American Express
Signature
Variable
Universal LifeSM
Issued by:
American Enterprise Life
Insurance Company
This wrapper
includes a Prospectus
<PAGE>
Prospectus
Dec. 23, 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 3
Loads, Fees and Charges 5
Purchasing Your Policy 11
Keeping the Policy in Force 13
The Variable Account 14
The Funds 15
Rates of Return of the Subaccounts 20
The Fixed Account 21
Policy Value 22
Policy Value Credits 24
Proceeds Payable Upon Death 25
Transfers between the Fixed Account and Subaccounts 28
Policy Loans 32
Policy Surrenders 33
Optional Insurance Benefits 34
Payment of Policy Proceeds 35
Federal Taxes 38
American Enterprise Life 40
Management of American Enterprise Life 42
Other Information 43
Policy Illustrations 44
Key Terms 48
<PAGE>
The Policy in Brief
Loads, fees and charges: You pay the following charges, either indirectly (as
deductions from the underlying funds), or directly (such as deductions from your
premium payments or from your policy value). These charges primarily compensate
American Enterprise Life for administering and distributing the policy as well
as paying policy benefits and assuming related risks:
o Fund expenses -- apply only to the underlying funds and consists of
investment management fees, 12b-1 fees, taxes, brokerage commissions
and nonadvisory expenses ranging from 0.65% to 2.01% in total
expenses. (p. 5)
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.
Purchasing your policy: To apply, send a completed application and premium
payment to American Enterprise Life's 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. 11)
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. In Hawaii, Illinois,
Virginia, Washington and Wisconsin, you will receive a full refund of all
premiums paid. (p. 11)
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. 11)
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. 13)
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. 13)
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. 13)
<PAGE>
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. 14)
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. 21)
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.
(p. 24)
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. 25)
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. 28)
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. 32)
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. 33)
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. 35)
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 591/2. 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. 38)
<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.
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.
Annual operating expenses of the funds
(as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other
Fees Fees Expenses Total
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
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 Income Fund .56% .13 .26 .95%11
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 waivers and expense reimbursements) -- -- 1.21 1.21%3
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 Portfolio (Class B) .60% .25 .18 1.03%4
Baron Capital Asset Fund (after fee waivers and expense reimbursements) 1.00% .25 .20 1.45%5
Fidelity VIP III Growth & Income Portfolio (Service Class) .49% .10 .11 .70%1,6
Fidelity VIP III Mid Cap Portfolio (Service Class) .59% .10 .41 1.10%1,6
Fidelity VIP Overseas Portfolio (Service Class) (after expense reimbursements) .74% .10 .13
.97%1,6
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
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Management 12b-1 Other
Fees Fees Expenses Total
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
FT VIP Templeton International Smaller Companies Fund - Class 2 1.00% .25 .10 1.35%7
Goldman Sachs VIT Capital Growth Fund .75% -- .15 .90%
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
(after fee waivers and expense reimbursements) .35% -- .52 .87%8
Lazard Retirement Equity Portfolio
(after fee waivers and expense reimbursements) .75% .25 .25 1.25%9
Lazard Retirement International Equity Portfolio
(after fee waivers and expense reimbursements) .75% .25 .25 1.25%9
MFS(R)New Discovery Series (after fee waivers and expense reimbursements) .90% -- .27 1.17%10
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 Shares .80% .15 .27 1.22%11
Putnam VT International New Opportunities Fund - Class IB Shares 1.18% .15 .68 2.01%11
Royce Micro-Cap Portfolio (after fee waivers and expense reimbursements) 1.25% -- .10 1.35%12
Royce Premier Portfolio (after fee waivers and expense reimbursements) 1.00% -- .35 1.35%12
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>
1 The operating expenses (without reimbursement) are annualized for the period
ended Dec. 31, 1998 because the fiscal year end of the fund is Aug. 31.
2 Figures in "Management Fees," "Other Expenses" and "Total" are based on actual
expenses for the fiscal year ended Dec. 31, 1998.
3 Had there been no fee waivers or expense reimbursements, expenses would have
been: 0.75%, 0.00%, 5.05% and 5.80%, respectively.
4 The 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 because
the Class B shares were not offered until June, 1999.
5 Fees 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%).
6 Fidelity 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%).
7 The 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.)
8 Fees 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% as a result of a change in fund strategy.
9 The 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).
10 Fees 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%).
11 Based on estimated expenses because Class IBshares had not been issued for a
full fiscal year as of Dec. 31, 1998.
12 Expense 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%).
13 The 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.
14 Because the portfolio is new, fees are estimated net of waivers and/or
reimbursements for the fiscal year ended December 31, 1999. Fee waivers and/or
reimbursements may be discontinued at anytime. 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.
<PAGE>
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.
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 or Nonsmoker Mortality
Tables, Age Last Birthday.
<PAGE>
(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.
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 $1,201.00
2 1,120.93
3 1,040.87
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.
<PAGE>
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 1,000 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
1,000 of $57.32 multiplied by 5,000 or $286,600.
Maximum Surrender Charge
(Rate per Thousand of Initial Specified Amount)
Standard Standard
Age Male Female
0 7.25 6.84
1 7.20 6.81
2 7.27 6.85
3 7.33 6.91
4 7.40 6.96
5 7.48 7.03
6 7.56 7.08
7 7.64 7.15
8 7.75 7.23
9 7.84 7.29
10 7.95 7.37
11 8.07 7.47
12 8.19 7.55
13 8.31 7.64
14 8.44 7.75
15 8.57 7.84
16 8.69 7.95
17 8.83 8.05
18 8.96 8.17
19 9.09 8.29
Nonsmoker Smoker Nonsmoker Smoker
Male Male Female Female
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
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
<PAGE>
Maximum Surrender Charge
(Rate per Thousand of Initial Specified Amount)
Nonsmoker Smoker Nonsmoker Smoker
Age Male Male Female Female
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
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>
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.
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.
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.
In Hawaii, Illinois, Virginia, Washington and Wisconsin, you will receive a full
refund of all premiums paid. 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.
<PAGE>
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>
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 (except in
Tennessee and Virginia) 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.
<PAGE>
<TABLE>
<CAPTION>
The Funds
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 IDS Life, investment
Diversified Equity Income income and, as a secondary goal, manager; AEFC
Fund steady growth of capital. investment advisor.
Invests primarily in dividend-paying
common and 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 in 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 Fidelity Management & Research
& Income Portfolio (Service combination of current income and capital Company (FMR), investment
appreciation. Invests primarily in common stocks manager; FMR U.K. and FMR
with a focus on those that pay current dividends Far East, sub-investment
and show potential for capital appreciation. 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
(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 - to medium Management, LLC.
-sized U.S. emerging-growth companies.
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
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.
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.
<PAGE>
Rates of Return of the Subaccounts
Average annual rates of return in the following table reflect all charges
incurred by the fund, charges against the subaccounts (including the mortality
and expense risk charge) and the 3% premium expense charge. The rates do not
reflect the 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 for 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.
<TABLE>
<CAPTION>
Period ending 12/31/98 Subaccount performance since commencement of the Fund
10 years or since
Subaccount Investing in
1 year 5 years commencement
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
VPBCA AXPSM Variable Portfolio-- Blue Chip Advantage Fund (9/99)* --% --% --%
VPBND AXPSM Variable Portfolio-- Bond Fund (10/81)* -2.08 5.55 8.01
VPCPR AXPSM Variable Portfolio-- Capital Resource Fund (10/81)* 19.31 14.82 14.43
VPCMG AXPSM Variable Portfolio-- Cash Management Fund (10/81)* 1.42 3.73 4.44
VPDEI AXPSM Variable Portfolio-- Diversified Equity Income Fund (9/99)* -- -- --
VPEXI AXPSM Variable Portfolio-- Extra Income Fund (5/96)* -8.11 -- 3.12
VPFIF AXPSM Variable Portfolio-- Federal Income Fund (9/99)* -- -- --
VPGRO AXPSM Variable Portfolio-- Growth Fund (9/99)* -- -- --
VPMGD AXPSM Variable Portfolio-- Managed Fund (4/86)* 11.31 12.23 13.19
VPNDM AXPSM Variable Portfolio-- New Dimensions Fund (5/96)* 23.67 -- 21.78
VPSCA AXPSM Variable Portfolio-- Small Cap Advantage Fund (9/99)* -- -- --
VACAP AIM V.I. Capital Appreciation Fund (5/93)* 14.70 15.48 17.06
VACDV AIM V.I. Capital Development Fund (5/98)* -- -- -10.851
VAVAL AIM V.I. Value Fund (5/93)* 27.25 19.88 20.14
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 (10/98)* -- -- 29.431
VFGRI Fidelity VIP III Growth & Income Portfolio (Service Class) (12/96)* 24.27 -- 25.94
VFMDC Fidelity VIP III Mid Cap Portfolio (Service Class) (12/98)* -- -- 0.001
VFOVS Fidelity VIP Overseas Portfolio (Service Class) (12/87)* 2.36 6.02 7.15
VFMSI FT VIP Mutual Shares Securities Fund -
Class 2 (11/96)*3 -3.81 -- 7.10
VFRES FT VIP Franklin Real Estate Fund -
Class 2 (1/89)*3 -20.05 8.38 8.98
VFISC FT VIP Templeton International
Smaller Companies Fund - Class 2 (5/96)*3 -15.60 -- -3.02
VGCPG Goldman Sachs VITCapital Growth Fund (4/98)* -- -- 9.341
VGCUS Goldman Sachs VIT CORESM U.S. Equity Fund (2/98)* -- -- 10.301
VGGLI Goldman Sachs VITGlobal Income Fund (1/98)* -- -- 4.131
VGINE Goldman Sachs VITInternational Equity Fund (1/98)* -- -- 15.461
VJUDE J.P. Morgan U.S. Disciplined Equity Portfolio (12/94)* 18.04 -- 23.95
VLREQ Lazard Retirement Equity Portfolio (3/98)* -- -- 6.801
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
10 years or since
Subaccount Investing in
1 year 5 years commencement
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
VLRIE Lazard Retirement International Equity Portfolio (9/98)* --% --% 8.6210%
VMNDS MFS(R) New Discovery Series (5/98)* -- -- -1.471
VMRES MFS(R)Research Series (7/95)* 18.62 -- 20.43
VMUTS MFS(R)Utilities Series (1/95)* 13.50 -- 23.32
VPGRI Putnam VT Growth and Income Fund - Class IB Shares (2/88)*2 10.96 17.86 14.91
VPIGR Putnam VT International Growth Fund - Class IB Shares (1/97)*2 13.88 -- 14.47
VPINO Putnam VT International New Opportunities Fund - Class IB
Shares (1/97) *211.01 -- 4.801
VRMCC Royce Micro-Cap Portfolio (12/96)* -0.05 -- 9.59
VRPRM Royce Premier Portfolio (12/96)* 4.61 -- 10.18
VWISC Wanger International Small Cap (5/95)* 11.83 -- 19.32
VWUSC Wanger U.S. Small Cap (5/95)* 4.48 -- 24.70
VWTEG Warburg Pincus Trust Emerging Growth Portfolio (9/99)* -- -- --
</TABLE>
*(Commencement date of the fund).
**(Commencement of distribution of Class B shares).
1 These numbers are YTD as of 12/31/98, not annualized.
2 Performance information for Class IB shares for the period prior to April 6,
1998 for Putnam VTGrowth and Income Fund and prior to April 30, 1998 for Putnam
VTInternational Growth Fund and Putnam VTInternational New Opportunities Fund
are based on Class IA Shares adjusted to reflect payments made under the
Class IB distribution Plan.
3 Because no Class 2 shares were issued as of 12/31/98, Class 2 performance
represents the historical performance results of Class 1 shares. Performance of
Class 2 shares for periods after its 1/6/99 inception will reflect Class 2's
additional 12b-1 expense which also affects all future performance.
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.
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.
<PAGE>
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.
<PAGE>
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.
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.
<PAGE>
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.
(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 is
made.
We reserve the right to calculate and apply the policy value credit on a
quarterly or monthly basis.
The policy value credit amount shall be applied to the policy value on a pro
rata basis.
<PAGE>
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.
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.)
<TABLE>
<CAPTION>
Applicable percentage table
Insured's attained Applicable Insured's attained Applicable
insurance age percentage of insurance age percentage of
policy value policy value
<S> <C> <C> <C>
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
</TABLE>
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 TRANSFER PER YEAR
We reserve the right to limit mail and telephone transfers to 12 per policy
year. Twelve automated transfers per policy are allowed.
<PAGE>
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 06129
- -------------------------------------------------------------------------------
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)
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.
<PAGE>
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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
By investing an equal Jan $100 $20 5.00
number of dollars each
month... Feb 100 16 6.25
Mar 100 9 11.11
you automatically buy Apr 100 5 20.00
more units when the
per unit market price May 100 7 14.29
is low...
June 100 10 10.00
July 100 15 6.67
and fewer units when Aug 100 20 5.00
the per unit market
price is high. Sept 100 17 5.88
Oct 100 12 8.33
</TABLE>
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.
<PAGE>
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.
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.
<PAGE>
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.")
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.
EFFECT 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:
-- First from the portion due to the most recent increase;
-- Next from portions due to the next most recent increases successively; and
-- 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.
<PAGE>
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.
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 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.
<PAGE>
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).
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.
<PAGE>
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.
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.
<PAGE>
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.
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.
<PAGE>
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's 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.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Source of proceeds Taxable portion of pre-death proceeds
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------
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 (modified endowments): Lesser of:
the amount you receive or policy value minus your
investment in the policy.*
Policy loans and assignments (modified endowments) Lesser of:
the amount of the loan/assignment or policy value
minus your investment in the policy.*
Partial surrenders (other policies): Generally, if the amount you receive is
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 (other policies): None
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.
<PAGE>
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.
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 591/2;
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.
<PAGE>
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.
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 Insurance 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 Insurance 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.
<PAGE>
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.
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 accounts 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 unit. 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 of
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.
<PAGE>
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, the funds are no longer suitable
for the subaccounts.
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.
<PAGE>
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.
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:
<PAGE>
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.
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:
Gross annual investment rate Net annual rate of return for
of return Guaranteed and Current illustrations
0% -1.92%
6 3.96%
12 9.85%
<PAGE>
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.
<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 of annual investment return of
policy interest
year at 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 $ 757 $ -- $ -- $ --
2 $ 1,537 $100,000 $100,000 $100,000 $1,207 $ 1,331 $ 1,498 $ 86 $ 210 $ 377
3 $ 2,979 $100,000 $100,000 $100,000 $1,782 $ 2,026 $ 2,306 $ 742 $ 986 $ 1,265
4 $ 4,073 $100,000 $100,000 $100,000 $2,337 $ 2,739 $ 3,183 $1,376 $ 1,778 $ 2,222
5 $ 5,222 $100,000 $100,000 $100,000 $2,876 $ 3,475 $ 4,139 $1,995 $ 2,594 $ 3,259
6 $ 6,428 $100,000 $100,000 $100,000 $3,397 $4,232 $ 5,184 $2,596 $ 3,432 $ 4,384
7 $ 7,694 $100,000 $100,000 $100,000 $3,903 $5,016 $ 6,328 $3,182 $ 4,296 $ 5,607
8 $ 9,024 $100,000 $100,000 $100,000 $4,389 $5,821 $ 7,577 $3,749 $ 5,181 $ 6,936
9 $10,420 $100,000 $100,000 $100,000 $4,859 $6,651 $ 8,942 $4,299 $ 6,091 $ 8,381
10 $11,886 $100,000 $100,000 $100,000 $5,301 $7,497 $ 10,429 $4,821 $ 7,016 $ 9,949
11 $13,425 $100,000 $100,000 $100,000 $5,751 $8,404 $ 12,053 $5,350 $ 8,004 $ 11,653
12 $15,042 $100,000 $100,000 $100,000 $6,169 $9,330 $ 13,880 $5,849 $ 9,010 $ 13,560
13 $16,739 $100,000 $100,000 $100,000 $6,556 $10,271 $ 15,877 $6,315 $10,031 $ 15,637
14 $18,521 $100,000 $100,000 $100,000 $6,924 $11,244 $ 18,069 $6,763 $11,084 $ 17,909
15 $20,392 $100,000 $100,000 $100,000 $7,249 $12,226 $ 20,469 $7,169 $12,146 $ 20,389
16 $22,356 $100,000 $100,000 $100,000 $7,540 $13,225 $ 23,096 $7,540 $13,225 $ 23,096
17 $24,419 $100,000 $100,000 $100,000 $7,790 $14,237 $ 25,977 $7,790 $14,237 $ 25,977
18 $26,585 $100,000 $100,000 $100,000 $7,996 $15,259 $ 29,135 $7,996 $15,259 $ 29,135
19 $28,859 $100,000 $100,000 $100,000 $8,163 $16,295 $ 32,607 $8,163 $16,295 $ 32,607
20 $31,247 $100,000 $100,000 $100,000 $8,276 $17,335 $ 36,422 $8,276 $17,335 $ 36,422
Age 60 $100,000 $100,000 $100,000 $7,953 $22,541 $ 64,342 $7,953 $22,541 $ 64,342
Age 65 $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 of annual investment return of
policy interest
year at 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 $100,000 $100,000 $100,000 $5,455 $18,162 $ 55,635 $5,455 $18,162$ 55,635
Age 65 $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 the 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.
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.
<PAGE>
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.
<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>
American Enterprise Life Insurance Company
Administrative Offices:
80 South Eighth Street
P.O. Box 534
Minneapolis, MN 55440
(C) 2000 American Express Financial Corporation
All rights reserved.
S-6482 A (1/00)
