____% MFS(R) New Discovery Series
____% Royce Micro-Cap Portfolio
____% Royce Premier Portfolio
____% Wanger U.S. Small Cap
International Stocks
____% Fidelity VIP Overseas Portfolio: Service Class
____% Goldman Sachs VIT International Equity Fund
____% Lazard Retirement International Equity Portfolio
____% Putnam VT International Growth Fund - Class 1B
____% Putnam VT International New Opportunities Fund - Class 1B
____% FT VIP Templeton International Smaller Companies Fund - Class 2
____% Wanger International Small Cap
*Must be whole numbers. Your above premium payment allocation instructions will
remain in effect for any future premium payments you make until you change your
instructions.
SECTION F - STATE SPECIFIC FRAUD WARNINGS
Applicants in Arkansas and Louisiana - Any person who knowingly presents a false
or fraudulent claim for payment of a loss or benefit or knowingly presents false
information in an application for insurance is guilty of a crime and may be
subject to fines and confinement in prison.
For applicants in Colorado - It is unlawful to knowingly provide false,
incomplete, or misleading facts or information to an insurance company for the
purpose of defrauding or attempting to defraud the company. Penalties may
include imprisonment, fines, denial of insurance, and civil damages. Any
insurance company or agent of an insurance company who knowingly provides false,
incomplete, or misleading facts or information to a policyholder or claimant for
the purpose of defrauding or attempting to defraud the policyholder or claimant
with regard to settlement or award payable from insurance proceeds shall be
reported to the Colorado Division of Insurance within the Department of
Regulatory Agencies.
For applicants in District of Columbia - WARNING: It is a crime to provide false
or misleading information to an insurer or any other person. Penalties include
imprisonment and/or fines. In addition, an insurer may deny insurance benefits
if false information materially related to a claim was provided by the
applicant.
<PAGE>
For applicants in Florida - Any person who knowingly and with intent to injure,
defraud, or deceive any insurer files a statement of claim or an application
containing any false, incomplete, or misleading information is guilty of a
felony of the third degree.
For applicants in Indiana - Any person who knowingly and with intent to defraud
an insurer files a statement of claim containing any false, incomplete, or
misleading information commits a felony.
For applicants in Kentucky - Any person who knowingly and with intent to defraud
any insurance company or other Person files an application for insurance
containing any materially false information or conceals, for the purpose of
misleading, information concerning any fact material thereto commits a
fraudulent insurance act, which is a crime.
For applicants in Maine - It is a crime to knowingly provide false, incomplete
or misleading information to an insurance company for the purpose of defrauding
the company. Penalties may include imprisonment, fines or a denial of insurance
benefits.
For applicants in New Jersey - Any person who includes any false or misleading
information on an application for an insurance policy is subject to criminal and
civil penalties.
For applicants in New Mexico - Any person who knowingly presents a false or
fraudulent claim for payment of a loss or benefit or knowingly presents false
information in an application for insurance is guilty of a crime and may be
subject to civil fines and criminal penalties.
For applicants in Ohio - Any person who, with intent to defraud or knowing that
he is facilitating a fraud against an insurer, submits an application or files a
claim containing a false or deceptive statement is guilty of insurance fraud.
For applicants in Oklahoma - WARNING: Any person who knowingly, and with intent
to injure, defraud or deceive any insurer, makes any claim for the proceeds of
an insurance policy containing any false, incomplete or misleading information
is guilty of a felony.
For applicants in Pennsylvania - Any person who knowingly and with intent to
defraud any insurance company or other person files an application for insurance
or statement of claim containing any materially false information or conceals
for the purpose of misleading, information concerning any fact material thereto
commits a fraudulent insurance act, which is a crime and subjects such person to
criminal and civil penalties.
For applicants in Virginia - It is a crime to knowingly provide false,
incomplete or misleading information to an insurance company for the purpose of
defrauding the company. Penalties include imprisonment, fines and denial of
insurance benefits.
SECTION G - SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER CERTIFICATION
You certify, under the penalties of perjury as required by Form W-9 of the
Internal Revenue Service, that:
1. The number shown n this form is your correct taxpayer identification number
(or you are waiting for a number to be issued to you), and
2. You are not subject to backup withholding because: (a) you are exempt from
backup withholding, or (b) you have not been notified by the Internal Revenue
Service that you are subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has notified you that you
are no longer subject to backup withholding.
You must cross out item 2 above if you have been notified by the IRS that you
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return. The Internal Revenue Service does not require
your consent to any provision of this document other than the certifications
required to avoid backup withholding.
<PAGE>
SECTION H - AGREEMENTS AND SIGNATURES
By signing this application, you acknowledge all of the following terms and
conditions.
You have read the answers and statements made in this application. You declare
to the best of your knowledge and belief, they are complete and true. You
understand and agree they shall be the basis for and part of any policy issued.
Only officers of American Enterprise Life Insurance Company (AEL) have the
authority to decide on insurability and risk classification. The officers of AEL
are the President, Vice President, Secretary and Assistant Secretary. No change
in or waiver of anything in this application or alteration of an insurance
policy is binding unless it is in writing and signed by an officer of AEL. You
also understand and agree that by accepting any policy issued, you ratify any
changes made by AEL on the Home Office Endorsement form attached to the policy.
However, you must agree in writing to any changes in type of plan, amount,
benefits, age at issue or risk classification.
You have received and read AEL's Client Information Practices. You understand
and agree that AEL will use and release information as described.
If the full premium, according to the frequency of premium payment selected, is
paid and the Conditional Receipt attached to this application is given to you,
AEL's liability will be as stated in the Conditional Receipt. If the premium is
not paid, no insurance will take effect unless and until the policy is delivered
and the full first premium according to the frequency of premium payment
selected is paid during the life and continued insurability of the proposed
insured. If you have submitted an initial premium with this application, you
certify you have received the Conditional Receipt.
Authorization: You authorize any physician, medical practitioner, hospital,
other medical facility, the Medical Information Bureau, employer, and consumer
reporting agency having medical and other information about you and your minor
children to give that information to American Enterprise Life Insurance Company
(AEL) or its reinsurer. You understand that AEL will use this information to
determine eligibility for insurance and benefits. You acknowledge that your
medical records, including any alcohol or drug abuse information, may be
protected by the Federal Alcohol and Drug Abuse Regulation 42 CFR Part 2. You
authorize AEL to obtain investigative consumer reports on you. You understand
that you have the right to request a personal interview if an investigative
consumer report is obtained.
This Authorization is valid for a period of two and one-half years from the date
signed. A photocopy of this form is as valid as the original. You are aware that
you have the right to receive a copy of this Authorization.
Signatures:
Insured (base plan)
X___________________________________________
Owner (omit if already signed as the Insured)
X___________________________________________
Signed on (date) ___________________, (state) _________________, at
(city) ________________________
<PAGE>
SECTION I - AGENT'S REPORT
Agent's Name
- --------------------------------------------
Agent's ID or Social Security Number
- ------------------------------------------------------------------------------
Agency Name and Number (if applicable)
- --------------------------------------------
Telephone Number
- --------------------------------------------
Fax Number
- --------------------------------------------
Branch Address
- --------------------------------------------
Sale Location
- --------------------------------------------
I hereby certify that I personally solicited this application; that the
application and this report are complete and accurate to the best of my
knowledge and belief. To the best of my knowledge and belief this application
does does not involve replacement of existing life insurance or annuity
contracts. (If replacement is involved, I have provided details - company,
contract number, amount - in the application and have completed any state
replacement requirements including any required state replacement forms).
Signature of Licensed Agent
X___________________________________________
Date
____________________________________________
IDS LIFE INSURANCE COMPANY'S DESCRIPTION OF TRANSFER AND REDEMPTION PROCEDURES
AND METHOD OF CONVERSION TO FIXED BENEFIT POLICIES
This document sets forth, as required by Rule 6e-3(T) (b) (12) (ii), the
administrative procedures that will be followed by American Enterprise Life
Insurance Company ("AEL") in connection with the issuance of its flexible
premium variable life insurance policy ("Policy"), the transfer of assets held
thereunder, and the redemption by Policyowners of their interests in said
Policies. The document also describes the method that AEL will use when a Policy
is exchanged for a fixed benefit insurance policy pursuant to Rule 6e-3 (T) (b)
(13) (v) (B).
TRANSFER AND REDEMPTION PROCEDURES
I. Purchase and Related Transactions
A. Premium Schedules and Underwriting Standards
This Policy is a flexible premium policy. The Policyowner has flexibility,
subject to certain restrictions, in determining the amount and frequency of
premium payments. At the time of application, the Policyowner will determine A
Scheduled Premium. The Scheduled Premium is a level amount at a fixed interval
of time. However, the Policyowner can change the Scheduled Premium, skip premium
payments or make additional premium payments. Generally, the Policyowner may,
subject to certain restrictions, make premium payments in any amount and at any
frequency.
Failure to pay a Scheduled Premium will not itself cause a Policy to lapse.
Payment of Scheduled Premiums, however, will not guarantee that it will remain
in force. (For further information about when a Policy will lapse, see page 7.)
Each month, a deduction is made form the Policy Value for the cost of insurance
and the cost of any riders. This deduction is based on the age, sec and rate
classification of the Insured.
The Policies will be offered and sold pursuant to established underwriting
standards, and in accordance with state insurance laws, which prohibit unfair
discrimination among Policyowners, but recognize that insurance costs must be
based upon factors such as age, sex, health or occupation.
B. Application and Initial Premium Processing
Upon receipt of a completed application, AEL will follow certain insurance
underwriting (i.e., evaluation of risks) procedures designed to determine
whether the proposed Insured is insurable. This process may involve such
verification procedures as medical examinations and may require that further
information be provided by the proposed Insurance before a determination can be
made. A Policy will not be issued and consequently a Policy Date established,
until this underwriting procedure has been completed.
If a premium is submitted with the policy application, insurance coverage will
begin immediately if the Insured is insurable under a temporary insurance
agreement. Otherwise, insurance coverage will not begin until coverage is
approved by AEL.
If a premium is not paid with the application, insurance coverage will begin on
the date the premium is received, if the Insured is insurable under a temporary
insurance agreement, or on the later of the date the premium is received or the
date AEL approves coverage if the Insured is not insurable under a temporary
insurance agreement.
<PAGE>
C. Premium Allocation
In the application for a Policy, the Policyowner can allocate premiums to the
Fixed Account and/or the subaccounts. As of the date AEL's underwriting
department approves the application, the net premiums will be allocated to the
Fixed Account and/or the subaccounts in accordance with the allocation
instructions received from the Policyowner in the application. Future net
premiums will be allocated to the Fixed Account and/or the subaccounts, in
accordance with the application allocation instructions unless the Policyowner
changes the allocation instructions by written request. Net premiums received
after the date AEL receives the new instructions, will be allocated to the Fixed
Account and/or the subaccounts, based on the new allocation instructions.
D. Repayment of Loan
A loan made under the policy will be subject to an interest rate of 6%
per year. The Policyowner can at any time make a loan repayment which must be at
least $25 or 100% of the amount of the outstanding loan, if less.
When a loan is made, any loan taken from the subaccounts will be transferred to
the Fixed Account. The portion of the Fixed Account Value which equals
indebtedness will be credited with interest at a rate of 4%.
All loan repayments will be allocated to the Fixed Account and/or the
subaccounts, using the premium allocation percentages in effect at the time of
payment unless the Policyowner specifies that the loan repayment is to be
allocated in a different manner.
Transfer Among the Subaccounts and the Fixed Account.
The Policy currently has a Fixed Account and forty two subaccounts.
Except as noted in the next paragraph, the Policyowner may transfer at any time
all or part of the value of a subaccount to other subaccounts, or to the Fixed
Account by written request or other requests acceptable to AEL. Each transfer
must be for a minimum of $250 or, if the value of the subaccount is less than
$250, the value of the subaccount. The transfer will take effect on the date the
request is received by AEL. AEL reserves the right to limit transfers to twelve
each policy year.
The Policyowner may also transfer from the Fixed Account to the subaccounts once
a year but only on the policy anniversary or within 30 days after such policy
anniversary. If such a transfer is made, the Policyowner cannot transfer from
the subaccounts back to the Fixed Account until the next policy anniversary. If
AEL received a request within 30 days before a policy anniversary date, the
transfer will be effective on the anniversary date. If AEL Life receives a
request within 30 days after a policy anniversary date, the transfer will be
effective on the date the request is received by AEL. The minimum transfer
amount is $250 or the Fixed Account Value less indebtedness, if less. The
maximum transfer amount is the Fixed Account Value less indebtedness.
The owner also may request a transfer by calling AEL. AEL has the authority to
honor any telephone transfer request believed to be authentic. AEL is not
responsible for determining the authenticity of such calls.
III. "Redemption" Procedures: Surrender and Related Transactions
<PAGE>
A. Surrender for Cash Value
At any time before the death of the Insured, the Policyowner may completely
Surrender the Policy by written request. Any Surrender payment from the
subaccounts will be made within seven days after AEL received the Written
request, unless payment is postponed pursuant to the relevant provisions of the
Investment Company Act or 1940. Any surrender payment from the Fixed Account may
be postponed for up to 6 months. If AEL postpones payment more than 30 days,
interest at an annual rate of 3 percent will be paid on the amount surrendered
for the period of postponement. The Surrender payment will equal the
Policyowner's Policy Value minus Indebtedness and, during the first fifteen
Policy Years, or during the fifteen years after a requested increase in
Specified Amount, the Surrender Charge.
After the first policy year, the Policyowner may also request a partial
surrender up to 90% of the Policy's Cash Surrender Value by written request or
by calling AEL. AEL has the authority to honor any telephone surrender request
believed to be authentic. AEL is not responsible for determining the
authenticity of such calls. A fee of $25, but not exceeding 2% of the amount
surrendered is assessed for each partial surrender. The amount of any partial
surrender must be at least $500.
Benefit Claims
As long a the Policy remains in force, AEL will pay a death benefit to the named
beneficiary after receipt of due proof of death of the Insured unless the Policy
is contested. The amount of the death benefit will be determined as of the date
of death of the Insured. The death benefit proceeds will include interest from
the date of death until the date of payment. The death benefit proceeds payable
will be reduced by any Loan Balance.
The policy provides two Death Benefit Options - Option 1 (a level amount option)
and Option 2 (a variable amount option). The Policyowner chooses which option
applies.
Under Option 1, the death benefit is the greater of
1. the Specified Amount; or
2. the applicable percentage of the Policy Value.
Under Option 2, the death benefit is the greater of
1. the Policy Value plus the Specified Amount; or
2. the applicable percentage of the Policy Value.
In lieu of payment of the death benefit in a single sum, an election may be made
to apply all or a portion of the proceeds under one of the fixed benefit
settlement options described in the Policy. The beneficiary may make an election
unless the Policyowner has already done so. The fixed benefit settlement options
are subject to the restriction and limitations set forth in the policy.
C. Policy Lapsation
A lapse will occur if, on the monthly date, the Cash Surrender Value is less
than the monthly deduction for the policy month following such monthly date, and
the policy is not being continued under the No Lapse Guarantee provision. It
lapse is going to occur, AEL will notify the Policyowner, and the Policyowner
will have a 61 day grace period to make a premium payment so that the estimated
Cash Surrender Value will be sufficient to cover the next three monthly
deductions.
The No Lapse Guarantee provision provides that, until five years from the Policy
Date, the policy will not lapse even if the Cash Surrender Value cannot cover
the monthly deduction on a monthly date if (a) equals or exceeds (b) where:
<PAGE>
(a) is the sum of all premiums paid minus any partial surrenders
and minus any indebtedness, and
(b) in the minimum monthly premiums shown in the Policy times the
number of months since the Policy Date, including the current
month.
D. Loans
The Policyowner may take loans under the Policy at any time as long as the
resulting Indebtedness (including any existing indebtedness) does not exceed 90%
of the Policy Value, less surrender charges. The Policy is the only security for
the loan. The requested loan amount will be taken from the Fixed Account and the
subaccounts in proportion to their respective Values on the date of the loan,
unless the Policyowner requests a different allocation. Any loan taken from the
subaccounts will be transferred to the Fixed Account. (For further information
about the loan provisions, see page 3.)
The owner may obtain a loan by sending a written request or calling AEL. AEL
Life has the authority to honor any telephone loan request believed to be
authentic. AEL is not responsible for determining the authenticity of such
calls.
CASH ADJUSTMENT UPON EXCHANGE OF CONTRACT
At any time within 24 months of the Policy's Policy Date, the Policyowner may
exchange the Policy for a Flexible Premium Adjustable Whole Life Policy which
provides for benefits that do not vary with the investment return of the
Variable Account. The exchange is accomplished by transferring all of the Policy
Value in the subaccounts to the Fixed Account.
November 16, 1999
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
RE: American Enterprise Variable Life Account
Pre-Effective Amendment No.1
Flexible Premium Variable Life Insurance Policy
(333-84121/811-09515)
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise Variable Life
Account ("Account"), which is a separate account of American Enterprise Life
Insurance Company ("Company") established by the Company's Board of Directors
according to applicable insurance law. I also am familiar with the
above-referenced Registration Statement filed by the Company on behalf of the
Account with the Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is validly created and existing separate account of the Company
and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectus contained in the Registration Statement and in
compliance with applicable law, will be legally issued and represent
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Vice President, Group Counsel and Assistant Secretary
November 9, 1999
American Enterprise Life Insurance Company
80 South Eighth Street
P.O. Box 534
Ladies and Gentlemen:
This opinion is furnished in connection with the Pre-Effective Amendment No. 1
(Amendment) by American Enterprise Life Insurance Company for the filing of the
American Express Signature Variable Universal Life, a flexible premium variable
life insurance policy ("the SIG-VUL Policy"), File No. 333-84121, under the
Securities Act of 1933. The prospectus included on Form S-6 in the Amendment
describes the SIG-VUL Policy. I am familiar with the SIG-VUL Policy, the
Amendment and the exhibits thereto. In my opinion, the illustrations of Death
Benefits, Policy Values and Surrender Values included in the section of the
prospectus entitled "Illustrations", under the assumptions stated in that
sections are consistent with the provisions of the SIG-VUL Policy.
I hereby consent to the use of this opinion as an exhibit to the registration
statement and to the reference to my name under the heading "Experts" in this
prospectus.
Very Truly Yours,
/s/ Mark Gorham
Mark Gorham, F.S.A., M.A.A.A.
Actuarial Director - Insurance Product Development
CONSENT OF ACTUARY
The Board of Directors
American Enterprise Life Insurance Company
I consent to the reference to me under the caption "Experts" and to the use of
my opinion dated November 10, 1999 on the Illustrations used by American
Enterprise Life Insurance Company in the Prospectus for the filing of the
American Express Signature Variable Universal Life, a flexible premium variable
life insurance policy ("the SIG-VUL Policy") offered by American Enterprise Life
Insurance Company as part of the Pre-Effective Amendment No. 1, File No.
333-84121, being filed under the Securities Act of 1933.
/s/ Mark Gorham
Mark Gorham, F.S.A., M.A.A.A.
Actuarial Director - Insurance Product Development
Minneapolis, Minnesota
November 9, 1999
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 4, 1999 with respect to the financial
statements of American Enterprise Life Insurance Company, included in
Pre-Effective Amendment No. 1 to the Registration Statement (Form S-6, No.
333-84121) and related Prospectus for the registration of the American Express
Signature Variable Universal Life Insurance Policies (SIG-VUL) to be offered by
American Enterprise Life Insurance Company.
/s/ Ernst & Young LLP
Ernst & Young LLP
Minneapolis, Minnesota
November 15, 1999
November 16, 1999
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-10014
ATTN: Document Control - EDGAR
RE: Pre-Effective Amendment No. 1 on Form S-6/A (File No. 333-84121)
And Amendment No. 2 to Form N-8B-2
American Enterprise Variable Life Account
Investment Company Act No. 811-09515
Dear Commissioners:
American Enterprise Variable Life Account, the Registrant, has filed
Pre-Effective Amendment No. 1, dated on or about November 16, 1999, to the
above-referenced Form S-6 Registration Statement. Pursuant to Rule 461, the
Principal Underwriter for the Registrant, American Express Financial Advisors
Inc. now respectfully requests that the effective date of the Registration be
accelerated and that the Registration Statement be declared effective on
November 18, 1999 or as soon as practicable thereafter.
Yours Truly,
AMERICAN EXPRESS FINANCIAL ADVISORS INC.
(Principal Underwriter)
/s/ William A. Stoltzmann
William A. Stoltzmann
Vice President and Assistant General Counsel
