SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
Post-Effective Amendment No. 5
to Registration Statement No. 333-86297
Under
The Securities Act of 1933
American Enterprise MVA Account
(Exact name of registrant as specified in charter)
Indiana
------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
63
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(Primary Standard Industrial Classification Code Number)
94-27-86905
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(I.R.S. Employer Identification No.)
829 AXP Financial Center, Minneapolis, MN 55474
(612) 671-3131
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(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Mary Ellyn Minenko, Counsel
American Enterprise Life Insurance Company
829 AXP Financial Center, Minneapolis, Minnesota 55474
(612) 671-3678
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
It is proposed that this filing become effective on May 1, 2000.
If any of the Securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Calculation of Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per aggregate offering registration fee
registered unit price
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
Interests in the N/A
Guarantee Period Accounts
of the Wells Fargo AdvantageSM
Variable Annuity,
the Wells Fargo AdvantageSM
Builder Variable Annuity,
the American Express Signature
Variable AnnuitySM,
the American Express Signature One
Variable AnnuitySM and the
American Express New Solutions
Variable AnnuitySM Contracts
- ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
</TABLE>
<PAGE>
Registration Statement on Form S-1
Cross-Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
Form S-1 Item Number and Caption Located in Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover
2. Inside Front and Outside Back
Cover Pages of Prospectus Table of Contents
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed
Charges Summary or, as to ratio of
earnings to fixed charges,
Not Applicable
4. Use of Proceeds The variable accounts;
The fixed accounts
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of Contracts
9. Description of Securities to Be Registered The variable accounts;
The fixed accounts
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant About American Enterprise
Life; Additional Information
about American Enterprise Life
12. Disclosure of Commission Position
on Indemnification for Securities See Item 14 in Part II
Act Liabilities
<PAGE>
PART I.
INFORMATION REQUIRED IN PROSPECTUS
Attached are the following prospectuses containing information for the American
Enterprise MVA Account:
Wells Fargo AdvantageSM Variable Annuity
Wells Fargo AdvantageSM Builder Variable Annuity
American Express Signature Variable Annuity SM
American Express Signature One Variable Annuity SM
American Express New Solutions Variable Annuity SM
<PAGE>
Prospectus
May 1, 2000
Wells Fargo Advantage(SM) Variable Annuity
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
o American Express(R) Variable Portfolio Funds
o AIM Variable Insurance Funds
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Franklin Templeton Variable Insurance Products Trust (FTVIPT)
o Goldman Sachs Variable Insurance Trust (VIT)
o MFS(R) Variable Insurance Trust(SM)
o Putnam Variable Trust - Class IB Shares
o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract 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 contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms 3
The Contract in Brief 5
Expense Summary 7
Condensed Financial Information (Unaudited) 15
Financial Statements 18
Performance Information 18
The Variable Account and the Funds 20
The Fixed Accounts 26
Buying Your Contract 28
Charges 31
Valuing Your Investment 36
Making the Most of Your Contract 38
Withdrawals 44
Changing Ownership 45
Benefits in Case of Death 45
The Annuity Payout Period 49
Taxes 52
Voting Rights 54
Substitution of Investments 55
About the Service Providers 56
Additional Information About American Enterprise Life 57
Directors and Executive Officers 62
Experts 63
American Enterprise Life Insurance Company Financial Information 64
Table of Contents of the Statement of Additional Information 81
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- a deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
<PAGE>
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to your sales representative or
to our office within the time stated on the first page of your contract and
receive a full refund of the contract value. However, you bear the investment
risk from the time of purchase until you return the contract; the refund amount
may be more or less than the payment you made. (Exception: If the law requires,
we will refund all of your purchase payments.)
Accounts: Currently, you may allocate your purchase payments among
any or all of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 20)
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to these
accounts. (p. 26)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office.
Contracts sold through American Express Financial Advisors Inc. (AEFA) are only
available with a seven-year withdrawal charge schedule. You may buy a qualified
annuity or a nonqualified annuity through your AEFA sales representative. You
may be able to buy another contract with the same underlying funds. This
contract has different mortality and expense risk fees and withdrawal charges
and offers purchase payment credits. For information on this contract, please
call us at the telephone number listed on the first page of this prospectus or
ask your sales representative. After your initial purchase payment, you have the
option of making additional purchase payments in the future. (p. 28)
o Minimum initial purchase payment (not including Systematic Investment Plans
(SIPs)) -- $5,000 in Texas, Washington and South Carolina; $2,000 in all
other states.
o Minimum additional purchase payment -- $100 ($50 for SIPs).
o Maximum total purchase payments (without prior approval) -- $99,999 for
contracts sold through AEFA and $1,000,000 for all other contracts.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the accounts without charge at any time until annuity payouts begin,
and once per contract year among the subaccounts after annuity payouts begin.
Transfers out of the Guarantee Period Accounts before the end of the Guarantee
Period will be subject to a MVA. You may establish automated transfers among the
accounts. Fixed account transfers are subject to special restrictions. (p. 39)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 44)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 45)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 49)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. However, Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 31):
o $30 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.30% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a five-year withdrawal charge schedule;
o a 1.05% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a seven-year withdrawal charge schedule;
o if you select the Enhanced Death Benefit Rider*, an additional 0.20%
mortality and expense risk fee (if you allocate money to one or more
subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider**, an annual fee
based on the Guaranteed Income Benefit Base (currently at 0.30%);
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments or
when you make a total withdrawal); and
o the operating expenses of the funds in which the subaccounts invest.
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
**This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn. You select either a five-year or seven-year withdrawal charge
schedule* at the time of application.
Five-year schedule Seven-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 6 3 7
4 4 4 6
5 2 5 5
Thereafter 0 6 4
7 2
Thereafter 0
*Contracts sold through AEFA are only available with a seven-year withdrawal
charge schedule.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.77% if the original contract had a five-year withdrawal
charge schedule and 1.52% if the original contract had a seven-year withdrawal
charge schedule. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Annual contract administrative charge $30**
**We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
Guaranteed Minimum Income Benefit Rider*** fee:
as a percentage of the Guaranteed Income Benefit Base charged
annually. This is an optional expense. 0.30%
***This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the length of your contract's withdrawal charge schedule and the
death benefit guarantee provided. The combination you choose determines the fees
you pay. The table below shows the combinations available to you and their cost.
<TABLE>
<CAPTION>
<S> <C> <C>
Five-year withdrawal Seven-year withdrawal
schedule schedule
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.30% 1.05%
Enhanced Death Benefit Rider* fee as part of the mortality and
expense risk fee. This is an optional expense. 0.20% 0.20%
Total annual variable account expenses without the optional
Enhanced Death Benefit Rider fee 1.45% 1.20%
Total annual variable account expenses with the optional
Enhanced Death Benefit Rider fee 1.65% 1.40%
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Annual operating expenses of the funds (after fee waivers and/or expense reimbursements, if applicable, as a percentage
of average daily net assets)
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Capital Resource Fund .60% .13 .06 .79%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Value Fund .61% -- .15 .76%(3)
Dreyfus
The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .04 .79%(3)
FTVIPT
Franklin Income Securities Fund - Class 2 .48% .25 .02 .75%(4)
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(5)
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(6)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(4),(7)
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(8)
Global Income Fund .90% -- .25 1.15%(8)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(9)
Mid Cap Value Fund .80% -- .25 1.05%(8)
MFS(R)
Growth with Income Series .75% -- .13 .88%(10)
Utilities Series .75% -- .16 .91%(10)
Putnam Variable Trust
Putnam VT International Growth Fund - Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
Wells Fargo VT
Asset Allocation Fund .42% .25 .33 1.00%(11)
Corporate Bond Fund .10% .25 .55 .90%(11)
Equity Income Fund .38% .25 .37 1.00%(11)
Equity Value Fund --% .25 .75 1.00%(11)
Growth Fund .32% .25 .43 1.00%(11)
Large Company Growth Fund .12% .25 .63 1.00%(11)
Money Market Fund .10% .25 .50 .85%(11)
Small Cap Growth Fund --% .25 .95 1.20%(11)
</TABLE>
<PAGE>
(1) Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, and
0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
(2) The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
(3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. The fund administration fee is paid indirectly
through the management fee.
(5) Previously Franklin Real Estate Securities Fund. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund administration fee is paid indirectly through the
management fee.
(6) On Feb. 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable Products
Series Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders
approved new management fees, which apply to the combined fund effective
May 1, 2000. The table shows restated total expenses based on the new fees
and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated
as: Management Fees 0.55%, 12b-1 Fees 0.25%, Other Expenses 0.27%, and
Total 1.07%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is
described in the fund's prospectus.
(7) On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec. 31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as: Management Fees 0.60%, 12b-1 Fees 0.25%,
Other Expenses 0.19% and Total 1.04%. The fund's class 2 distribution plan
or "Rule 12b-1 plan" is described in the fund's prospectus.
(8) The fund's expenses are based on estimated expenses for the fiscal year
Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisors, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 1.78%
and 2.68% for Global Income Fund, 0.42% and 1.22% for Mid Cap Value Fund
(formerly the Mid Cap Equity Fund), and 0.20% and 0.90% for CORE(SM) U.S.
Equity Fund. CORE(SM) is a service mark of Goldman Sachs & Co..
(9) Based on projected assets of $150 million, there will be no expense
reimbursement.
(10) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 0.87% for Growth with Income Series and 0.90% for Utilities Series.
(11) Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.13% for Wells
Fargo VT Asset Allocation, 0.45% and 1.25% for Wells Fargo VT Corporate
Bond Fund, 0.55% and 1.17% for Wells Fargo VT Equity Income Fund, 0.55% and
1.57% for Wells Fargo VT Equity Value Fund, 0.55% and 1.23% for Wells Fargo
VT Growth Fund, 0.55% and 1.43% for Wells Fargo VT Large Company Growth
Fund, 0.40% and 1.15% for Wells Fargo VT Money Market Fund, and 0.75% and
2.41% for Wells Fargo VT Small Cap Growth Fund.
<PAGE>
Examples:*
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
five-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and .....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $105.30 $137.78 $152.89 $283.03 $25.30 $77.78 $132.89 $283.03
Capital Resource Fund 103.66 132.86 144.68 266.68 23.66 72.86 124.68 266.68
Diversified Equity Income Fund 105.30 137.78 152.89 283.03 25.30 77.78 132.89 283.03
Extra Income Fund 104.07 134.09 146.74 270.79 24.07 74.09 126.74 270.79
Federal Income Fund 104.58 135.63 149.31 275.91 24.58 75.63 129.31 275.91
New Dimensions Fund(R) 103.86 133.47 145.71 268.74 23.86 73.47 125.71 268.74
Small Cap Advantage Fund 108.17 146.36 167.12 311.02 28.17 86.36 147.12 311.02
AIM V.I.
Capital Appreciation Fund 103.04 131.01 141.59 260.48 23.04 71.01 121.59 260.48
Value Fund 103.35 131.93 143.14 263.58 23.35 71.93 123.14 263.58
Dreyfus
The Dreyfus Socially Responsible 103.66 132.86 144.68 266.68 23.66 72.86 124.68 266.68
Growth Fund, Inc.
FTVIPT
Franklin Income Securities Fund -
Class 2 103.25 131.62 142.62 262.55 23.25 71.62 122.62 262.55
Franklin Real Estate Fund - Class 2 104.07 134.09 146.74 270.79 24.07 74.09 126.74 270.79
Franklin Small Cap Fund - Class 2 106.53 141.46 159.01 295.12 26.53 81.46 139.01 295.12
Mutual Shares Securities Fund -
Class 2 106.22 140.54 157.48 292.11 26.22 80.54 137.48 292.11
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Global Income Fund 107.35 143.91 163.07 303.10 27.35 83.91 143.07 303.10
Internet Tollkeeper Fund 108.37 146.97 168.13 312.99 28.37 86.97 148.13 312.99
Mid Cap Value Fund 106.32 140.85 157.99 293.11 26.32 80.85 137.99 293.11
MFS(R)
Growth with Income Series 104.58 135.63 149.31 275.91 24.58 75.63 129.31 275.91
Utilities Series 104.89 136.55 150.84 278.96 24.89 76.55 130.84 278.96
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 107.55 144.53 164.09 305.09 27.55 84.53 144.09 305.09
Putnam VT Vista Fund - Class IB Shares 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Wells Fargo VT
Asset Allocation Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Corporate Bond Fund 104.78 136.24 150.33 277.94 24.78 76.24 130.33 277.94
Equity Income Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Equity Value Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Growth Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Large Company Growth Fund 105.81 139.32 155.44 288.08 25.81 79.32 135.44 288.08
Money Market Fund 104.27 134.71 147.77 272.84 24.27 74.71 127.77 272.84
Small Cap Growth Fund 107.86 145.44 165.60 308.06 27.86 85.44 145.60 308.06
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
five-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $110.50 $153.84 $180.48 $342.72 $30.50 $93.84 $160.48 $342.72
Capital Resource Fund 108.86 148.94 172.34 326.69 28.86 88.94 152.34 326.69
Diversified Equity Income Fund 110.50 153.84 180.48 342.72 30.50 93.84 160.48 342.72
Extra Income Fund 109.27 150.17 174.38 330.72 29.27 90.17 154.38 330.72
Federal Income Fund 109.78 151.70 176.92 335.74 29.78 91.70 156.92 335.74
New Dimensions Fund(R) 109.06 149.55 173.36 328.71 29.06 89.55 153.36 328.71
Small Cap Advantage Fund 113.37 162.39 194.59 370.16 33.37 102.39 174.59 370.16
AIM V.I.
Capital Appreciation Fund 108.24 147.10 169.27 320.62 28.24 87.10 149.27 320.62
Value Fund 108.55 148.02 170.81 323.66 28.55 88.02 150.81 323.66
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 108.86 148.94 172.34 326.69 28.86 88.94 152.34 326.69
FTVIPT
Franklin Income Securities Fund -
Class 2108.45 147.71 170.30 322.65 28.45 87.71 150.30 322.65
Franklin Real Estate Fund - Class 2 109.27 150.17 174.38 330.72 29.27 90.17 154.38 330.72
Franklin Small Cap Fund - Class 2 111.73 157.51 186.55 354.57 31.73 97.51 166.55 354.57
Mutual Shares Securities Fund - Class 2 111.42 156.60 185.03 351.62 31.42 96.60 165.03 351.62
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Global Income Fund 112.55 159.95 190.57 362.40 32.55 99.95 170.57 362.40
Internet Tollkeeper Fund 113.57 162.99 195.59 372.09 33.57 102.99 175.59 372.09
Mid Cap Value Fund 111.52 156.90 185.54 352.61 31.52 96.90 165.54 352.61
MFS(R)
Growth with Income Series 109.78 151.70 176.92 335.74 29.78 91.70 156.92 335.74
Utilities Series 110.09 152.62 178.45 338.74 30.09 92.62 158.45 338.74
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 112.75 160.56 191.58 364.34 32.75 100.56 171.58 364.34
Putnam VT Vista Fund - Class IB Shares 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Wells Fargo VT
Asset Allocation Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Corporate Bond Fund 109.98 152.31 177.94 337.74 29.98 92.31 157.94 337.74
Equity Income Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Equity Value Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Growth Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Large Company Growth Fund 111.01 155.37 183.01 347.68 31.01 95.37 163.01 347.68
Money Market Fund 109.47 150.78 175.40 332.73 29.47 90.78 155.40 332.73
Small Cap Growth Fund 113.06 161.47 193.08 367.26 33.06 101.47 173.08 367.26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
seven-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $102.73 $140.08 $170.04 $257.37 $22.73 $70.08 $120.04 $257.37
Capital Resource Fund 101.09 135.13 161.75 240.61 21.09 65.13 111.75 240.61
Diversified Equity Income Fund 102.73 140.08 170.04 257.37 22.73 70.08 120.04 257.37
Extra Income Fund 101.50 136.37 163.83 244.82 21.50 66.37 113.83 244.82
Federal Income Fund 102.02 137.92 166.42 250.07 22.02 67.92 116.42 250.07
New Dimensions Fund(R) 101.30 135.75 162.79 242.72 21.30 65.75 112.79 242.72
Small Cap Advantage Fund 105.60 148.70 184.42 286.06 25.60 78.70 134.42 286.06
AIM V.I.
Capital Appreciation Fund 100.48 133.27 158.62 234.26 20.48 63.27 108.62 234.26
Value Fund 100.79 134.20 160.19 237.44 20.79 64.20 110.19 237.44
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 101.09 135.13 161.75 240.61 21.09 65.13 111.75 240.61
FTVIPT
Franklin Income Securities Fund -
Class 2 100.68 133.89 159.67 236.38 20.68 63.89 109.67 236.38
Franklin Real Estate Fund - Class 2 101.50 136.37 163.83 244.82 21.50 66.37 113.83 244.82
Franklin Small Cap Fund - Class 2 103.96 143.78 176.23 269.76 23.96 73.78 126.23 269.76
Mutual Shares Securities Fund - Class 2 103.66 142.86 174.68 266.68 23.66 72.86 124.68 266.68
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Global Income Fund 104.78 146.24 180.33 277.94 24.78 76.24 130.33 277.94
Internet Tollkeeper Fund 105.81 149.32 185.44 288.08 25.81 79.32 135.44 288.08
Mid Cap Value Fund 103.76 143.17 175.20 267.71 23.76 73.17 125.20 267.71
MFS(R)
Growth with Income Series 102.02 137.92 166.42 250.07 22.02 67.92 116.42 250.07
Utilities Series 102.32 138.84 167.97 253.20 22.32 68.84 117.97 253.20
Putnam Variable Trust
Putman VT International Growth Fund -
Class IB Shares 104.99 146.86 181.36 279.98 24.99 76.86 131.36 279.98
Putnam VT Vista Fund - Class IB Shares 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Wells Fargo VT
Asset Allocation Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Corporate Bond Fund 102.22 138.53 167.46 252.16 22.22 68.53 117.46 252.16
Equity Income Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Equity Value Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Growth Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Large Company Growth Fund 103.25 141.62 172.62 262.55 23.25 71.62 122.62 262.55
Money Market Fund 101.71 136.99 164.87 246.92 21.71 66.99 114.87 246.92
Small Cap Growth Fund 105.30 147.78 182.89 283.03 25.30 77.78 132.89 283.03
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
You would pay the following expenses on a $1,000 investment if you selected a
seven-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $107.93 $156.17 $197.74 $317.57 $27.93 $86.17 $147.74 $317.57
Capital Resource Fund 106.29 151.25 189.51 301.14 26.29 81.25 139.51 301.14
Diversified Equity Income Fund 107.93 156.17 197.74 317.57 27.93 86.17 147.74 317.57
Extra Income Fund 106.70 152.48 191.57 305.27 26.70 82.48 141.57 305.27
Federal Income Fund 107.22 154.02 194.15 310.41 27.22 84.02 144.15 310.41
New Dimensions Fund(R) 106.50 151.86 190.54 303.20 26.50 81.86 140.54 303.20
Small Cap Advantage Fund 110.80 164.76 212.00 345.70 30.80 94.76 162.00 345.70
AIM V.I.
Capital Appreciation Fund 105.68 149.39 186.41 294.91 25.68 79.39 136.41 294.91
Value Fund 105.99 150.32 187.96 298.03 25.99 80.32 137.96 298.03
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 106.29 151.25 189.51 301.14 26.29 81.25 139.51 301.14
FTVIPT
Franklin Income Securities Fund -
Class 2 105.88 150.01 187.45 296.99 25.88 80.01 137.45 296.99
Franklin Real Estate Fund - Class 2 106.70 152.48 191.57 305.27 26.70 82.48 141.57 305.27
Franklin Small Cap Fund - Class 2 109.16 159.86 203.87 329.72 29.16 89.86 153.87 329.72
Mutual Shares Securities Fund - Class 2 108.86 158.94 202.34 326.69 28.86 88.94 152.34 326.69
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Global Income Fund 109.98 162.31 207.94 337.74 29.98 92.31 157.94 337.74
Internet Tollkeeper Fund 111.01 165.37 213.01 347.68 31.01 95.37 163.01 347.68
Mid Cap Value Fund 108.96 159.25 202.85 327.70 28.96 89.25 152.85 327.70
MFS(R)
Growth with Income Series 107.22 154.02 194.15 310.41 27.22 84.02 144.15 310.41
Utilities Series 107.52 154.94 195.69 313.48 27.52 84.94 145.69 313.48
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 110.19 162.93 208.96 339.73 30.19 92.93 158.96 339.73
Putnam VT Vista Fund - Class IB Shares 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Wells Fargo VT
Asset Allocation Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Corporate Bond Fund 107.42 154.64 195.17 312.46 27.42 84.64 145.17 312.46
Equity Income Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Equity Value Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Growth Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Large Company Growth Fund 108.45 157.71 200.30 322.65 28.45 87.71 150.30 322.65
Money Market Fund 106.91 153.10 192.60 307.33 26.91 83.10 142.60 307.33
Small Cap Growth Fund 110.50 163.84 210.48 342.72 27.35 93.84 160.48 342.72
</TABLE>
* In these examples, the $30 contract administrative charge is approximated as a
0.068% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in this table. We
entered into certain arrangements under which we are compensated by the funds'
advisors and/or distributors for the administrative services we provide to the
funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
<TABLE>
<CAPTION>
Condensed Financial Information (Unaudited)
The following tables give per-unit information about the financial history of
each subaccount. We have not provided this information for some subaccounts
because they are new and do not have any history.
<S> <C> <C> <C> <C> <C>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount ECR(1) (Investing in shares of AXP(SM) Variable Portfolio - Capital Resource Fund)
Accumulation unit value at beginning of period $1.91 $1.56 $1.27 $1.20 $1.00
Accumulation unit value at end of period $2.33 $1.91 $1.56 $1.27 $1.20
Number of accumulation units outstanding at end of period (000 omitted) 5,864 5,163 3,813 2,350 818
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
____________________________________________________________________________________________________________________________________
Subaccount EIA(2) (Investing in shares of AXP(SM) Variable Portfolio - Extra Income Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.00 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 8 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EGD(3) (Investing in shares of AXP(SM) Variable Portfolio - New Dimensions Fund(R))
Accumulation unit value at beginning of period $1.32 $1.05 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.32 $1.05 -- --
Number of accumulation units outstanding at end of period (000 omitted) 2,141 1,108 69 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
____________________________________________________________________________________________________________________________________
Subaccount ECA(2) (Investing in shares of AIM V.I. Capital Appreciation Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.43 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 57 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EVA(4) (Investing in shares of AIM V.I. Value Fund)
Accumulation unit value at beginning of period $1.34 $1.03 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.34 $1.03 -- --
Number of accumulation units outstanding at end of period (000 omitted) 5,638 1,779 66 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
____________________________________________________________________________________________________________________________________
Subaccount ESR(2) (Investing in shares of The Dreyfus Socially Responsible Growth
Fund, Inc.)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.23 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 123 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
<PAGE>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount ERE(5) (Investing in shares of FTVIPT Franklin Real Estate Fund - Class 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EMU(5) (Investing in shares of FTVIPT Mutual Shares Securities Fund - Class 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.05 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 31 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JUS(5) (Investing in shares of Goldman Sachs VIT CORE(SM) U.S. Equity Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.12 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 480 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JGL(5) (Investing in shares of Goldman Sachs VIT Global Income Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 34 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount JMC(6) (Investing in shares of Goldman Sachs VIT Mid Cap Value Fund)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.98 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 79 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EUT(5) (Investing in shares of MFS(R) Utilities Series)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.20 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 30 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
<PAGE>
Year ended Dec. 31, 1999 1998 1997 1996 1995
Subaccount EPL5 (Investing in shares of Putnam VT International Growth Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.33 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 347 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
____________________________________________________________________________________________________________________________________
Subaccount EPT(2) (Investing in shares of Putnam VT Vista Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.48 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
</TABLE>
(1) Operations commenced on Feb. 21, 1995.
(2) Operations commenced on Aug. 26, 1999.
(3) Operations commenced on Oct. 29, 1997.
(4) Operations commenced on Oct. 30, 1997.
(5) Operations commenced on Sept. 22, 1999.
(6) Operations commenced on Oct. 4, 1999
<PAGE>
Financial Statements
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
Performance Information
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. We show actual performance from the date the subaccounts began investing
in the funds. For some subaccounts, we do not provide any performance
information because they are new and have not had any activity to date. We also
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.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including the:
o contract administrative charge,
o variable account administrative charge,
o Enhanced Death Benefit Rider fee*,
o Guaranteed Minimum Income Benefit Rider** fee,
o mortality and expense risk fee, and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
*Available if both you and the annuitant are 79 or younger. May not be available
in all states.
**This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit Rider
option. Riders may not be available in all states.
We also show optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit Rider
fee and the Guaranteed Minimum Income Benefit Rider fee. We may show total
return quotations by means of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
<PAGE>
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
<TABLE>
<CAPTION>
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<S> <C> <C> <C>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WBCA2 AXP(SM) Variable Portfolio - Objective: long-term total return exceeding IDS Life Insurance
WBCA4 Blue Chip Advantage Fund exceeding that of the U.S. stock market. Company (IDS Life),
WBCA5 Invests primarily in common stocks of investment manager;
WBCA7 companies included in the unmanaged S&P American Express
500 Index. Financial Corporation (AEFC),
investment advisor.
ECR AXP(SM) Variable Portfolio - Objective: capital appreciation. Invests IDS Life, investment
WCAR2 Capital Resource Fund primarily in U.S. common stocks and other manager; AEFC, investment
WCAR4 securities convertible into common stocks. advisor.
WCAR7
WDEI2 AXP(SM) Variable Portfolio - Objective: a high level of current income IDS Life, investment
WDE14 Diversified Equity Income Fund and, as a secondary goal, steady growth of manager; AEFC, investment
WDE15 capital. Invests primarily in advisor.
WDE17 dividend-paying common and preferred stocks
EIA AXP(SM) Variable Portfolio - Objective: high current income, with IDS Life, investment
WEXI2 Extra Income Fund capital growth as a secondary objective. manager; AEFC, investment
WEXI4 Invests primarily in high-yielding, advisor.
WEXI7 high-risk corporate bonds issued by U.S.
and foreign companies and governments.
WFDI2 AXP(SM) Variable Portfolio - Objective: a high level of current income IDS Life, investment
WFDI4 Federal Income Fund and safety of principal consistent with an manager; AEFC, investment
WFDI5 investment in U.S. government and advisor.
WFDI7 government agency securities. Invests
primarily in debt obligations issued or
guaranteed as to principal and interest by
the U.S. government, its agencies or
instrumentalities.
EGD AXP(SM) Variable Portfolio - Objective: long-term growth of capital. IDS Life, investment
WNDM2 New Dimensions Fund(R) Invests primarily in common stocks of U.S. manager; AEFC, investment
WNDM4 and foreign companies showing potential advisor.
WNDM7 for significant growth.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WSCA2 AXP(SM) Variable Portfolio - Objective: long-term capital growth. IDS Life, investment
WSCA4 Small Cap Advantage Fund Invests primarily in equity stocks of manager; AEFC, investment
WSCA5 small companies that are often included in advisor; Kenwood Capital
WSCA7 the S&P SmallCap 600 Index or the Russell Management LLC,
2000 Index. sub-investment advisor.
ECA AIM V.I. Capital Objective: growth of capital. Invests A I M Advisors, Inc.
WCAP2 Appreciation Fund primarily in common stocks, with emphasis
WCAP4 on medium- and small-sized growth companies.
WCAP7
EVA AIM V.I. Value Fund Objective: long-term growth of capital A I M Advisors, Inc.
WVAL2 with income as a secondary objective.
WVAL4 Invests primarily in equity securities
WVAL7 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.
ESR The Dreyfus Socially Objective: capital growth, with current The Dreyfus Corporation,
WSRG2 Responsible Growth Fund, Inc. income as a secondary objective. Invests investment advisor; NCM
WSRG4 primarily in the common stock of companies Capital Management Group,
WSRG7 that, in the opinion of the fund's Inc., sub-investment
management, meet traditional investment advisor.
standards and conduct their business in a
manner that contributes to the enhancement
of the quality of life in America.
WISE2 FTVIPT Franklin Income Objective: maximize income while Franklin Advisers, Inc.
WISE4 Securities Fund - Class 2 maintaining prospects for capital
WISE5 appreciation. Invests primarily in a
WISE7 diversified portfolio of debt and equity
securities, including high yield,
lower-rated "junk bonds."
ERE FTVIPT Franklin Real Estate Objective: capital appreciation with a Franklin Advisers, Inc.
WRES2 Fund Class 2 (previously secondary goal to earn current income.
WRES4 Franklin Real Estate Invests primarily in securities of
WRES7 Securities Fund) companies operating in the real estate
industry, primarily equity real estate
investment trusts (REITS).
WSMC2 FTVIPT Franklin Small Cap Objective: long-term capital growth. Franklin Advisers, Inc.
WSMC4 Fund - Class 2 Invests primarily in equity securities of
WSMC5 U.S. small capitalization (small cap)
WSMC7 growth companies.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
EMU FTVIPT Mutual Shares Objective: capital appreciation with Franklin Mutual Advisers, LLC
WMSI2 Securities Fund - Class 2 income as a secondary goal. Invests
WMSI4 primarily in equity securities of companies
WMSI4 that the manager believes are available at
market prices less than their value based on
certain recognized or objective criteria
(intrinsic value).
JUS Goldman Sachs VIT CORE(SM) Objective: long-term growth of capital and Goldman Sachs Asset
WUSE2 U.S. Equity Fund dividend income. Primarily invests in a Management
WUSE4 broadly diversified portfolio of large-cap
WUSE7 and blue chip equity securities representing
all major sectors of the U.S. economy.
JGL Goldman Sachs VIT Global Objective: high total return, emphasizing Goldman Sachs Asset
WGLI2 Income Fund current income, and, to a lesser extent, Management International
WGLI4 providing opportunities for capital
WGLI7 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.
WITO2 Goldman Sachs VIT Internet Objective: long-term growth of capital. Goldman Sachs Asset
WITO4 Tollkeeper Fund Invests primarily in equity securities of Management
WIT05 companies that the Investment Advisor
WIT07 believes will benefit from the growth of the
Internet by providing access, infrastructure,
content and services to Internet companies
and customers.
JMC Goldman Sachs VIT Mid Cap Objective: long-term capital appreciation. Goldman Sachs Asset
WMCE2 Value Fund Invests primarily in mid-capitalization Management
WMCE4 companies within the range of the market
WMCE7 capitalization of companies consituting the
Russell Mid Cap Value Index at the time
of investment.
WGIS2 MFS(R) Growth with Income Objective: reasonable current income and MFS Investment Management(R)
WGIS4 Series long-term growth of capital and income.
WGIS5 Invests primarily in common stocks and
WGIS7 related securities, such as preferred stocks,
convertible securities and depositary
receipts for those securities.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
EUT MFS(R) Utilities Series Objective: capital growth and current MFS Investment
WUTS2 income. Invests primarily in equity and Management(R)
WUTS4 debt securities of domestic and foreign
WUTS7 companies in the utilities industry.
EPL Putnam VT International Growth Objective: capital appreciation. Invests Putnam Investment
WIGR2 Fund - Class IB Shares primarily in equity securities of Management, Inc.
WIGR4 companies located in a country other than
WIGR7 the U.S.
EPT Putnam VT Vista Fund - Class Objective: capital appreciation. Invests Putnam Investment
WVIS2 IB Shares primarily in a diversified portfolio of Management, Inc.
WVIS4 common stocks that Putnam Management
WVIS7 believes have above-average potential for
capital appreciation
WAAL2 Wells Fargo VT Asset Objective: long-term total return, Wells Fargo Bank, N.A.,
WAAL4 Allocation Fund consistent with reasonable risk. Invests advisor; Barclays Global
WAAL5 primarily in the securities of various Fund Advisors,
WAAL7 indexes to replicate the total return of sub-advisor.
the index. We use an asset allocation
model to allocate and reallocate assets
among common stocks (S&P 500 Index), U.S.
Treasury bonds (Lehman Brothers 20+ Bond
Index)and money market instruments, assuming
a "normal" allocation of 60% stocks and 40%
bonds.
WCBD2 Wells Fargo VT Corporate Bond Objective: high level of current income Wells Fargo Bank, N.A.,
WCBD4 Fund consistent with reasonable risk. Invests advisor; Wells Capital
WCBD5 primarily in corporate debt securities of Management Incorporated,
WCBD7 any maturity. sub-advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WEQI2 Wells Fargo VT Equity Income Objective: long-term capital appreciation Wells Fargo Bank, N.A.,
WEQI4 Fund and above-average dividend income. advisor; Wells Capital
WEQI5 Invests primarily in common stock of Management Incorporated,
WEQI7 large, high-quality domestic companies sub-advisor.
with above-average return potential and
above-average dividend income.
WEQV2 Wells Fargo VT Equity Value Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WEQV4 Fund Invests primarily in equity advisor; Wells Capital
WEQV5 securities that we believe are undervalued Management Incorporated,
WEQV7 in relation to the overall stock markets. sub-advisor.
WGRO2 Wells Fargo VT Growth Fund Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WGRO4 Invests primarily in common stocks and advisor; Wells Capital
WGRO5 other equity securities. We look for Management Incorporated,
WGRO7 companies that have a strong earnings sub-advisor.
growth trend that we believe have
above-average prospects for future growth.
WLCG2 Wells Fargo VT Large Company Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WLCG4 Growth Fund Invests primarily in common stock of advisor; Peregrine
WLCG5 large, high-quality domestic companies Capital Management, Inc.,
WLCG7 that the Advisor believes have superior sub-advisor.
growth potential.
WMMK2 Wells Fargo VT Money Market Objective: current income, while Wells Fargo Bank, N.A.,
WMMK4 Fund preserving capital and liquidity. Invests advisor; Wells Capital
WMMK5 primarily in high-quality, U.S. Management Incorporated,
WMMK7 dollar-denominated money market sub-advisor.
instruments, including debt obligations.
WSCG2 Wells Fargo VT Small Cap Objective: long-term capital appreciation. Wells Fargo Bank, N.A.,
WSCG4 Growth Fund Invests primarily in common stocks issued advisor; Wells Capital
WSCG5 by companies whose market capitalization Management Incorporated,
WSCG7 falls within the range of the Russell sub-advisor.
2000 Index, which is considered a small
capitalization index.
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an 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, and those
results may differ significantly from other funds with similar investment
objectives and policies.
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 also 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
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement 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 tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the funds' prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<PAGE>
The Fixed Accounts
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
<PAGE>
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer or withdraw money out of the Guarantee Period
Accounts prior to the end of the Guarantee Period. The amount transferred or
withdrawn will receive a MVA which will increase or decrease the actual amount
transferred or withdrawn. We calculate the MVA using the formula shown below and
we base it on the current level of interest rates compared to the rate of your
Guarantee Period Account.
Amount transferred x ( l + i ) n/12
( l + j + .001 )
Where: i = rate earned in the account from which funds
are being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current
Guarantee Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states, the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing these
annuities, the rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You may buy a qualified annuity or a nonqualified
annuity through your AEFAsales representative. You may be able to buy another
contract with the same underlying funds. this contract has different mortality
and expense risk fees and withdrawal charges and offers purchase payment
credits. For information on this contract, please call us at the telephone
number listed on the first page of this prospectus or ask your sales
representative.
You can own a nonqualified annuity in joint tenancy with rights of survivorship
only in spousal situations. You cannot own a qualified annuity in joint tenancy.
You can buy a contract or become an annuitant if you are 85 or younger. (The age
limit may be younger for qualified annuities in some states.)
When you apply, you may select:
o the length of the withdrawal charge period (five or seven years)*;
o the optional Enhanced Death Benefit Rider**;
o the optional Guaranteed Minimum Income Benefit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* Contracts sold through AEFA are only available with a seven-year withdrawal
charge schedule.
** Available if both you and the annuitant are 79 or younger. May not be
available in all states.
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
****Some states restrict the amount you can allocate to these accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
<PAGE>
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 591/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 701/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment (not including SIPs):
$5,000 in Texas, Washington and
South Carolina
$2,000 in all other states
Minimum additional purchase payments:
If paying by SIP*: If paying by any other method:
$50 $100
*Payments made using SIP must total $2,000 before you can make partial
withdrawals.
Maximum total allowable purchase payments**
(without prior approval): $99,999 for contracts sold
through AEFA
$1,000,000 for all other contracts
**This limit applies in total to all American Enterprise Life annuities you
own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual contributions
also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
<PAGE>
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For contracts with a five-year withdrawal charge schedule,
this fee totals 1.30% of their average daily net assets on an annual basis. For
contracts with a seven-year withdrawal charge schedule, this fee totals 1.05% of
their average daily net assets on an annual basis. This fee covers the mortality
and expense risk that we assume. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our assumption of expense
risk. If you choose the optional Enhanced Death Benefit Rider, we will charge an
additional 0.20% of the average daily net assets on annual basis (see "Enhanced
Death Benefit Rider fee" below.) These fees do not apply to the fixed accounts.
We cannot increase these fees.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
<PAGE>
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
ENHANCED DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the subaccounts and
it totals 0.20% of their average daily net assets on an annual basis. We cannot
increase the Enhanced Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the Guaranteed Income Benefit Base for this optional
feature only if you choose this option. If selected, we deduct the fee
(currently 0.30%) from the contract value on your contract anniversary at the
end of each contract year. We prorate this fee among the subaccounts and fixed
accounts in the same proportion your interest in each account bears to your
total contract value.
We apply the fee on an adjusted benefit base calculated as the result of (a) +
(b) - (c), where:
(a) is the Guaranteed Income Benefit Base,
(b) is the adjusted transfers from the subaccounts to the fixed accounts made in
the last six months, and
(c) is the total contract value in the fixed accounts.
The result of (b) minus (c) cannot be greater than zero. It allows us to base
the charge largely on the subaccounts, and not on the fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
<PAGE>
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within five or seven years before withdrawal.
You select the withdrawal charge period at the time of your application for the
contract. The withdrawal charge percentages that apply to you are shown in your
contract. In addition, amounts withdrawn from a Guarantee Period Account prior
to the end of the applicable Guarantee Period will be subject to a MVA. (See
"The Fixed Accounts -- Market Value Adjustment (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 15% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 15% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE:We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period you selected and shown in your contract. We do not assess a
withdrawal charge on these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period you selected and shown in your
contract. We withdraw these payments on a first-in, first-out (FIFO) basis.
We do assess a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn, depending on the schedule you selected:
Five-year schedule Seven-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 6 3 7
4 4 4 6
5 2 5 5
Thereafter 0 6 4
7 2
Thereafter 0
<PAGE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. If the
original contract had a five-year withdrawal charge schedule, the discount rate
we use in the calculation will be 5.27% if the assumed investment rate is 3.5%
and 6.77% if the assumed investment rate is 5%. If the original contract had a
seven-year withdrawal charge schedule, the discount rate we use in the
calculation will be 5.02% if the assumed investment rate is 3.5% and 6.52% if
the assumed investment rate is 5%. The withdrawal charge is equal to the
difference in discount values using the above discount rates and the assumed
investment rate. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with a seven-year withdrawal charge schedule
with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Charge Explanation
$0 $5,773.20 is 15% of the prior anniversary contract value
withdrawn without withdrawal charge; and
0 $8,327.80 is contract earnings in excess of the 15% free
withdrawal amount withdrawn without withdrawal charge; and
0 $10,000 Nov.1, 2000 payment was received eight or more
years before withdrawal and is withdrawn without withdrawal
charge; and
480 $8,000 Dec. 31, 2006 payment is in its fourth year from
receipt, withdrawn with a 6% withdrawal charge; and
420 $6,000 Feb. 20, 2008 payment is in its third year from
receipt withdrawn with a 7% withdrawal charge.
_______________
$900
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 15% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events" described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period; and
o death benefits.
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
o Withdrawals you make if you or the annuitant become disabled within the
meaning of IRC Section 72(m)(7) after your contract date. The disabled
person must also be receiving Social Security disability or state long term
disability benefits. The disabled person must be age 70 or younger at the
time of withdrawal. You must provide us with a signed letter from the
disabled person stating that he or she meets the above criteria, a legible
photocopy of Social Security disability or state long term disability
benefit payments and the application for such payments.
o Withdrawals you make once a year if you or the annuitant become unemployed
at least one year after your contract's date, up to the following amounts
each year:
(a) 25% of your prior anniversary contract value (or $10,000 if greater)
if the unemployment condition is met for at least 30 straight days; or
(b) 50% of your prior anniversary contract value (or $10,000 if greater)
if the unemployment condition is met for at least 180 straight days.
The unemployment condition is met if the unemployed person is currently
receiving unemployment compensation from a government unit of the United States,
whether federal or state. You must provide us with a signed letter from the
unemployed person stating that he or she meets the above criteria and a legible
photocopy of the unemployment payment benefits meeting the above criteria with
regard to dates.
<PAGE>
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium taxes when
annuity payouts begin, but we reserve the right to deduct this tax at other
times such as when you make purchase payments or when you make a full withdrawal
from your contract.
Valuing Your Investment
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge; and
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts, we credit a certain number of accumulation units to your contract
for that subaccount. Conversely, each time you take a partial withdrawal,
transfer amounts out of a subaccount, or we assess a contract administrative
charge or the Guaranteed Minimum Income Benefit Rider fee, we subtract a certain
number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
<PAGE>
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge and the Enhanced Death
Benefit Rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge; and/or
o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee, the variable account administrative charge
and the Enhanced Death Benefit Rider fee (if selected).
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You also can obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
By investing an
equal number of Jan $100 $20 5.00
dollars each month...
Feb 100 18 5.56
Mar 100 17 5.88
You automatically Apr 100 15 6.67
buy more units
when the per unit May 100 16 6.25
market price is low...
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units Sep 100 21 4.76
when the per unit
market price is high. Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success 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. For specific features contact your sales representative.
<PAGE>
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract 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
contract 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 accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
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 contract 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.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the one-year fixed account.) We will process your transfer
on the valuation date we receive your request. We will value your transfer at
the next accumulation unit value calculated after we receive your request. There
is no charge for transfers. Before making a transfer, you should consider the
risks involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from the Guarantee Period Accounts at any
time. Transfers made before the end of the Guarantee Period will receive a
MVA, which may result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider fee"). The rider guarantees a minimum amount of fixed annuity
lifetime income during the annuity payout period if your contract has been in
force for at least ten years, subject to the conditions described below. The
rider also provides you the option of variable annuity payouts, with a
guaranteed minimum initial payment. This rider is only available at the time you
purchase your contract if you also select the Enhanced Death Benefit Rider
option.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if:
o the Guaranteed Minimum Income Rider became effective on the contract date,
and
o all payments are recognized in the benefit base.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments paid in the last five years
before exercise of the benefit, in the calculation of the Guaranteed Income
Benefit Base. We would do so only if such payments total $50,000 or more or if
they are 25% or more of total payments paid into the contract.
If we exclude such payments, the Guaranteed Income Benefit Base would be
calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments";
(b) total payments less prior five years of payment, less adjusted partial
withdrawals;
(c) Maximum anniversary value immediately preceding the date of settlement,
plus payments and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments";
or
(d) the Variable account 5% floor, less the 5% adjusted prior five years of
payments.
"Market value adjusted prior five years of payments" are calculated as the sum
of each such payment, multiplied by the ratio of the current contract value over
the estimated contract value on the anniversary prior to such payment. The
estimated contract value at such anniversary is calculated by assuming that
payments and partial withdrawals occurring in a contract year take place at the
beginning of the year for that anniversary and every year after that to the
current contract year.
"5% Adjusted prior five years of payments" are calculated as the sum of each
payment accumulated at 5% for the number of full contract years they have been
in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract along with
the Enhanced Death Benefit Rider option, and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount
in the subaccounts. If we are required to activate this restriction, and you
have more than 10% of your subaccount value in this fund, we will send you
notice and ask that you reallocate your contract value so that the limitation is
satisfied within 60 days. If after 60 days the limitation is not satisfied we
will terminate the rider.
<PAGE>
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a ten-year waiting period from the
effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity - no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity - no refund
Contingent event benefits: If the annuitant satisfies the conditions for the
waiver of withdrawal charges in the event of disability, terminal illness or a
confinement in a nursing home or hospital (see "Charges -- Waiver of withdrawal
charges") you can exercise the rider at any time. In this event, you can take up
to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of
the Guaranteed Income Benefit Base for annuity payouts under the terms above
with regard to annuitant age at retirement date, the annuity payout plans and
the more conservative annuity factors. You can also change the annuitant for the
payouts.
Terminating the rider:
o You may terminate the rider within 30 days after the first and fifth
anniversary of the effective date of the rider.
o You may terminate the rider any time after the 10th anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o You purchase the contract with a payment of $100,000 on Jan. 1, 2000.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The Guaranteed Income Benefit Base is based on the Variable account 5%
floor.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
<S> <C> <C> <C> <C>
Plan A -- Plan B -- Plan D --
Life Annuity - Life Annuity with Joint and last survivor
Contract Anniversary Minimum Guaranteed no refund ten years certain life annuity - no refund
At Exercise Benefit Base
10 $162,889 $848.65 $825.85 $675.99
15 $207,893 $1,239.04 $1,180.83 $958.38
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges -- Withdrawal charge") and IRS taxes
and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts
begin except under Plan E (see "The Annuity Payout Period -- Annuity payout
plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
-- the withdrawal amount includes a purchase payment check that has not
cleared;
-- the NYSE is closed, except for normal holiday and weekend closings;
-- trading on the NYSE is restricted, according to SEC rules;
-- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
-- the SEC permits us to delay payment for the protection of security
holders.
<PAGE>
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
Benefits in Case of Death
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of:
1. the contract value; or
2. the total purchase payments paid less any "adjusted partial withdrawals";
or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary and minus any
"adjusted partial withdrawals" since that anniversary.
If you own the contract in joint tenancy with rights of survivorship, we will
pay benefits upon the first to die of either you or the annuitant.
Adjusted partial withdrawals:
We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract minus any "adjusted partial
withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and minus
any "adjusted partial withdrawals".
<PAGE>
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
o On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value:" $24,000.00
(the greatest of the anniversary values
which was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 24,000 = - 1,636.36
--------------
22,000
for a death benefit of: $22,363.64
ENHANCED DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to you
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of:
1. the contract value; or
2. the total purchase payments paid less any "adjusted partial withdrawals";
or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary and minus any
"adjusted partial withdrawals" since that anniversary; or
4. the Variable account 5% floor
The variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments allocated to the subaccounts. On any day that you allocate additional
amounts to, or withdraw or transfer from the subaccounts, we adjust the floor by
adding the additional amounts and subtracting the "adjusted partial withdrawals"
or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional purchase payments made since that
anniversary and reduced by any "adjusted partial withdrawals" since that
anniversary.
<PAGE>
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000 with
$5,000 allocated to the one-year fixed account and $15,000 allocated to the
subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $12,000. Total contract
value is $17, 200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $14,000. Total contract value is $19,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $17,800.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value" (the purchase payment): $20,000.00
plus any purchase payment paid since that anniversary: + 0.00
Minus any "adjusted partial withdrawal" taken since that anniversary,
calculated as: 1,500 x 20,000
19,300 = - 1,554.40
Maximum anniversary value benefit $18,445.60
The variable account floor on Jan. 1, 2001,
calculated as: 1.05 x 15,000 = $15,750.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the subaccounts,
calculated as: 1,500 x 15,750 -$1,687.50
14,000 =
Variable account floor benefit $14,062.50
plus the one-year fixed account value + 5,300.00
Variable account 5% floor, calculated as the one-year fixed account
plus the Variable account floor benefit $19,362.50
Enhanced Death Benefit, calculated as the greater of the Maximum
anniversary value benefit and the Variable account 5% floor
$19,362.50
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider, if selected, is then terminated.
<PAGE>
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
<PAGE>
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity - no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity - installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity - no refund: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. If the original contract had a
five-year withdrawal charge schedule, the discount rate we use in the
calculation will vary between 5.27% and 6.77% depending on the applicable
assumed investment rate. If the original contract had a seven-year
withdrawal charge schedule, the discount rate we use in the calculation
will vary between 5.02% and 6.52% depending on the applicable assumed
investment rate. (See "Charges -- Withdrawal charge under Annuity Payout
Plan E.") You can also take a portion of the discounted value once a year.
If you do so, your monthly payouts will be reduced by the proportion of
your withdrawal to the full discounted value. A 10% IRS penalty tax could
apply if you take a withdrawal. (See "Taxes.")
<PAGE>
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
<PAGE>
Taxes
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
<PAGE>
Penalties: If you receive amounts from your contract before reaching age 591/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of those suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs 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 is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments $ 6,565 (4,788) (509) (5,258) (1,154)
Other $ 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
<PAGE>
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
<PAGE>
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be appoximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
<PAGE>
YEAR 2000 ISSUE
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. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed its evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on the American
Enterprise Life's and variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec.
31, 1999, these plans had been amended to include specific Year 2000
considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
<PAGE>
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
* The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is
an independent director.
** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
<TABLE>
<CAPTION>
Name of individual or number in group Position held Cash compensation
<S> <C> <C>
Five most highly compensated executive
officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group (11) $11,535,043
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined Financial Statements of the segregated asset subaccounts of the
American Enterprise Variable Annuity Account (comprised of subaccounts ECR, EIA,
EGD, ECA, EVA, ESR, ERE, EMU, JUS, JGL, JMC, EUT, EPL and EPT) as of Dec. 31,
1999 and for the periods indicated therein, as set forth in their reports. We've
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
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 (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $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 IDS Life 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
of ($588) 1,093 -- -- 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
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
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:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
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.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<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, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
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>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 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.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, 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 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. 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.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 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 $486 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:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</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>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</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:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
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 $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 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:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has 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 $8,258 and
$6,651 at December 31, 1999 and 1998, 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 $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, 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 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, 1999 or 1998.
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, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</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 2006.
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,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Table of Contents of the Statement of Additional Information
Performance Information p. 3
Calculating Annuity Payouts p. 15
Rating Agencies p. 17
Principal Underwriter p. 17
Independent Auditors p. 17
Financial Statements
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
[ ] Wells Fargo Advantage(SM) Variable Annuity
[ ] American Express(R) Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] The Dreyfus Socially Responsible Growth Fund, Inc.
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] Goldman Sachs Variable Insurance Trust (VIT)
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust
[ ] Wells Fargo Variable Trust Funds - Class IB Shares
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name______________________________________________________________________
Address________________________________________________________________________
City________________________________ State _____________________ Zip__________
<PAGE>
Prospectus
May 1, 2000
Wells Fargo Advantage(SM) Builder Variable Annuity
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
o American Express(R) Variable Portfolio Funds
o AIM Variable Insurance Funds
o The Dreyfus Socially Responsible Growth Fund, Inc.
o Franklin Templeton Variable Insurance Products Trust (FTVIPT)
o Goldman Sachs Variable Insurance Trust (VIT)
o MFS(R) Variable Insurance Trust(SM)
o Putnam Variable Trust - Class IB Shares
o Wells Fargo Variable Trust Funds
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges from
contracts with purchase payment credits may be higher than charges for contracts
without such credits. The amount of the credit may be more than offset by
additional fees and charges associated with the credit.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the accuracy or adequacy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract 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 contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms...................................................................3
The Contract in Brief.......................................................5
Expense Summary.............................................................7
Condensed Financial Information (Unaudited)................................15
Financial Statements.......................................................17
Performance Information....................................................17
The Variable Account and the Funds.........................................19
The Fixed Accounts.........................................................25
Buying Your Contract.......................................................27
Charges....................................................................30
Valuing Your Investment....................................................36
Making the Most of Your Contract...........................................38
Withdrawals................................................................44
Changing Ownership.........................................................45
Benefits in Case of Death..................................................45
The Annuity Payout Period..................................................49
Taxes......................................................................52
Voting Rights..............................................................54
Substitution of Investments................................................55
About the Service Providers................................................56
Additional Information About American Enterprise Life......................57
Directors and Executive Officers...........................................62
Experts....................................................................63
American Enterprise Life Insurance Company Financial Information...........64
Table of Contents of the Statement of Additional Information...............81
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- A deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
<PAGE>
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
Purchase payment credits -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit to your contract based on your current
payment.
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to your sales representative or
our office within the time stated on the first page of your contract and receive
a full refund of the contract value, less any purchase payment credits up to the
maximum withdrawal charges. (See "Buying Your Contract -- Purchase payment
credits.") However, you bear the investment risk from the time of purchase until
you return the contract; the refund amount may be more or less than the payment
you made. (Exception: If the law requires, we will refund all of your purchase
payments.)
Accounts: Currently, you may allocate your purchase payments among any or
all of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 19 )
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to the fixed
accounts.(p. 25)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy only a nonqualified annuity (by rollover only) or a qualified annuity
from your Wells Fargo sales representative without prior approval. Contracts
sold through American Express Financial Advisors Inc. (AEFA) are only available
with an eight-year withdrawal charge schedule. You may buy a qualified annuity
or a nonqualified annuity through your AEFA sales representative. You can buy
another contract with the same underlying funds but with different mortality and
expense risk fees and withdrawal charges. For information on this contract,
please call us at the telephone number listed on the first page of this
prospectus or ask your sales representative. After your initial purchase
payment, you have the option of making additional purchase payments in the
future. (p. 27)
o Minimum initial purchase payment -- $100,000 for contracts sold through
AEFA; $5,000 for all other contracts sold in Texas, Washington and South
Carolina; and $2,000 for all other contracts sold in other states. The
$5,000 and $2,000 minimums do not apply if you enroll in a Systematic
Investment Plan (SIP).
o Minimum additional purchase payment -- $100 ($50 for SIPs).
o Maximum total purchase payments (without prior approval) -- $1,000,000.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the accounts without charge at any time until annuity payouts begin,
and once per contract year among the subaccounts after annuity payouts begin.
Transfers out of the Guarantee Period Accounts before the end of the Guarantee
Period will be subject to a MVA. You may establish automated transfers among the
accounts. Fixed account transfers are subject to special restrictions. (p. 39)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 44)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 45)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 49)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. However, Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 30):
o $30 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.35% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with a six-year withdrawal charge schedule;
o a 1.10% mortality and expense risk fee applies (if you allocate money to
one or more subaccounts) with an eight-year withdrawal charge schedule;
o if you select the Enhanced Death Benefit Rider*, an additional 0.20%
mortality and expense risk fee (if you allocate money to one or more
subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider**, an annual fee
based on the Guaranteed Income Benefit Base (currently at 0.30%);
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments or
when you make a total withdrawal); and
o the operating expenses of the funds in which the subaccounts invest.
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn. You select either a six-year or eight-year withdrawal charge
schedule* at the time of application.
<TABLE>
<CAPTION>
Six-year schedule Eight-year schedule
<S> <C> <C> <C>
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 8 3 8
4 6 4 8
5 4 5 8
6 2 6 6
Thereafter 0 7 4
8 2
Thereafter 0
</TABLE>
* Contracts sold through AEFA are only available with an eight-year
withdrawal charge schedule.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.82% if the original contract had a six-year withdrawal
charge schedule and 1.57% if the original contract had an eight-year withdrawal
charge schedule. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Annual contract administrative charge $30**
** We will waive this charge when your contract value is $50,000 or more on
the current contract anniversary.
Guaranteed Minimum Income Benefit Rider*** fee: as a
percentage of the Guaranteed Income Benefit Base charged
annually. This is an optional expense. 0.30%
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the length of your contract's withdrawal charge schedule and the
death benefit guarantee provided. The combination you choose determines the fees
you pay. The table below shows the combinations available to you and their cost.
<TABLE>
<CAPTION>
<S> <C> <C>
Six-year withdrawal schedule Eight-year withdrawal schedule
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.35% 1.10%
Enhanced Death Benefit Rider* fee as part of the mortality
and expense risk fee. This is an optional expense. 0.20% 0.20%
Total annual variable account expenses without the
optional Enhanced Death Benefit Rider fee 1.50% 1.25%
Total annual variable account expenses with the
optional Enhanced Death Benefit Rider fee 1.70% 1.45%
</TABLE>
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Management 12b-1 Other
Fees Fees Expenses Total
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Capital Resource Fund .60% .13 .06 .79%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Value Fund .61% -- .15 .76%(3)
Dreyfus
The Dreyfus Socially Responsible Growth Fund, Inc. .75% -- .04 .79%(3)
FTVIPT
Franklin Income Securities Fund - Class 2 .48% .25 .02 .75%(4)
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(5)
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(6)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(4,7)
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(8)
Global Income Fund .90% -- .25 1.15%(8)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(9)
Mid Cap Value Fund .80% -- .25 1.05%(8)
MFS(R)
Growth with Income Series .75% -- .13 .88%(10)
Utilities Series .75% -- .16 .91%(10)
Putnam Variable Trust
Putnam VT International Growth Fund
- Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
Wells Fargo VT
Asset Allocation Fund .42% .25 .33 1.00%(11)
Corporate Bond Fund .10% .25 .55 .90%(11)
Equity Income Fund .38% .25 .37 1.00%(11)
Equity Value Fund --% .25 .75 1.00%(11)
Growth Fund .32% .25 .43 1.00%(11)
Large Company Growth Fund .12% .25 .63 1.00%(11)
Money Market Fund .10% .25 .50 .85%(11)
Small Cap Growth Fund --% .25 .95 1.20%(11)
</TABLE>
<PAGE>
1 Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, and
0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
2 The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
3 Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
4 The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. The fund administration fee is paid indirectly
through the management fee.
5 Previously Franklin Real Estate Securities Fund. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund administration fee is paid indirectly through the
management fee.
6 On Feb. 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable Products
Series Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders
approved new management fees, which apply to the combined fund effective
May 1, 2000. The table shows restated total expenses based on the new fees
and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated
as: Management Fees 0.55%, 12b-1 Fees 0.25%, Other Expenses 0.27%, and
Total 1.07%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is
described in the fund's prospectus.
7 On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec. 31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as: Management Fees 0.60%, 12-b-1 Fees
0.25%, Other Expenses 0.19% and Total 1.04%. The fund's class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus.
8 The fund's expenses are based on estimated expenses for the fiscal year
Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisors, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fees, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 1.78%
and 2.68% for Global Income Fund, 0.42% and 1.22% for Mid Cap Value Fund
(formerly the Mid Cap Equity Fund), and 0.20% and 0.90% for the CORE(SM)
U.S. Equity Fund. Core(SM) is a Service Mark of Goldman Sachs & Co..
9 Based on projected assets of $150 million, there will be no expense
reimbursement.
10 Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 0.87% for Growth with Income Series and 0.90% for Utilities Series.
11 Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.13% for Wells
Fargo VT Asset Allocation, 0.45% and 1.25% for Wells Fargo VT Corporate
Bond Fund, 0.55% and 1.17% for Wells Fargo VT Equity Income Fund, 0.55% and
1.57% for Wells Fargo VT Equity Value Fund, 0.55% and 1.23% for Wells Fargo
VT Growth Fund, 0.55% and 1.43% for Wells Fargo VT Large Company Growth
Fund, 0.40% and 1.15% for Wells Fargo VT Money Market Fund, and 0.75% and
2.41% for Wells Fargo VT Small Cap Growth Fund.
<PAGE>
Examples:*
You would pay the following expenses on a $1,000 investment if you selected a
six-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $105.81 $159.32 $175.44 $288.08 $25.81 $79.32 $135.44 $288.08
Capital Resource Fund 104.17 154.40 167.25 271.81 24.17 74.40 127.25 271.81
Diversified Equity Income Fund 105.81 159.32 175.44 288.08 25.81 79.32 135.44 288.08
Extra Income Fund 104.58 155.63 169.31 275.91 24.58 75.63 129.31 275.91
Federal Income Fund 105.09 157.17 171.87 281.00 25.09 77.17 131.87 281.00
New Dimensions Fund(R) 104.37 155.01 168.28 273.86 24.37 75.01 128.28 273.86
Small Cap Advantage Fund 108.68 167.89 189.64 315.94 28.68 87.89 149.64 315.94
AIM V.I.
Capital Appreciation Fund 103.55 152.55 164.17 265.65 23.55 72.55 124.17 265.65
Value Fund 103.86 153.47 165.71 268.74 23.86 73.47 125.71 268.74
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 104.17 154.40 167.25 271.81 24.17 74.40 127.25 271.81
FTVIPT
Franklin Income Securities Fund
- - Class 2 103.76 153.17 165.20 267.71 23.76 73.17 125.20 267.71
Franklin Real Estate Fund
- - Class 2 104.58 155.63 169.31 275.91 24.58 75.63 129.31 275.91
Franklin Small Cap Fund
- - Class 2 107.04 163.00 181.55 300.11 27.04 83.00 141.55 300.11
Mutual Shares Securities Fund
- - Class 2 106.73 162.08 180.03 297.12 26.73 82.08 140.03 297.12
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Global Income Fund 107.86 165.44 185.60 308.06 27.86 85.44 145.60 308.06
Internet Tollkeeper Fund 108.88 168.50 190.65 317.89 28.88 88.50 150.65 317.89
Mid Cap Value Fund 106.83 162.38 180.53 298.12 26.83 82.38 140.53 298.12
MFS(R)
Growth with Income Series 105.09 157.17 171.87 281.00 25.09 77.17 131.87 281.00
Utilities Series 105.40 158.09 173.40 284.04 25.40 78.09 133.40 284.04
Putnam Variable Trust
Putnam VT International Growth
Fund -
Class IB Shares 108.06 166.05 186.62 310.03 28.06 86.05 146.62 310.03
Putnam VT Vista Fund -
Class IB Shares 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Wells Fargo VT
Asset Allocation Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Corporate Bond Fund 105.30 157.78 172.89 283.03 25.30 77.78 132.89 283.03
Equity Income Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Equity Value Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Growth Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Large Company Growth Fund 106.32 160.85 177.99 293.11 26.32 80.85 137.99 293.11
Money Market Fund 104.78 156.24 170.33 277.94 24.78 76.24 130.33 277.94
Small Cap Growth Fund 108.37 166.97 188.13 312.99 28.37 86.97 148.13 312.99
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected a
six-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $111.01 $175.37 $193.08 $337.75 $31.01 $95.37 $153.08 $337.75
Capital Resource Fund 109.37 170.47 184.96 321.80 29.37 90.47 144.96 321.80
Diversified Equity Income Fund 111.01 175.37 193.08 337.75 31.01 95.37 153.08 337.75
Extra Income Fund 109.78 171.70 186.99 325.81 29.78 91.70 146.99 325.81
Federal Income Fund 110.29 173.23 189.53 330.80 30.29 93.23 149.53 330.80
New Dimensions Fund(R) 109.57 171.09 185.98 323.81 29.57 91.09 145.98 323.81
Small Cap Advantage Fund 113.88 183.91 207.16 365.05 33.88 103.91 167.16 365.05
AIM V.I.
Capital Appreciation Fund 108.75 168.63 181.90 315.75 28.75 88.63 141.90 315.75
Value Fund 109.06 169.55 183.43 318.78 29.06 89.55 143.43 318.78
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 109.37 170.47 184.96 321.80 29.37 90.47 144.96 321.80
FTVIPT
Franklin Income Securities Fund
- - Class 2 108.96 169.25 182.92 317.77 28.96 89.25 142.92 317.77
Franklin Real Estate Fund - Class 2 109.78 171.70 186.99 325.81 29.78 91.70 146.99 325.81
Franklin Small Cap Fund - Class 2 112.24 179.04 199.13 349.54 32.24 99.04 159.13 349.54
Mutual Shares Securities Fund - Class 2 111.93 178.12 197.62 346.61 31.93 98.12 157.62 346.61
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Global Income Fund 113.06 181.47 203.15 357.33 33.06 101.47 163.15 357.33
Internet Tollkeeper Fund 114.08 184.51 208.16 366.97 34.08 104.51 168.16 366.97
Mid Cap Value Fund 112.03 178.43 198.13 347.58 32.03 98.43 158.13 347.58
MFS(R)
Growth with Income Series 110.29 173.23 189.53 330.80 30.29 93.23 149.53 330.80
Utilities Series 110.60 174.15 191.05 333.78 30.60 94.15 151.05 333.78
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 113.26 182.08 204.16 359.26 33.26 102.08 164.16 359.26
Putnam VT Vista Fund - Class IB Shares 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Wells Fargo VT
Asset Allocation Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Corporate Bond Fund 110.50 173.84 190.55 332.79 30.50 93.84 150.55 332.79
Equity Income Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Equity Value Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Growth Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Large Company Growth Fund 111.52 176.90 195.61 342.68 31.52 96.90 155.61 342.68
Money Market Fund 109.98 172.31 188.01 327.81 29.98 92.31 148.01 327.81
Small Cap Growth Fund 113.57 182.99 205.66 362.16 33.57 102.99 165.66 362.16
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected an
eight-year withdrawal charge schedule without any optional riders and assuming a
5% annual return and ....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $103.25 $151.62 $202.62 $262.55 $23.25 $71.62 $122.62 $262.55
Capital Resource Fund 101.61 146.68 194.35 245.87 21.61 66.68 114.35 245.87
Diversified Equity Income Fund 103.25 151.62 202.62 262.55 23.25 71.62 122.62 262.55
Extra Income Fund 102.02 147.92 196.42 250.07 22.02 67.92 116.42 250.07
Federal Income Fund 102.53 149.46 199.01 255.29 22.53 69.46 119.01 255.29
New Dimensions Fund(R) 101.81 147.30 195.38 247.97 21.81 67.30 115.38 247.97
Small Cap Advantage Fund 106.12 160.24 216.97 291.10 26.12 80.24 136.97 291.10
AIM V.I.
Capital Appreciation Fund 100.99 144.82 191.23 239.55 20.99 64.82 111.23 239.55
Value Fund 101.30 145.75 192.79 242.72 21.30 65.75 112.79 242.72
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 101.61 146.68 194.35 245.87 21.61 66.68 114.35 245.87
FTVIPT
Franklin Income Securities Fund-Class 2 101.20 145.44 192.27 241.66 21.20 65.44 112.27 241.66
Franklin Real Estate Fund - Class 2 102.02 147.92 196.42 250.07 22.02 67.92 116.42 250.07
Franklin Small Cap Fund - Class 2 104.48 155.32 208.79 274.88 24.48 75.32 128.79 274.88
Mutual Shares Securities Fund - Class 2 104.17 154.40 207.25 271.81 24.17 74.40 127.25 271.81
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Global Income Fund 105.30 157.78 212.89 283.03 25.30 77.78 132.89 283.03
Internet Tollkeeper Fund 106.32 160.85 217.99 293.11 26.32 80.85 137.99 293.11
Mid Cap Value Fund 104.27 154.71 207.77 272.84 24.27 74.71 127.77 272.84
MFS(R)
Growth with Income Series 102.53 149.46 199.01 255.29 22.53 69.46 119.01 255.29
Utilities Series 102.84 150.39 200.56 258.41 22.84 70.39 120.56 258.41
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 105.50 158.40 213.91 285.05 25.50 78.40 133.91 285.05
Putnam VT Vista Fund - Class IB Shares 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Wells Fargo VT
Asset Allocation Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Corporate Bond Fund 102.73 150.08 200.04 257.37 22.73 70.08 120.04 257.37
Equity Income Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Equity Value Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Growth Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Large Company Growth Fund 103.76 153.17 205.20 267.71 23.76 73.17 125.20 267.71
Money Market Fund 102.22 148.53 197.46 252.16 22.22 68.53 117.46 252.16
Small Cap Growth Fund 105.81 159.32 215.44 288.08 25.81 79.32 135.44 288.08
</TABLE>
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected an
eight-year withdrawal charge schedule with the optional 0.20% Enhanced Death
Benefit Rider and the 0.30% Guaranteed Minimum Income Benefit Rider and assuming
a 5% annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 year 3 years 5 years 10 years 1 year 3 years 5 years 10 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $108.45 $167.71 $230.30 $322.65 $28.45 $87.71 $150.30 $322.65
Capital Resource Fund 106.81 162.79 222.09 306.30 26.81 82.79 142.09 306.30
Diversified Equity Income Fund 108.45 167.71 230.30 322.65 28.45 87.71 150.30 322.65
Extra Income Fund 107.22 164.02 224.15 310.41 27.22 84.02 144.15 310.41
Federal Income Fund 107.73 165.56 226.71 315.53 27.73 85.56 146.71 315.53
New Dimensions Fund(R) 107.01 163.40 223.12 308.36 27.01 83.40 143.12 308.36
Small Cap Advantage Fund 111.32 176.29 244.53 350.64 31.32 96.29 164.53 350.64
AIM V.I.
Capital Appreciation Fund 106.19 160.94 219.00 300.10 26.19 80.94 139.00 300.10
Value Fund 106.50 161.86 220.54 303.20 26.50 81.86 140.54 303.20
Dreyfus
The Dreyfus Socially Responsible
Growth Fund, Inc. 106.81 162.79 222.09 306.30 26.81 82.79 142.09 306.30
FTVIPT
Franklin Income Securities Fund-Class 2 106.40 161.55 220.03 302.17 26.40 81.55 140.03 302.17
Franklin Real Estate Fund - Class 2 107.22 164.02 224.15 310.41 27.22 84.02 144.15 310.41
Franklin Small Cap Fund - Class 2 109.68 171.39 236.42 334.74 29.68 91.39 156.42 334.74
Mutual Shares Securities Fund - Class 2 109.37 170.47 234.89 331.73 29.37 90.47 154.89 331.73
Goldman Sachs VIT
CORE(SM) U.S. Equity Fund 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Global Income Fund 110.50 173.84 240.48 342.72 30.50 93.84 160.48 342.72
Internet Tollkeeper Fund 111.52 176.90 245.54 352.61 31.52 96.90 165.54 352.61
Mid Cap Value Fund 109.47 170.78 235.40 332.73 29.47 90.78 155.40 332.73
MFS(R)
Growth with Income Series 107.73 165.56 226.71 315.53 27.73 85.56 146.71 315.53
Utilities Series 108.04 166.48 228.25 318.58 28.04 86.48 148.25 318.58
Putnam Variable Trust
Putnam VT International Growth Fund -
Class IB Shares 110.70 174.46 241.49 344.71 30.70 94.46 161.49 344.71
Putnam VT Vista Fund - Class IB Shares 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Wells Fargo VT
Asset Allocation Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Corporate Bond Fund 107.93 166.17 227.74 317.57 27.93 86.17 147.74 317.57
Equity Income Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Equity Value Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Growth Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Large Company Growth Fund 108.96 169.25 232.85 327.70 28.96 89.25 152.85 327.70
Money Market Fund 107.42 164.64 225.17 312.46 27.42 84.64 145.17 312.46
Small Cap Growth Fund 111.01 175.37 243.01 347.68 31.01 95.37 163.01 347.68
</TABLE>
*In these examples, the $30 contract administrative charge is approximated as a
0.068% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in this table. We
entered into certain arrangements under which we are compensated by the funds'
advisors and/or distributors for the administrative services we provide to the
funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
The following tables give per-unit information about the financial history of
each subaccount. We have not provided this information for some subaccounts
because they are new and do not have any history.
<TABLE>
<CAPTION>
<S> <C>
Year ended Dec. 31, 1999
Subaccount PBCA1(1) (Investing in shares of AXP(SM) Variable Portfolio - Blue Chip
Advantage Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.09
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PDEI1(1) (Investing in shares of AXP(SM) Variable Portfolio - Diversified
Equity Income Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.02
Number of accumulation units outstanding at end of period 262
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PEXI1(1) (Investing in shares of AXP(SM) Variable Portfolio - Extra Income Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.03
Number of accumulation units outstanding at end of period 259
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PNDM1(1) (Investing in shares of AXP(SM) Variable Portfolio - New Dimensions Fund(R))
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.15
Number of accumulation units outstanding at end of period 257
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PSCA1(1) (Investing in shares of AXP(SM) Variable Portfolio - Small Cap Advantage Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 254
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PCAP1(2) (Investing in shares of AIM V.I. Capital Appreciation Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.26
Number of accumulation units outstanding at end of period 251
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PVAL1(2) (Investing in shares of AIM V.I. Value Fund)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.11
Number of accumulation units outstanding at end of period 258
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
<PAGE>
Year ended Dec. 31,
1999
Subaccount PSMC1(2) (Investing in shares of FTVIPT Franklin Small Cap Fund -
Class 2)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.43
Number of accumulation units outstanding at end of period 243
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PGIS1(2) (Investing in shares of MFS(R) Growth with Income Series)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.05
Number of accumulation units outstanding at end of period 261
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PUTS1(2) (Investing in shares of MFS(R) Utilities Series)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.14
Number of accumulation units outstanding at end of period 255
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PIGR1(2) (Investing in shares of Putnam VT International Growth Fund - Class IB Shares)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.29
Number of accumulation units outstanding at end of period 252
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
Subaccount PVIS1(2) (Investing in shares of Putnam VT Vista Fund - Class IB
Shares)
Accumulation unit value at beginning of period $1.00
Accumulation unit value at end of period $1.30
Number of accumulation units outstanding at end of period 253
Ratio of operating expense to average net assets 1.25%
____________________________________________________________________________________________________________________
1 Operations commenced on Nov. 10, 1999.
2 Operations commenced on Nov. 9, 1999.
</TABLE>
<PAGE>
Financial Statements
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
Performance Information
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. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information 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.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including the:
o contract administrative charge,
o variable account administrative charge,
o Enhanced Death Benefit Rider* fee,
o Guaranteed Minimum Income Benefit Rider** fee,
o mortality and expense risk fee, and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
* Available if both you and the annuitant are 79 or younger. May not be
available in all states.
** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
We also may make optional total return quotations that do not reflect deduction
of the withdrawal charge (assuming no withdrawal), the Enhanced Death Benefit
Rider fee and the Guaranteed Minimum Income Benefit Rider fee. We may show total
return quotations by means of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
<PAGE>
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
__________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
__________________________________________________________________________________________________________________________________
PBCA1 AXP(SM) Variable Objective: long-term total return exceeding that IDS Life Insurance Company
WBCA1 Portfolio - Blue Chip of the U.S. stock market. Invests primarily in (IDS Life), investment
WBCA3 Advantage Fund common stocks of companies included in the manager; American Express
WBCA4 unmanaged S&P 500 Index. Financial Corporation
(AEFC), investment advisor.
WCAR1 AXP(SM) Variable Objective: capital appreciation. Invests primarily IDS Life, investment
WCAR3 Portfolio - Capital in U.S. common stocks and other securities manager; AEFC, investment
WCAR4 Resource Fund convertible into common stocks. advisor.
WCAR6
PDEI1 AXP(SM) Variable Objective: a high level of current income and, as IDS Life, investment
WDEI1 Portfolio - a secondary goal, steady growth of capital. manager; AEFC, investment
WDEI3 Diversified Equity Invests primarily in dividend-paying common and advisor.
WDEI4 Income Fund preferred stocks.
PEXI1 AXP(SM) Variable Objective: high current income, with capital IDS Life, investment
WEXI1 Portfolio - Extra growth as a secondary objective. Invests primarily manager; AEFC, investment
WEXI3 Income Fund in high-yielding, high-risk corporate bonds advisor.
WEXI4 issued by U.S. and foreign corporations, companies
and governments.
WFDI1 AXP(SM) Variable Objective: a high level of current income and IDS Life, investment
WFDI3 Portfolio - Federal safety of principal consistent with an investment manager; AEFC, investment
WFDI4 Income Fund in U.S. government and government agency advisor.
WFDI6 securities. Invests primarily in debt obligations
issued or guaranteed as to principal and interest
by the U.S. government, its agencies or
instrumentalities.
PNDM1 AXP(SM) Variable Objective: long-term growth of capital. Invests IDS Life, investment
WNDM1 Portfolio - New primarily in common stocks of U.S. and foreign manager; AEFC, investment
WNDM3 Dimensions Fund (R) companies showing potential for significant advisor.
WNDM4 growth.
PSCA1 AXP(SM) Variable Objective: long-term capital growth. Invests IDS Life, investment
WSCA1 Portfolio - Small Cap primarily in equity stocks of small companies that manager; AEFC, investment
WSCA3 Advantage Fund are often included in the S&P SmallCap 600 Index advisor; Kenwood Capital
WSCA4 or the Russell 2000 Index. Management LLC,
sub-investment advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
PCAP1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
WCAP1 Appreciation Fund common stocks, with emphasis on medium- and
WCAP3 small-sized growth companies.
WCAP4
PVAL1 AIM V.I. Value Fund Objective: long-term growth of capital with income A I M Advisors, Inc.
WVAL1 as a secondary objective. Invests primarily in
WVAL3 equity securities judged to be undervalued
WVAL4 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.
WSRG1 The Dreyfus Socially Objective: capital growth, with current income as The Dreyfus Corporation,
WSRG3 Responsible Growth a secondary objective. Invests primarily in the investment advisor; NCM
WSRG4 Fund, Inc. common stock of companies that, in the opinion Capital Management Group, Inc.,
WSRG6 of the fund's management, meet traditional sub-investment advisor.
investment standards and conduct their business
in a manner that contributes to the enhancement
of the quality of life in America.
WISE1 FTVIPT Franklin Objective: maximize income while maintaining Franklin Advisers, Inc.
WISE3 Income Securities prospects for capital appreciation. Invests
WISE4 Fund - Class 2 primarily in a diversified portfolio of debt and
WISE6 equity securities, including high yield,
lower-rated "junk bonds."
WRES1 FTVIPT Franklin Real Objective: capital appreciation with a secondary Franklin Advisers, Inc.
WRES3 Estate Fund - Class 2 goal to earn current income. Invests primarily in
WRES4 (previously Franklin securities of companies operating in the real
WRES6 Real Estate Securities estate industry, primarily equity real estate
Fund) investment trusts (REITS).
PSMC1 FTVIPT Franklin Objective: long-term capital growth. Invests Franklin Advisers, Inc.
WSMC1 Small Cap Fund - primarily in equity securities of U.S. small
WSMC3 Class 2 capitalization (small cap) growth companies.
WSMC4
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WMSI1 FTVIPT Mutual Objective: capital appreciation with income as a Franklin Mutual Advisers,
WMSI3 Shares Securities secondary goal. Invests primarily in equity LLC
WMSI4 Fund - Class 2 securities of companies that the manager believes
WMSI6 are available at market prices less than their
value based on certain recognized or objective
criteria (intrinsic value).
WUSE1 Goldman Sachs VIT Objective: long-term growth of capital and Goldman Sachs Asset
WUSE3 CORE(SM) U.S. Equity dividend income. Primarily invests in a broadly Management
WUSE4 Fund diversified portfolio of large-cap and blue chip
WUSE6 equity securities representing all major sectors
of the U.S. economy.
WGLI1 Goldman Sachs VIT Objective: high total return, emphasizing current Goldman Sachs Asset
WGLI6 Global Income Fund income, and, to a lesser extent, providing Management International
WGLI4 opportunities for capital appreciation. Invests
WGLI6 primarily in a portfolio of high quality
fixed-income securities of U.S. and foreign
issuers and enters into transactions in foreign
currencies.
SITO2 Goldman Sachs VIT Objective: long-term growth of capital. Invests Goldman Sachs Asset
WITO1 Internet Tollkeeper primarily in equity securities of companies that Management
WIT04 Fund the Investment Advisor believes will benefit from
WIT06 the growth of the Internet by providing access,
infrastructure, content and services to Internet
companies and customers.
WMCE1 Goldman Sachs VIT Mid Objective: long-term capital appreciation. Invests Goldman Sachs Asset
WMCE3 Cap Value Fund primarily in mid-capitalization companies within Management
WMCE4 the range of the market capitalization of
WMCE6 companies constituting the Russell Mid Cap Value
Index at the time of investment.
PGIS1 MFS(R) Growth with Objective: reasonable current income and long-term MFS Investment Management(R)
WGIS1 Income Series growth of capital and income. Invests primarily in
WGIS3 common stocks and related securities, such as
WGIS4 preferred stocks, convertible securities and
depositary receipts for those securities.
PUTS1 MFS (R) Utilities Objective: capital growth and current income. MFS Investment Management(R)
WUTS1 Series Invests primarily in equity and debt securities of
WUTS3 domestic and foreign companies in the utilities
WUTS4 industry.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
PIGR1 Putnam VT Objective: capital appreciation. Invests primarily Putnam Investment
WIGR1 International Growth in equity securities of companies located in a Management, Inc.
WIGR3 Fund - Class IB Shares country other than the U.S.
WIGR4
PVIS1 Putnam VT Vista Fund Objective: capital appreciation. Invests primarily Putnam Investment
WVIS1 - Class IB Shares in a diversified portfolio of common stocks that Management, Inc.
WVIS3 Putnam Management believes have above-average
WVIS4 potential for capital appreciation.
WAAL1 Wells Fargo VT Asset Objective: long-term total return, consistent with Wells Fargo Bank, N.A.,
WAAL3 Allocation Fund reasonable risk. Invests primarily in the advisor; Barclays Global
WAAL4 securities of various indexes to replicate the Fund Advisors, sub-advisor.
WAAL6 total return of the index. We use an asset
allocation model to allocate and reallocate assets
among common stocks (S&P 500 Index), U.S. Treasury
bonds (Lehman Brothers 20+ Bond Index) and money
market instruments, assuming a "normal" allocation
of 60% stocks and 40% bonds.
WCBD1 Wells Fargo VT Objective: high level of current income consistent Wells Fargo Bank, N.A.,
WCBD6 Corporate Bond Fund with reasonable risk. Invests primarily in advisor; Wells Capital
WCBD4 corporate debt securities of any maturity. Management Incorporated,
WCBD6 sub-advisor.
WEQI1 Wells Fargo VT Objective: long-term capital appreciation and Wells Fargo Bank, N.A.,
WEQI3 Equity Income Fund above-average dividend income. Invests primarily advisor; Wells Capital
WEQI4 in common stock of large, high-quality domestic Management Incorporated,
WEQI6 companies with above-average return potential and sub-advisor.
above-average dividend income.
WEQV1 Wells Fargo VT Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WEQV2 Equity Value Fund primarily in equity securities that we believe are advisor; Wells Capital
WEQV4 undervalued in relation to the overall stock Management Incorporated,
WEQV6 markets. sub-advisor.
<PAGE>
____________________________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
____________________________________________________________________________________________________________________________________
WGRO1 Wells Fargo VT Growth Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WGRO3 Fund primarily in common stocks and other equity advisor; Wells Capital
WGRO4 securities. We look for companies that have a Management Incorporated,
WGRO6 strong earnings growth trend that we believe have sub-advisor.
above-average prospects for future growth.
WLCG1 Wells Fargo VT Large Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WLCG3 Company Growth Fund primarily in common stock of large, high-quality advisor; Peregrine Capital
WLCG4 domestic companies that have superior growth Management, Inc.,
WLCG6 potential. sub-advisor.
WMMK1 Wells Fargo VT Money Objective: current income, while preserving Wells Fargo Bank, N.A.,
WMMK3 Market Fund capital and liquidity. Invests primarily in advisor; Wells Capital
WMMK4 high-quality, U.S. dollar-denominated money market Management Incorporated,
WMMk6 instruments, including debt obligations. sub-advisor.
WSCG1 Wells Fargo VT Small Objective: long-term capital appreciation. Invests Wells Fargo Bank, N.A.,
WSCG3 Cap Growth Fund primarily in common stocks issued by companies advisor; Wells Capital
WSCG4 whose market capitalization falls within the range Management Incorporated,
WSCG6 of the Russell 2000 Index, which is considered a sub-advisor.
small capitalization index.
__________________________________________________________________________________________________________________________________
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an 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, and those
results may differ significantly from other funds with similar investment
objectives and policies.
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 also 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
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement 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 tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the funds' prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
<PAGE>
The Fixed Accounts
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
<PAGE>
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer or withdraw money out of the Guarantee Period
Accounts prior to the end of the Guarantee Period. The amount transferred or
withdrawn will receive a MVA which will increase or decrease the actual amount
transferred or withdrawn. We calculate the MVA using the formula shown below and
we base it on the current level of interest rates compared to the rate of your
Guarantee Period Account.
Amount transferred x ( l + i ) n/12
( l + j + .001 )
Where: i = rate earned in the account from which funds are
being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing annuities, the
interest rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You may buy only a nonqualified annuity (by
rollover only) or a qualified annuity from your Wells Fargo sales representative
without prior approval. You may buy a qualified annuity or a nonqualified
annuity through your AEFA sales representative. You can buy another contract
with the same underlying funds but with different mortality and expense risk
fees and withdrawal charges. For information on this contract, please call us at
the telephone number listed on the first page of this prospectus or ask your
sales representative.
You can own a nonqualified annuity in joint tenancy with rights of survivorship
only in spousal situations. You cannot own a qualified annuity in joint tenancy.
You can buy a contract or become an annuitant if you are 85 or younger. (The age
limit may be younger for qualified annuities in some states.)
When you apply, you may select:
o the length of the withdrawal charge period (six or eight years)*;
o the optional Enhanced Death Benefit Rider**;
o the optional Guaranteed Minimum Income Benefit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* Contracts sold through AEFA are only available with an eight-year withdrawal
charge schedule.
** Available if both you and the annuitant are 79 or younger. May not be
available in all states.
*** This rider is only available at the time you purchase your contract if the
annuitant is 75 or younger and you also select the Enhanced Death Benefit
Rider option. Riders may not be available in all states.
****Some states restrict the amount you can allocate to the fixed accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
<PAGE>
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 591/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 701/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment: $100,000 for contracts sold through AEFA
(including SIPs)
$5,000 for all other contracts sold in
Texas, Washington and South Carolina
(not including SIPs)
$2,000 for all other contracts sold in
other states (not including SIPs)
Minimum additional purchase payments:
If paying by SIP*: If paying by any other method:
$50 $100
*Payments made using SIP must total $2,000 before you can make partial
withdrawals.
Maximum total allowable purchase payments**
(without prior approval): $1,000,000
**This limit applies in total to all American Enterprise Life annuities you
own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual contributions
also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with every payment you make
to your contract. We apply this credit immediately. We allocate the credit to
the fixed accounts and subaccounts in the same proportions as your purchase
payment. We apply the credit as a percentage of your current payment based on
the following schedule:
If total net payments* made during then the purchase payment
the life of the contract equals....... credit percentage equals...
Less than $10,000 1%
$10,000 to less than 1 million 2
$1 million to less than 5 million 3
$5 million and over 4
*Net payments equal total payments less total withdrawals.
If you make any future payments which cause the contract to become eligible for
a higher percentage credit, we will add credits to increase the credit
percentage on prior payments (less total withdrawals). We allocate credits
according to the purchase payment allocation on the date we add the credits to
the contract.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
<PAGE>
Because of these higher charges, there may be circumstances where you are worse
off for having received the credit than in other contracts. All things being
equal, (such as guarantee availability or fund performance and availability),
this may occur if you hold your contract for 40 years or more or if you make a
full withdrawal in the fourth to eighth years of the withdrawal charge schedule.
You should consider these higher charges and other relevant factors before you
buy this contract or before you exchange a contract you currently own for this
contract.
This credit is available because of lower distribution costs associated with
this contract and through revenue from a higher and longer withdrawal charge
schedule and a higher mortality and expense risk fee. In general, we do not
profit from the higher charges assessed to cover the cost of the purchase
payment credit. We use all the revenue from these higher charges to pay for the
cost of the credits. However, we could profit from the higher charges if market
appreciation is higher than expected or if contract owners hold their contracts
for longer than expected.
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For contracts with a six-year withdrawal charge schedule, this
fee totals 1.35% of their average daily net assets on an annual basis. For
contracts with an eight-year withdrawal charge schedule, this fee totals 1.10%
of their average daily net assets on an annual basis. This fee covers the
mortality and expense risk that we assume. Approximately two-thirds of this
amount is for our assumption of mortality risk, and one-third is for our
assumption of expense risk. If you choose the optional Enhanced Death Benefit
Rider, we will charge an additional 0.20% of the average daily net assets on
annual basis (see "Enhanced Death Benefit Rider fee" below). These fees do not
apply to the fixed accounts. We cannot increase these fees.
<PAGE>
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
ENHANCED DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the subaccounts and
it totals 0.20% of their average daily net assets on an annual basis. We cannot
increase the Enhanced Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the Guaranteed Income Benefit Base for this optional
feature only if you choose this option. If selected, we deduct the fee
(currently 0.30%) from the contract value on your contract anniversary at the
end of each contract year. We prorate this fee among the subaccounts and fixed
accounts in the same proportion your interest in each account bears to your
total contract value.
We apply the fee on an adjusted benefit base calculated as the result of
(a) +(b) - (c), where:
(a) is the Guaranteed Income Benefit Base,
(b) is the adjusted transfers from the subaccounts to the fixed accounts made
in the last six months, and
(c) is the total contract value in the fixed accounts.
The result of (b) minus (c) cannot be greater than zero. It allows us to base
the charge largely on the subaccounts, and not on the fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
<PAGE>
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within six or eight years before withdrawal.
You select the withdrawal charge period at the time of your application for the
contract. The withdrawal charge percentages that apply to you are shown in your
contract. In addition, amounts withdrawn from a Guarantee Period Account prior
to the end of the applicable Guarantee Period will be subject to a MVA. (See
"The Fixed Accounts -- Market Value Adjustments (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period you selected and shown in your contract. We do not assess a
withdrawal charge on these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period you selected and shown in your
contract. We withdraw these payments on a first-in, first-out (FIFO) basis.
We do assess a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn, depending on the schedule you selected:
Six-year schedule Eight-year schedule
Years from purchase Withdrawal charge Years from purchase Withdrawal charge
payment receipt percentage payment receipt percentage
1 8% 1 8%
2 8 2 8
3 8 3 8
4 6 4 8
5 4 5 8
6 2 6 6
Thereafter 0 7 4
8 2
Thereafter 0
<PAGE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. If the
original contract had a six-year withdrawal charge schedule, the discount rate
we use in the calculation will be 5.32% if the assumed investment rate is 3.5%
and 6.82% if the assumed investment rate is 5%. If the original contract had an
eight-year withdrawal charge schedule, the discount rate we use in the
calculation will be 5.07% if the assumed investment rate is 3.5% and 6.57% if
the assumed investment rate is 5%. The withdrawal charge is equal to the
difference in discount values using the above discount rates and the assumed
investment rate. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with an eight-year withdrawal charge schedule
with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Explanation
Charge
$0 $3,848.80 is 10% of the prior anniversary contract value
withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10% free
withdrawal amount withdrawn without withdrawal charge; and
0 $10,000 Nov. 1, 2000 payment was received nine or more years
before withdrawal and is withdrawn without withdrawal charge; and
640 $8,000 Dec. 31, 2006 payment is in its fourth year from receipt,
withdrawn with an 8% withdrawal charge; and
480 $6,000 Feb. 20, 2008 payment is in its third year from receipt
withdrawn with an 8% withdrawal charge.
$1,120
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period*; and
o death benefits.*
*However, we will reverse certain purchase payment credits up to the maximum
withdrawal charge. (See "Buying Your Contract -- Purchase payment credits.")
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
o Withdrawals you make if you or the annuitant become disabled within the
meaning of IRC Section 72(m)(7) after your contract date. The disabled
person must also be receiving Social Security disability or state long term
disability benefits. The disabled person must be age 70 or younger at the
time of withdrawal. You must provide us with a signed letter from the
disabled person stating that he or she meets the above criteria, a legible
photocopy of Social Security disability or state long term disability
benefit payments and the application for such payments.
o Withdrawals you make once a year if you or the annuitant become unemployed
at least one year after your contract's date, up to the following amounts
each year:
(a) 25% of your prior anniversary contract value (or $10,000 if greater) if the
unemployment condition is met for at least 30 straight days; or
(b) 50% of your prior anniversary contract value (or $10,000 if greater) if the
unemployment condition is met for at least 180 straight days.
The unemployment condition is met if the unemployed person is currently
receiving unemployment compensation from a government unit of the United States,
whether federal or state. You must provide us with a signed letter from the
unemployed person stating that he or she meets the above criteria with a legible
photocopy of the unemployment benefit payments meeting the above criteria with
regard to dates.
<PAGE>
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium taxes when
annuity payouts begin, but we reserve the right to deduct this tax at other
times such as when you make purchase payments or when you make a full withdrawal
from your contract.
<PAGE>
Valuing Your Investment
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus any purchase payment credits allocated to the fixed accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge; and
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge or the Guaranteed Minimum Income Benefit
Rider fee, we subtract a certain number of accumulation units from your
contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
<PAGE>
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge and the Enhanced Death
Benefit Rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o any purchase payment credits allocated to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge; and/or
o prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee, the variable account administrative charge
and the Enhanced Death Benefit Rider fee (if selected).
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
<TABLE>
<CAPTION>
How dollar-cost averaging works
<S> <C> <C> <C> <C>
Month Amount Accumulation Number of units
invested unit value purchased
By investing an Jan $100 $20 5.00
equal number of
dollars each month ... Feb 100 18 5.56
Mar 100 17 5.88
you automatically Apr 100 15 6.67
buy more units
when the per unit May 100 16 6.25
market price is low ...
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units Sep 100 21 4.76
when the per unit
market price is high. Oct 100 20 5.00
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success 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. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract 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
contract 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 accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
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 contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
<PAGE>
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the one-year fixed account.) We will process your transfer
on the valuation date we receive your request. We will value your transfer at
the next accumulation unit value calculated after we receive your request. There
is no charge for transfers. Before making a transfer, you should consider the
risks involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from the Guarantee Period Accounts at any
time. Transfers made before the end of the Guarantee Period will receive a
MVA, which may result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
HOW TO REQUEST A WITHDRAWAL
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider fee"). The rider guarantees a minimum amount of fixed annuity
lifetime income during the annuity payout period if your contract has been in
force for at least ten years, subject to the conditions described below. The
rider also provides you the option of variable annuity payouts, with a
guaranteed minimum initial payment. This rider is only available at the time you
purchase your contract if you also select the Enhanced Death Benefit Rider
option.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base is equal to the Enhanced Death Benefit if:
o the Guaranteed Minimum Income Rider became effective on the contract date,
and
o all payments are recognized in the benefit base.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit, in the calculation
of the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments and
credits paid into the contract.
If we exclude such payments and credits, the Guaranteed Income Benefit Base
would be calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments and
purchase payment credits";
(b) total payments and purchase payment credits less prior five years of
payments and purchase payment credits, less adjusted partial withdrawals;
(c) Maximum anniversary value immediately preceding the date of settlement,
plus payments and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments
and purchase payment credits"; or
(d) the Variable account 5% floor, less the 5% adjusted prior five years of
payments and purchase payment credits.
"Market value adjusted prior five years of payments and purchase payment
credits" are calculated as the sum of each such payment or credit, multiplied by
the ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. The estimated contract value at
such anniversary is calculated by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
"5% Adjusted prior five years of payments and purchase payment credits" are
calculated as the sum of each payment or payment credit accumulated at 5% for
the number of full contract years they have been in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract along with
the Enhanced Death Benefit Rider option, and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the Wells Fargo Money Market Fund to 10% of the total amount
in the subaccounts. If we are required to activate this restriction, and you
have more than 10% of your subaccount value in this fund, we will send you
notice and ask that you reallocate your contract value so that the limitation is
satisfied within 60 days. If after 60 days the limitation is not satisfied, we
will terminate the rider.
<PAGE>
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a ten-year waiting period from the
effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity - no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity - no refund
Contingent event benefits: If the annuitant satisfies the conditions for the
waiver of withdrawal charges in the event of disability, terminal illness or a
confinement in a nursing home or hospital (see "Charges -- Waiver of withdrawal
charges") you can exercise the rider at any time. In this event, you can take up
to 50% of the Guaranteed Income Benefit Base in cash. You can use the balance of
the Guaranteed Income Benefit Base for annuity payouts under the terms above
with regard to annuitant age at retirement date, the annuity payout plans and
the more conservative annuity factors. You can also change the annuitant for the
payouts.
Terminating the rider:
o You may terminate the rider within 30 days after the first and fifth
anniversary of the effective date of the rider.
o You may terminate the rider any time after the tenth anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o You purchase the contract with a payment of $100,000 on Jan. 1, 2000, and
we add a $2,000 purchase payment credit to the contract.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The Guaranteed Income Benefit Base is based on the Variable account 5%
floor.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
<S> <C> <C> <C> <C>
Plan A -- Plan B -- Plan D --
Contract Minimum Joint and last survivor
Anniversary Guaranteed Life Annuity - Life Annuity with life annuity -
At Exercise Benefit Base no refund ten years certain no refund
10 $166,147 $856.63 $842.37 $689.51
15 $212,051 $1,263.82 $1,204.45 $977.55
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges -- Withdrawal charge") and IRS taxes
and penalties (see "Taxes"). You cannot make withdrawals after annuity payouts
begin except under Plan E (see "The Annuity Payout Period -- Annuity payout
plans").
WITDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not
cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
<PAGE>
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
Benefits in Case of Death
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of the following less any
purchase payment credits added to the contract in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
If you own the contract in joint tenancy with rights of survivorship, we will
pay benefits upon the first to die of either you or the annuitant.
Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment credits
and minus any "adjusted partial withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and
purchase payment credits and minus any "adjusted partial withdrawals."
<PAGE>
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000. We add
purchase a payment credit of $400 to the contract.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
o On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value:" $24,000.00
(the greatest of the anniversary values which
was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 24,000 = - 1,636.36
22,000
for a death benefit of: $22,363.64
ENHANCED DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to you
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of the following amounts less any purchase payment credits added in the
last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary; or
4. the Variable account 5% floor
The variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments plus purchase payment credits allocated to the subaccounts. On any day
that you allocate additional amounts to, or withdraw or transfer from the
subaccounts, we adjust the floor by adding the additional amounts and
subtracting the "adjusted partial withdrawals" or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional purchase payments made since that
anniversary plus purchase payment credits and reduced by any "adjusted partial
withdrawals" since that anniversary.
<PAGE>
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where:
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $20,000 on Jan. 1, 2000 and we
add a $400 purchase payment credit to the contract with $5,100 allocated to
the one-year fixed account and $15,300 allocated to the subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $12,000. Total contract
value is $17,200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $14,000. Total contract value is $19,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $17,800.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value"
(the purchase payment plus purchase payment credits): $20,400.00
plus any purchase payment paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that anniversary,
calculated as: (1,500 x 20,400)
19,300 = - 1,585.49
Maximum anniversary value benefit $18,814.51
The variable account floor on Jan. 1, 2001,
calculated as:
1.05 x 15,300 = $16,065.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the subaccounts,
calculated as: 1,500 x 16,065 =
14,000 - $1,721.25
Variable account floor benefit $14,343.75
plus the one-year fixed account value + 5,300.00
Variable account 5% floor,
calculated as the one-year fixed account plus the
Variable account floor benefit $19,643.75
Enhanced Death Benefit, calculated as the greater
of the Maximum anniversary value benefit and the
Variable account 5% floor, minus any purchase payment
credits made in the last 12 months ($0) $19,643.75
<PAGE>
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider, if selected, is then terminated.
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
<PAGE>
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity - no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity - installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity - no refund: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. If the initial contract had a six-year
withdrawal charge schedule, the discount rate we use in the calculation
will vary between 5.32% and 6.82% depending on the applicable assumed
investment rate. If the original contract had an eight-year withdrawal
charge schedule, the discount rate we use in the calculation will vary
between 5.07% and 6.57% depending on the applicable assumed investment
rate. (See "Charges -- Withdrawal charge under Annuity Payout Plan E.") You
can also take a portion of the discounted value once a year. If you do so,
your monthly payouts will be reduced by the proportion of your withdrawal
to the full discounted value. A 10% IRS penalty tax could apply if you take
a withdrawal. (See "Taxes.")
<PAGE>
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
<PAGE>
Taxes
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Purchase payment credits: These are considered earnings and are taxed
accordingly.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
<PAGE>
Penalties: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
<PAGE>
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs 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 is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments $ 6,565 (4,788) (509) (5,258) (1,154)
Other $ 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
<PAGE>
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
<PAGE>
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be appoximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
<PAGE>
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
YEAR 2000 ISSUE
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. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec.31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
<PAGE>
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president, assured assets since 1998; vice
president, AEFC since 1998; Piper Capital Management (PCM) President from Oct.
1997 to May 1998; PCM Director of Marketing from June 1995 to Oct. 1997; PCM
Director of Retail Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is:
200 AXP Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler
who is an independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
Name of individual or Number in group Position held Cash
compensation
Five most highly compensated
executive officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President,
Investments
All executive officers as a group (11) $11,535,043
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined financial statements of the segregated asset subaccounts of the
American Enterprise Variable Annuity Account (comprised of subaccounts PBCA1,
PDEI1, PEXI1, PNDM1, PSCA1, PCAP1, PVAL1, PSMC1, PGIS1, PUTS1, PIGR1 and PVIS1)
as of Dec. 31, 1999 and for the periods indicated therein, as set forth in their
reports. We've included our financial statements in the prospectus and elsewhere
in the registration statement in reliance on Ernst & Young LLP's report, given
on their authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
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 (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $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 IDS Life 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
of ($588) 1,093 -- -- 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
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
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:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
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.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<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, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
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>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 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.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, 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 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. 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.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 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 $486 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:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</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>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</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:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
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 $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 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:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has 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 $8,258 and
$6,651 at December 31, 1999 and 1998, 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 $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, 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 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, 1999 or 1998.
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, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</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 2006.
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,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Table of Contents of the Statement of Additional Information
Performance Information p. 3
Calculating Annuity Payouts p. 13
Rating Agencies p. 15
Principal Underwriter p. 15
Independent Auditors p. 15
Financial Statements
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
[ ] Wells Fargo Advantage(SM) Builder Variable Annuity
[ ] American Express(R) Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] The Dreyfus Socially Responsible Growth Fund, Inc.
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] Goldman Sachs Variable Insurance Trust (VIT)
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust - Class IB Shares
[ ] Wells Fargo Variable Trust Funds
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name______________________________________________________________________
Address________________________________________________________________________
City________________________________ State _____________________ Zip__________
<PAGE>
<PAGE>
PROSPECTUS
MAY 1, 2000
AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
ISSUED BY: AMERICAN ENTERPRISE LIFE INSURANCE COMPANY (AMERICAN ENTERPRISE LIFE)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
<TABLE>
<S> <C>
- - American Express-Registered Trademark- Variable Portfolio Funds - J. P. Morgan Series Trust II
- - AIM Variable Insurance Funds - Lazard Retirement Series, Inc.
- - Alliance Variable Products Series Fund - MFS-Registered Trademark- Variable Insurance Trust-SM-
- - Baron Capital Funds - Putnam Variable Trust - Class IB Shares
- - Fidelity Variable Insurance Products Service Class - Royce Capital Fund
- - Franklin Templeton Variable Insurance Products Trust (FTVIPT) - Third Avenue Variable Series Trust
- - Goldman Sachs Variable Insurance Trust (VIT) - Wanger Advisors Trust
- - Janus Aspen Series: Service Shares - Warburg Pincus Trust
</TABLE>
Please read the prospectuses carefully and keep them for future reference.
This contract provides for contract value credits. The death benefits for
contracts with such credits may be lower than for contracts without such
credits. The amount of the credit may be more than offset by the reduction in
the death benefits provided.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS CONTRACT 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 CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed
with the SEC and is available without charge by contacting American
Enterprise Life at the telephone number above or by completing and sending
the order form on the last page of this prospectus. The table of contents of
the SAI is on the last page of this prospectus.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 1
<PAGE>
TABLE OF CONTENTS
KEY TERMS............................................................3
THE CONTRACT IN BRIEF................................................4
EXPENSE SUMMARY......................................................7
CONDENSED FINANCIAL INFORMATION (UNAUDITED).........................15
FINANCIAL STATEMENTS................................................23
PERFORMANCE INFORMATION.............................................23
THE VARIABLE ACCOUNT AND THE FUNDS..................................25
THE FIXED ACCOUNTS..................................................32
BUYING YOUR CONTRACT................................................34
CHARGES.............................................................36
VALUING YOUR INVESTMENT.............................................40
MAKING THE MOST OF YOUR CONTRACT....................................42
WITHDRAWALS.........................................................50
TSA -- SPECIAL WITHDRAWAL PROVISIONS................................51
CHANGING OWNERSHIP..................................................51
BENEFITS IN CASE OF DEATH...........................................51
THE ANNUITY PAYOUT PERIOD...........................................55
TAXES...............................................................57
VOTING RIGHTS.......................................................59
SUBSTITUTION OF INVESTMENTS.........................................60
ABOUT THE SERVICE PROVIDERS.........................................60
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE...............61
DIRECTORS AND EXECUTIVE OFFICERS....................................66
EXPERTS.............................................................68
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
FINANCIAL INFORMATION...........................................69
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........87
- --------------------------------------------------------------------------------
2 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.
ACCUMULATION UNIT -- A measure of the value of each subaccount before annuity
payouts begin.
ANNUITANT -- The person on whose life or life expectancy the annuity payouts are
based.
ANNUITY PAYOUTS -- An amount paid at regular intervals under one of several
plans.
BENEFICIARY -- The person you designate to receive benefits in case of the
owner's or annuitant's death while the contract is in force and before annuity
payouts begin.
CLOSE OF BUSINESS -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
CONTRACT -- a deferred annuity contract, or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payout beginning at a specified time in the future.
CONTRACT VALUE -- The total value of your contract before we deduct any
applicable charges.
CONTRACT YEAR -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
FIXED ACCOUNTS -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
FUNDS -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
GUARANTEE PERIOD -- The number of years that a guaranteed interest rate is
credited.
MARKET VALUE ADJUSTMENT (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
OWNER (YOU, YOUR) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
QUALIFIED ANNUITY -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
- - Individual Retirement Annuities (IRAs) under Section 408(b) of the
Internal Revenue Code of 1986, as amended (the Code)
- - Roth IRAs under Section 408A of the Code
- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
- - Tax Sheltered Annuity (TSA) rollovers under Section 403(b) of the Code
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 3
<PAGE>
A qualified annuity will not provide any necessary or additional tax deferral
if it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered NONQUALIFIED ANNUITIES.
RETIREMENT DATE -- The date when annuity payouts are scheduled to begin.
VALUATION DATE -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
VARIABLE ACCOUNT -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
WITHDRAWAL VALUE -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
THE CONTRACT IN BRIEF
PURPOSE: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, or in addition to, an existing annuity.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
FREE LOOK PERIOD: You may return your contract to your sales representative or
to our office within the time stated on the first page of your contract and
receive a full refund of the contract value. We will not deduct any charges.
However, you bear the investment risk from the time of purchase until you return
the contract; the refund amount may be more or less than the payment you made.
(Exception: If the law requires, we will refund all of your purchase payments.)
ACCOUNTS: Currently, you may allocate your purchase payments among any or all
of:
- - the subaccounts, each of which invests in a fund with a particular investment
objective. The value of each subaccount varies with the performance of the
particular fund in which it invests. We cannot guarantee that the value at
the retirement date will equal or exceed the total purchase payments you
allocate to the subaccounts. (p. 25)
- - the fixed accounts, which earn interest at rates that we adjust periodically.
Some states restrict the amount you can allocate to these accounts. (p. 32)
- --------------------------------------------------------------------------------
4 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
BUYING YOUR CONTRACT: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy a nonqualified annuity or a qualified annuity. After your initial
purchase payment, you have the option of making additional purchase payments in
the future. Some states have time limitations for making additional payments.
(p. 34)
- - Minimum initial purchase payment (including Systematic Investment
Plans (SIPs)) --
$5,000 in Texas, Washington, Pennsylvania and South Carolina;
$2,000 in all other states
- - Minimum additional purchase payment -- $100 ($50 for SIPs)
- - Maximum total purchase payments (without prior approval) --
$1,000,000 for issue ages up to 85
$100,000 for issue ages 86 to 90
TRANSFERS: Subject to certain restrictions you currently may redistribute
your money among the accounts without charge at any time until annuity
payouts begin, and once per contract year among the subaccounts after annuity
payouts begin. Transfers out of the Guarantee Period Accounts before the end
of the Guarantee Period will be subject to a MVA. You may establish automated
transfers among the accounts. Fixed account transfers are subject to special
restrictions. (p. 43)
WITHDRAWALS: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties
(including a 10% IRS penalty if you make withdrawals prior to your reaching
age 59 1/2) and may have other tax consequences; also, certain restrictions
apply. (p. 50)
CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 51)
BENEFITS IN CASE OF DEATH: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 51)
ANNUITY PAYOUTS: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both.
Total monthly payouts may include amounts from each subaccount and the
one-year fixed account. During the annuity payout period, your choices for
subaccounts may be limited. The Guarantee Period Accounts are not available
during the payout period. (p. 55)
TAXES: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS
penalty taxes may apply.) Even if you direct payouts to someone else, you
will be taxed on the income if you are the owner. However, Roth IRAs may grow
and be distributed tax free if you meet certain distribution requirements.
(p. 57)
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 5
<PAGE>
CHARGES: We assess certain charges in connection with your contract (p. 36):
- - $30 annual contract administrative charge;
- - 0.15% variable account administrative charge;
- - 1.25% mortality and expense risk fee (if you allocate money to one
or more subaccounts);
- - if you select the Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base)*, an annual fee based on an adjusted contract value (currently
0.35%);
- - if you select the 8% Performance Credit Rider*, an annual fee of 0.25% of the
contract anniversary contract value;
- - withdrawal charge;
- - any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when annuity payouts begin,
but we reserve the right to deduct this tax at other times such as when you
make purchase payments or when you make a total withdrawal); and
- - the operating expenses of the funds in which the subaccounts invest.
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available if the annuitant is age
75 or younger.
- --------------------------------------------------------------------------------
6 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
EXPENSE SUMMARY
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses for each
fund.
CONTRACT OWNER EXPENSES
WITHDRAWAL CHARGE (contingent deferred sales charge as a percentage of
purchase payment withdrawn)
<TABLE>
<CAPTION>
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <S>
1 7%
- ----------------------------------------------------------------------------------------------------------------------
2 7
- ----------------------------------------------------------------------------------------------------------------------
3 6
- ----------------------------------------------------------------------------------------------------------------------
4 6
- ----------------------------------------------------------------------------------------------------------------------
5 5
- ----------------------------------------------------------------------------------------------------------------------
6 4
- ----------------------------------------------------------------------------------------------------------------------
7 2
- ----------------------------------------------------------------------------------------------------------------------
Thereafter 0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the investment
rate plus 1.77%. In no event would your withdrawal charge exceed 9% of the
amount available for payouts under the plan.
ANNUAL CONTRACT ADMINISTRATIVE CHARGE $30*
*We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
(6% ACCUMULATION BENEFIT BASE) FEE:**
as a percentage of an adjusted contract value
charged annually. This is an optional expense. 0.35%
8% PERFORMANCE CREDIT RIDER FEE:**
as a percentage of the contract value at contract
anniversary charged annually. This is an optional expense. 0.25%
**You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available if the annuitant is age
75 or younger.
ANNUAL VARIABLE ACCOUNT EXPENSES (AS A PERCENTAGE OF AVERAGE SUBACCOUNT VALUE)
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE 0.15%
MORTALITY AND EXPENSE RISK FEE*** 1.25%
-----
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES 1.40%
***Includes a death benefit choice of either the Option A -- Return of purchase
payment death benefit, Option B -Maximum anniversary value death benefit, or
Option C -- 5% Accumulation death benefit rider if both you and the annuitant
are age 79 or younger. If either you or the annuitant are age 80 or older Option
A will apply.
.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 7
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A
PERCENTAGE OF AVERAGE DAILY NET ASSETS)
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT 12b-1 OTHER
FEES FEES EXPENSES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP-SM- Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Bond Fund .60% .13 .08 .81%(2)
Capital Resource Fund .60% .13 .06 .79%(2)
Cash Management Fund .51% .13 .05 .69%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
Growth Fund .63% .13 .19 .95%(1)
Managed Fund .59% .13 .04 .76%(2)
New Dimensions Fund-Registered Trademark- .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Capital Development Fund --% -- 1.23 1.23%(3,4)
Value Fund .61% -- .15 .76%(3)
Alliance VP
Premier Growth Portfolio (Class B) 1.00% .25 .04 1.29%(5)
Technology Portfolio (Class B) .71% .25 .24 1.20%(5)
U.S. Government/High Grade Securities
Portfolio (Class B) .60% .25 .30 1.15%(5)
Baron Funds
Baron Capital Asset Fund 1.00% .25 .25 1.50%(6)
Fidelity VIP
III Growth & Income Portfolio (Service Class) .48% .10 .12 .70%(7)
III Mid Cap Portfolio (Service Class) .57% .10 .40 1.07%(8)
Overseas Portfolio (Service Class) .73% .10 .18 1.01%(7)
FTVIPT
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(9)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(10)
Templeton International Smaller Companies Fund - Class 2 .85% .25 .26 1.36%(11)
Goldman Sachs VIT
Capital Growth Fund .75% -- .25 1.00%(12)
CORE-SM- U.S. Equity Fund .70% -- .20 .90%(12)
Global Income Fund .90% -- .25 1.15%(12)
International Equity Fund 1.00% -- .35 1.35%(12)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(13)
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
Global Technology Portfolio: Service Shares .65% .25 .13 1.03%(14)
Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
International Growth Portfolio: Service Shares .65% .25 .11 1.01%(14)
- ------------------------------------------------------------------------------------------------------------------------------------
8 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUAL OPERATING EXPENSES OF THE FUNDS (AFTER FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS, IF APPLICABLE, AS A
PERCENTAGE OF AVERAGE DAILY NET ASSETS)
MANAGEMENT 12b-1 OTHER
FEES FEES EXPENSES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan
U.S. Disciplined Equity Portfolio .35% -- .50 .85%(15)
Lazard Retirement Series
Equity Portfolio .75% .25 .25 1.25%(16)
International Equity Portfolio .75% .25 .25 1.25%(16)
MFS-Registered Trademark-
New Discovery Series .90% -- .17 1.07%(17,18)
Research Series .75% -- .11 .86%(17)
Utilities Series .75% -- .16 .91%(17)
Putnam Variable Trust
Putnam VT Growth and Income Fund - Class IB Shares .46% .15 .04 .65%(3)
Putnam VT International Growth Fund - Class IB Shares .80% .15 .22 1.17%(3)
Putnam VT International New Opportunities Fund - Class IB Shares 1.08% .15 .33 1.56%(3)
Royce
Micro-Cap Portfolio 1.25% -- .10 1.35%(19)
Premier Portfolio 1.00% -- .35 1.35%(19)
Third Avenue
Value Portfolio .90% -- .40 1.30%(20)
Wanger
International Small Cap 1.25% -- .24 1.49%(21)
U.S. Small Cap .95% -- .07 1.02%(21)
Warburg Pincus Trust -
Emerging Growth Portfolio --% -- 1.40 1.40%(22)
- ----------------------------------------------------------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 9
</TABLE>
<PAGE>
(1) Based on estimated expense after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and
"Total" would be 0.39% and 1.08% for AXP-SM- Variable Portfolio - Blue
Chip Advantage and AXP-SM- Variable Portfolio - Diversified Equity
Income Funds, 0.26% and 1.00% for AXP-SM- Variable Portfolio - Federal
Income Fund, 0.32% and 1.08% for AXP-SM- Variable Portfolio - Growth
Fund and 0.43% and 1.35% for AXP-SM- Variable Portfolio - Small Cap
Advantage Fund.
(2) The fund's expense figures are based on actual expenses for the fiscal
year ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution
fee of 0.125% that went into effect Sept. 21, 1999.
(3) Figures in "Management Fees", "12b-1 Fees", "Other Expenses" and "Total"
are based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) Had there been no fee waiver or expenses reimbursements, expenses would
have been: 0.75%, 0.00%, 2.67% and 3.42%.
(5) Figures in "Management Fees", "12b-1 Fees". "Other Expenses" and "Total"
are based on actual expenses for the fiscal period ended Dec. 31, 1999.
Absent fee waivers and expense reimbursements "Management Fees," "12b-1
Fees," "Other Expenses" and "Total" would be, respectively, 1.00%,
0.25%, 0.27% and 1.52% for Alliance Technology Portfolio.
(6) The Advisor is contractually obligated to reduce its fee to the extent
required to limit Baron Capital Asset Fund's total operating expenses to
1.50% for the first $250 million of assets in the Fund, 1.35% for Fund
assets over $250 million and 1.25% for Fund assets over $500 million.
Without the expense limitations, total operating expenses for the Fund
for the period Jan. 1, 1999 through Dec. 31, 1999 would have been 1.88%.
(7) A portion of the brokerage commissions that certain funds pay was used
to reduce fund expenses. In addition, through arrangements with certain
funds' custodian, credits realized as a result of uninvested cash
balances were used to reduce a portion of each applicable funds'
expenses. With these reductions, "Other Expenses," and "Total" presented
in the table would have been 0.11% and 0.69% for Growth & Income
Portfolio and 0.15% and 0.98% for Overseas Portfolio.
(8) FMR agreed to reimburse a portion Mid Cap Portfolio's expenses during
the period. Without this reimbursement, the Portfolio's management fee,
distribution & service fee (12b-1), other expenses and total expenses
would have been 0.57%, 0.10%, 2.74% and 3.41%, respectively.
(9) Previously Franklin Real Estate Securities Fund. The fund administration
fee is paid indirectly through the management fee. The fund's Class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus.
(10) On Feb. 8, 2000, a merger and reorganization was approved that combined
the fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the
fund's assets as of Dec. 31, 1999, and not the assets of the combined
fund. However, if the table reflected combined assets, the fund's
expenses after May 1, 2000 would be estimated as: "Management Fees"
0.60%, "12b-1 Fees" 0.25%, "Other Expenses" 0.19%, and "Total" 1.04%.
The fund's Class 2 distribution plan or "Rule 12b-1 plan" is described
in the fund's prospectus.
(11) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described
in the fund's prospectus.
(12) The fund's expenses are based on estimated expenses for the fiscal year
ended Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs
Asset Management International, the investment advisers, have
voluntarily agreed to reduce or limit certain other expenses (excluding
management fees, taxes, interest, brokerage fees, litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed the percentage stated in the above table (as calculated
per annum) of each fund's respective average daily net assets. Without
the limitations described above, "Other Expenses" and "Total" of the
funds would be as follows: 0.94% and 1.69% for Capital Growth Fund,
1.78% and 2.68% for Global Income Fund, 0.77% and 1.77% for
International Equity Fund, and 0.20% and 0.90% for CORE-SM- U.S. Equity
Fund. CORE-SM- is a service mark of Goldman Sachs & Co.
(13) Based on projected assets of $150 million, there will be no expense
reimbursements.
(14) Expenses are based on the estimated expenses that the new Service Shares
Class of each portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of expense offset arrangements.
(15) Fees are stated to reflect an agreement to reimburse the trust to the
extent certain expenses exceed in any fiscal year 0.85% of the average
daily net assets of the J.P. Morgan U.S. Disciplined Equity Portfolio.
Without such reimbursements, total fund annual expenses would have been
0.87% for the portfolio.
(16) Effective May 1, 1999, the investment advisor agreed to waive its fees
and/or reimburse the Funds through Dec. 31, 2000 to the extent that
total Fund expenses exceed 1.25% for Equity and 1.25% for International
Equity of the Funds' average daily net assets. Absent fee waivers and/or
reimbursements, "Other Expenses" and "Total" expenses for the year ended
Dec. 31, 1999 would have been 4.63% and 5.63% for Equity, and 11.94% and
12.94% for International Equity.
(17) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series
with its custodian and dividend disbursing agent. Each series may enter
into other such arrangements and directed brokerage arrangements, which
would also have the effect of reducing the series' expenses. "Other
Expenses" do not take into account these expense reductions, and are
therefore higher than the actual expenses of the series. Had these fee
reductions been taken into account, "Net Expenses" would be lower for
certain series and would equal: 1.05% for New Discovery Series, 0.85%
for Research Series, and 0.90% for Utilities Series.
(18) MFS has contractually agreed, subject to reimbursement, to bear expenses
for these series such that each such series' "Other Expenses" (after
taking into account the expense offset arrangement described above), do
not exceed the following percentages of the average daily net assets of
the series during the current fiscal year 0.15% for the New Discovery
Series. Without this agreement, "Other" and Total Expenses" would have
been 1.59% and 2.49%. These contractual fee arrangements will continue
until at least May 1, 2001, unless changed with the consent of the board
of trustees which oversees the series.
(19) Royce has contractually agreed to waive its fees and reimburse expenses
to the extent necessary to maintain the Funds Net Annual Operating
Expense ratio at or below 1.35% through Dec. 31, 1999 and 1.99% through
Dec. 31, 2008. Absent fee waivers "Other Expenses" and "Total Expenses"
would be 0.99% and 2.24% for Royce Micro-Cap Portfolio and 4.63% and
5.63% for Royce Premier Portfolio.
(20) These expenses reflect reimbursements by the Advisor. The Advisor
reimbursed the Fund for all expenses incurred by the Fund in excess of
1.30% of Fund assets. The fund will repay the Advisor the amount of its
reimbursement for up to three years following the reimbursement to the
extent Fund expenses drop below 1.30%. The Advisor expects to continue
to reimburse the Fund for these expenses for the foreseeable future.
Either the Fund or the Advisor can terminate this arrangement at any
time. Without this reimbursement, the Fund's "Other Expenses" and
"Total" would have been 2.05% and 2.95%. Other expenses are based on
estimated amounts for the current fiscal year.
(21) Actual operating expenses of funds at Dec. 31, 1999.
(22) Expense ratios are shown after fee waivers and expense reimbursements by
the investment advisor. The total expense ratio before the waivers and
reimbursements would have been 11.16% for Emerging Growth Portfolio of
the Warburg Pincus Trust.
- --------------------------------------------------------------------------------
10 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
EXAMPLES:*
You would pay the following expenses on a $1,000 investment without any optional
rider and assuming a 5% annual return and....
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
TOTAL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AXP (SM) Variable Portfolio -
Blue Chip Advantage Fund $94.78 $136.24 $180.33 $277.94 $24.78 $76.24 $130.33 $277.94
Bond Fund 93.35 131.93 173.14 263.58 23.35 71.93 123.14 263.58
Capital Resource Fund 93.14 131.31 172.11 261.52 23.14 71.31 122.11 261.52
Cash Management Fund 92.12 128.23 166.94 251.11 22.12 68.23 116.94 251.11
Diversified Equity Income Fund 94.78 136.24 180.33 277.94 24.78 76.24 130.33 277.94
Extra Income Fund 93.55 132.55 174.17 265.65 23.55 72.55 124.17 265.65
Federal Income Fund 94.07 134.09 176.74 270.79 24.07 74.09 126.74 270.79
Growth Fund 94.78 136.24 180.33 277.94 24.78 76.24 130.33 277.94
Managed Fund 92.84 130.39 170.56 258.41 22.84 70.39 120.56 258.41
New Dimensions Fund-Registered Trademark- 93.35 131.93 173.14 263.58 23.35 71.93 123.14 263.58
Small Cap Advantage Fund 97.65 144.83 194.59 306.08 27.65 84.83 144.59 306.08
AIM V.I.
Capital Appreciation Fund 92.53 129.46 169.01 255.29 22.53 69.46 119.01 255.29
Capital Development Fund 97.65 144.83 194.59 306.08 27.65 84.83 144.59 306.08
Value Fund 92.84 130.39 170.56 258.41 22.84 70.39 120.56 258.41
Alliance VP
Premier Growth Portfolio (Class B) 98.27 146.66 197.63 312.00 28.27 86.66 147.63 312.00
Technology Portfolio (Class B) 97.35 143.91 193.07 303.10 27.35 83.91 143.07 303.10
U.S. Government/High Grade
Securities Portfolio (Class B) 96.83 142.38 190.53 298.12 26.83 82.38 140.53 298.12
Baron Funds
Baron Capital Asset Fund 100.42 153.06 208.18 332.47 30.42 93.06 158.18 332.47
Fidelity VIP
III Growth & Income Portfolio
(Service Class) 92.22 128.53 167.46 252.16 22.22 68.53 117.46 252.16
III Mid Cap Portfolio (Service Class) 96.01 139.93 186.46 290.10 26.01 79.93 136.46 290.10
Overseas Portfolio (Service Class) 95.40 138.09 183.40 284.04 25.40 78.09 133.40 284.04
FTVIPT
Franklin Real Estate Fund - Class 2 93.55 132.55 174.17 265.65 23.55 72.55 124.17 265.65
Mutual Shares Securities Fund - Class 2 95.71 139.01 184.93 287.07 25.71 79.01 134.93 287.07
Templeton International Smaller
Companies Fund - Class 2 98.99 148.80 201.16 318.87 28.99 88.80 151.16 318.87
Goldman Sachs VIT
Capital Growth Fund 95.30 137.78 182.89 283.03 25.30 77.78 132.89 283.03
CORE (SM) U.S. Equity Fund 94.27 134.71 177.77 272.84 24.27 74.71 127.77 272.84
Global Income Fund 96.83 142.38 190.53 298.12 26.83 82.38 140.53 298.12
International Equity Fund 98.88 148.50 200.65 317.89 28.88 88.50 150.65 317.89
Internet Tollkeeper Fund 97.86 145.44 195.60 308.06 27.86 85.44 145.60 308.06
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 11
<PAGE>
You would pay the following expenses on a $1,000 investment without any optional
rider and assuming a 5% annual return and....
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
TOTAL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares 94.48 135.32 178.79 274.88 24.48 75.32 128.79 274.88
Global Technology Portfolio: Service Shares 95.60 138.70 184.42 286.06 25.60 78.70 134.42 286.06
Growth Portfolio: Service Shares 94.48 135.32 178.79 274.88 24.48 75.32 128.79 274.88
International Growth Portfolio: Service Shares 95.40 138.09 183.40 284.04 25.40 78.09 133.40 284.04
J.P. Morgan
U.S. Disciplined Equity Portfolio 93.76 133.17 175.20 267.71 23.76 73.17 125.20 267.71
Lazard Retirement Series
Equity Portfolio 97.86 145.44 195.60 308.06 27.86 85.44 145.60 308.06
International Equity Portfolio 97.86 145.44 195.60 308.06 27.86 85.44 145.60 308.06
MFS-Registered Trademark-
New Discovery Series 96.01 139.93 186.46 290.10 26.01 79.93 136.46 290.10
Research Series 93.86 133.47 175.71 268.74 23.86 73.47 125.71 268.74
Utilities Series 94.37 135.01 178.28 273.86 24.37 75.01 128.28 273.86
Putnam Variable Trust
Putnam VT Growth and Income
Fund - Class IB Shares 91.71 126.99 164.87 246.92 21.71 66.99 114.87 246.92
Putnam VT International Growth
Fund - Class IB Shares 97.04 143.00 191.55 300.11 27.04 83.00 141.55 300.11
Putnam VT International New Opportunities
Fund - Class IB Shares 101.04 154.89 211.18 338.24 31.04 94.89 161.18 338.24
Royce
Micro-Cap Portfolio 98.88 148.50 200.65 317.89 28.88 88.50 150.65 317.89
Premier Portfolio 98.88 148.50 200.65 317.89 28.88 88.50 150.65 317.89
Third Avenue
Value Portfolio 98.37 146.97 198.13 312.99 28.37 86.97 148.13 312.99
Wanger
International Small Cap 100.32 152.76 207.68 331.51 30.32 92.76 157.68 331.51
U.S. Small Cap 95.50 138.40 183.91 285.05 25.50 78.40 133.91 285.05
Warburg Pincus Trust -
Emerging Growth Portfolio 99.40 150.02 203.17 322.78 29.40 90.02 153.17 322.78
</TABLE>
- --------------------------------------------------------------------------------
12 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
TOTAL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AXP (SM) Variable Portfolio -
Blue Chip Advantage Fund $98.37 $146.97 $198.13 $312.99 $28.37 $86.97 $148.13 $312.99
Bond Fund 96.94 142.69 191.04 299.12 26.94 82.69 141.04 299.12
Capital Resource Fund 96.73 142.08 190.03 297.12 26.73 82.08 140.03 297.12
Cash Management Fund 95.71 139.01 184.93 287.07 25.71 79.01 134.93 287.07
Diversified Equity Income Fund 98.37 146.97 198.13 312.99 28.37 86.97 148.13 312.99
Extra Income Fund 97.14 143.30 192.06 301.11 27.14 83.30 142.06 301.11
Federal Income Fund 97.65 144.83 194.59 306.08 27.65 84.83 144.59 306.08
Growth Fund 98.37 146.97 198.13 312.99 28.37 86.97 148.13 312.99
Managed Fund 96.42 141.16 188.50 294.12 26.42 81.16 138.50 294.12
New Dimensions Fund-Registered Trademark- 96.94 142.69 191.04 299.12 26.94 82.69 141.04 299.12
Small Cap Advantage Fund 101.24 155.50 212.18 340.16 31.24 95.50 162.18 340.16
AIM V.I.
Capital Appreciation Fund 96.12 140.24 186.97 291.10 26.12 80.24 136.97 291.10
Capital Development Fund 101.24 155.50 212.18 340.16 31.24 95.50 162.18 340.16
Value Fund 96.42 141.16 188.50 294.12 26.42 81.16 138.50 294.12
Alliance VP
Premier Growth Portfolio (Class B) 101.86 157.32 215.17 345.88 31.86 97.32 165.17 345.88
Technology Portfolio (Class B) 100.93 154.58 210.68 337.28 30.93 94.58 160.68 337.28
U.S. Government/High Grade Securities
Portfolio (Class B) 100.42 153.06 208.18 332.47 30.42 93.06 158.18 332.47
Baron Funds
Baron Capital Asset Fund 104.01 163.67 225.57 365.64 34.01 103.67 175.57 365.64
Fidelity VIP
III Growth & Income Portfolio
(Service Class) 95.81 139.32 185.44 288.08 25.81 79.32 135.44 288.08
III Mid Cap Portfolio (Service Class) 99.60 150.63 204.17 324.72 29.60 90.63 154.17 324.72
Overseas Portfolio (Service Class) 98.99 148.80 201.16 318.87 28.99 88.80 151.16 318.87
FTVIPT
Franklin Real Estate Fund - Class 2 97.14 143.30 192.06 301.11 27.14 83.30 142.06 301.11
Mutual Shares Securities Fund - Class 2 99.29 149.72 202.66 321.80 29.29 89.72 152.66 321.80
Templeton International Smaller
Companies Fund - Class 2 102.57 159.44 218.65 352.51 32.57 99.44 168.65 352.51
Goldman Sachs VIT
Capital Growth Fund 98.88 148.50 200.65 317.89 28.88 88.50 150.65 317.89
CORE (SM) U.S. Equity Fund 97.86 145.44 195.60 308.06 27.86 85.44 145.60 308.06
Global Income Fund 100.42 153.06 208.18 332.47 30.42 93.06 158.18 332.47
International Equity Fund 102.47 159.13 218.15 351.57 32.47 99.13 168.15 351.57
Internet Tollkeeper Fund 101.45 156.10 213.18 342.07 31.45 96.10 163.18 342.07
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 13
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
<TABLE>
<CAPTION>
NO WITHDRAWAL OR SELECTION
TOTAL WITHDRAWAL AT THE OF AN ANNUITY PAYOUT PLAN AT THE
END OF EACH TIME PERIOD END OF EACH TIME PERIOD
1 YEAR 3 YEARS 5 YEARS 10 YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares 98.06 146.05 196.62 310.03 28.06 86.05 146.62 310.03
Global Technology Portfolio: Service Shares 99.19 149.41 202.16 320.83 29.19 89.41 152.16 320.83
Growth Portfolio: Service Shares 98.06 146.05 196.62 310.03 28.06 86.05 146.62 310.03
International Growth Portfolio: Service Shares 98.99 148.80 201.16 318.87 28.99 88.80 151.16 318.87
J.P. Morgan
U.S. Disciplined Equity Portfolio 97.35 143.91 193.07 303.10 27.35 83.91 143.07 303.10
Lazard Retirement Series
Equity Portfolio 101.45 156.10 213.18 342.07 31.45 96.10 163.18 342.07
International Equity Portfolio 101.45 156.10 213.18 342.07 31.45 96.10 163.18 342.07
MFS-Registered Trademark-
New Discovery Series 99.60 150.63 204.17 324.72 29.60 90.63 154.17 324.72
Research Series 97.45 144.22 193.58 304.09 27.45 84.22 143.58 304.09
Utilities Series 97.96 145.75 196.11 309.04 27.96 85.75 146.11 309.04
Putnam Variable Trust
Putnam VT Growth and Income
Fund - Class IB Shares 95.30 137.78 182.89 283.03 25.30 77.78 132.89 283.03
Putnam VT International Growth
Fund - Class IB Shares 100.63 153.67 209.18 334.40 30.63 93.67 159.18 334.40
Putnam VT International New Opportunities
Fund - Class IB Shares 104.62 165.48 228.53 371.21 34.62 105.48 178.53 371.21
Royce
Micro-Cap Portfolio 102.47 159.13 218.15 351.57 32.47 99.13 168.15 351.57
Premier Portfolio 102.47 159.13 218.15 351.57 32.47 99.13 168.15 351.57
Third Avenue
Value Portfolio 101.96 157.62 215.67 346.83 31.96 97.62 165.67 346.83
Wanger
International Small Cap 103.91 163.37 225.08 364.71 33.91 103.37 175.08 364.71
U.S. Small Cap 99.09 149.11 201.66 319.85 29.09 89.11 151.66 319.85
Warburg Pincus Trust -
Emerging Growth Portfolio 102.98 160.65 220.63 356.28 32.98 100.65 170.63 356.28
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* In these examples, the $30 contract administrative charge is approximated
as a 0.068% charge based on our average contract size. Premium taxes
imposed by some state and local governments are not reflected in this
table. We entered into certain arrangements under which we are
compensated by the funds' advisors and/or distributors for the
administrative services we provide to the funds.
YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
- --------------------------------------------------------------------------------
14 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following tables give per-unit information about the financial history of
each subaccount. We have not provided this information for some subaccounts
because they are new and do not have any history.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT ESI(1) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - BOND FUND)
Accumulation unit value at beginning of period $1.33 $1.33 $1.24 $1.17 $1.00
Accumulation unit value at end of period $1.33 $1.33 $1.33 $1.24 $1.17
Number of accumulation units outstanding at end of period (000 omitted) 8,127 5,689 2,544 1,377 414
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ECR(1) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - CAPITAL RESOURCE FUND)
Accumulation unit value at beginning of period $1.91 $1.56 $1.27 $1.20 $1.00
Accumulation unit value at end of period $2.33 $1.91 $1.56 $1.27 $1.20
Number of accumulation units outstanding at end of period (000 omitted) 5,864 5,163 3,813 2,350 818
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EMS(1) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - CASH MANAGEMENT FUND)
Accumulation unit value at beginning of period $1.15 $1.11 $1.07 $1.03 $1.00
Accumulation unit value at end of period $1.18 $1.15 $1.11 $1.07 $1.03
Number of accumulation units outstanding at end of period (000 omitted) 941 749 231 241 132
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
Simple yield(2) 4.52% 3.24% 3.71% 3.26% 3.53%
Compound yield(2) 4.62% 3.29% 3.78% 3.32% 3.59%
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EIA(3) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - EXTRA INCOME FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.00 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 8 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EMG(1) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - MANAGED FUND)
Accumulation unit value at beginning of period $1.83 $1.60 $1.36 $1.18 $1.00
Accumulation unit value at end of period $2.07 $1.83 $1.60 $1.36 $1.18
Number of accumulation units outstanding at end of period (000 omitted) 5,985 4,684 2,944 1,546 589
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% 1.50% 1.50%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 15
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT EGD(4) (INVESTING IN SHARES OF AXP (SM) VARIABLE PORTFOLIO - NEW DIMENSIONS FUND-Registered Trademark-)
Accumulation unit value at beginning of period $1.32 $1.05 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.32 $1.05 -- --
Number of accumulation units outstanding at end of period (000 omitted) 2,141 1,108 69 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ECA(3) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.43 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 57 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ECD(5) (INVESTING IN SHARES OF AIM V.I. CAPITAL DEVELOPMENT FUND)
Accumulation unit value at beginning of periodt $1.00 -- -- -- --
Accumulation unit value at end of period $1.26 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EVA(6) (INVESTING IN SHARES OF AIM V.I. VALUE FUND)
Accumulation unit value at beginning of period $1.34 $1.03 $1.00 -- --
Accumulation unit value at end of period $1.72 $1.34 $1.03 -- --
Number of accumulation units outstanding at end of period (000 omitted) 5,638 1,779 66 -- --
Ratio of operating expense to average net assets 1.40% 1.40% 1.40% -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EPP(5) (INVESTING IN SHARES OF ALLIANCE VP PREMIER GROWTH PORTFOLIO -
CLASS B)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.17 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 56 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
16 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT ETC(5) (INVESTING IN SHARES OF ALLIANCE VP TECHNOLOGY PORTFOLIO - CLASS B)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.40 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 105 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EHG(5) (INVESTING IN SHARES OF ALLIANCE VP U.S. GOVERNMENT/HIGH GRADE SECURITIES PORTFOLIO - CLASS B)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.00 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 7 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EAS(5) (INVESTING IN SHARES OF BARON CAPITAL ASSET FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.19 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 31 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EFG(5) (INVESTING IN SHARES OF FIDELITY VIP III GROWTH & INCOME
PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.05 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 71 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EFM(5) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.24 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 44 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 17
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT EFO(5) (INVESTING IN SHARES OF FIDELITY VIP OVERSEAS PORTFOLIO - SERVICE CLASS)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.23 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 33 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ERE(5) (INVESTING IN SHARES OF FTVIPT FRANKLIN REAL ESTATE SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EMU(5) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.05 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 31 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EIS(5) (INVESTING IN SHARES OF FTVIPT TEMPLETON INTERNATIONAL SMALLER COMPANIES FUND - CLASS 2)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.02 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT JCG(5) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CAPITAL GROWTH FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.16 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 226 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
18 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT JUS(5) (INVESTING IN SHARES OF GOLDMAN SACHS VIT CORE (SM) U.S. EQUITY FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.12 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 480 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT JGL(5) (INVESTING IN SHARES OF GOLDMAN SACHS VIT GLOBAL INCOME FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $0.97 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 34 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT JIF(5) (INVESTING IN SHARES OF GOLDMAN SACHS VIT INTERNATIONAL EQUITY FUND)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.27 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 30 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EDE(5) (INVESTING IN SHARES OF J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.07 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 51 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ERQ(5) (INVESTING IN SHARES OF LAZARD RETIREMENT SERIES EQUITY PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.01 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT ERI(5) (INVESTING IN SHARES OF LAZARD RETIREMENT SERIES INTERNATIONAL EQUITY PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.07 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT END(5) (INVESTING IN SHARES OF MFS-Registered Trademark- NEW DISCOVERY SERIES)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.47 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 64 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT ERS(5) (INVESTING IN SHARES OF MFS-Registered Trademark- RESEARCH SERIES)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.16 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 242 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EUT(5) (INVESTING IN SHARES OF MFS-Registered Trademark- UTILITIES SERIES)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.20 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 30 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EPG(7) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND - CLASS IB SHARES)
Accumulation unit value at beginning of period $1.18 $1.00 -- -- --
Accumulation unit value at end of period $1.18 $1.18 -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 4,302 239 -- -- --
Ratio of operating expense to average net assets 1.40% 1.40% -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
20 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT EPL(5) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL GROWTH FUND -
CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.33 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 347 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EPN(5) (INVESTING IN SHARES OF PUTNAM VT INTERNATIONAL NEW OPPORTUNITIES FUND -
CLASS IB SHARES)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.53 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 35 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EMC(5) (INVESTING IN SHARES OF ROYCE MICRO-CAP PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.15 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 37 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EPR(5) (INVESTING IN SHARES OF ROYCE PREMIER PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.05 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 1 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EIC(5) (Investing in shares of Wanger International Small Cap)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.51 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 28 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS -- MAY 1, 2000 21
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31, 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
SUBACCOUNT EUC(5) (INVESTING IN SHARES OF WANGER U.S. SMALL CAP)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.15 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 19 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
SUBACCOUNT EEG(5) (INVESTING IN SHARES OF WARBURG PINCUS TRUST - EMERGING GROWTH PORTFOLIO)
Accumulation unit value at beginning of period $1.00 -- -- -- --
Accumulation unit value at end of period $1.31 -- -- -- --
Number of accumulation units outstanding at end of period (000 omitted) 6 -- -- -- --
Ratio of operating expense to average net assets 1.40% -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
1 Operations commenced on Feb. 21, 1995.
2 Net of annual contract administrative charge and mortality and expense risk
fee.
3 Operations commenced on Aug. 26, 1999.
4 Operations commenced on Oct. 29, 1997.
5 Operations commenced on Sept. 22, 1999.
6 Operations commenced on Oct. 30, 1997.
7 Operations commenced on Oct. 5, 1998.
22 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
FINANCIAL STATEMENTS
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
PERFORMANCE INFORMATION
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. We show actual performance from the date the subaccounts began investing
in funds. For some subaccounts, we do not provide any performance information
because they are new and have not had any activity to date. We also 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.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including the:
- - contract administrative charge,
- - variable account administrative charge,
- - the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)*
fee,
- - the 8% Performance Credit Rider* fee,
- - mortality and expense risk fee, and
- - withdrawal charge (assuming a full withdrawal at the end of the illustrated
period).
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available if the annuitant is age
75 or younger.
We also show optional total return quotations that do not reflect a withdrawal
charge deduction (assuming no withdrawal), the Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) fee and the 8% Performance Credit Rider
fee. We may show total return quotations by means of schedules, charts or
graphs.
PROSPECTUS -- MAY 1, 2000 23
<PAGE>
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
24 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
THE VARIABLE ACCOUNT AND THE FUNDS
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
EVB AXP(SM) Variable Objective: long-term total return IDS Life, investment
Portfolio - Blue Chip exceeding that of the U.S. stock manager; American
Advantage Fund market. Invests primarily in Express Financial
common stocks of companies Corporation (AEFC)
included in the unmanaged S&P 500 investment advisor.
Index.
- --------------------------------------------------------------------------------------------------------------
ESI AXP(SM) Variable Objective: high level of current IDS Life, investment
Portfolio -Bond Fund income while conserving the value manager; AEFC,
of the investment and continuing investment advisor.
a high level of income for the
longest time period. Invests
primarily in bonds and other debt
obligations.
- --------------------------------------------------------------------------------------------------------------
ECR AXP(SM) Variable Objective: capital appreciation. IDS Life, investment
Portfolio -Capital Invests primarily in U.S. common manager; AEFC
Resource Fund stocks and other securities investment advisor.
convertible into common stocks.
- --------------------------------------------------------------------------------------------------------------
EMS AXP(SM) Variable Objective: maximum current income IDS Life, investment
Portfolio -Cash consistent with liquidity and manager; AEFC
Management Fund conservation of capital. Invests investment advisor.
in money market securities.
- --------------------------------------------------------------------------------------------------------------
EVD AXP(SM) Variable Objective: a high level of IDS Life, investment
Portfolio - current income and, as a manager; AEFC
Diversified Equity secondary goal, steady growth of investment advisor.
Income Fund capital. Invests primarily in
dividend-paying common and
preferred stocks.
- --------------------------------------------------------------------------------------------------------------
EIA AXP(SM) Variable Objective: high current income, IDS Life, investment
Portfolio -Extra with capital growth as a manager; AEFC
Income Fund secondary objective. Invests investment advisor.
primarily in high-yielding,
high-risk corporate bonds issued
by U.S. and foreign companies and
governments.
- --------------------------------------------------------------------------------------------------------------
EVF AXP(SM) Variable Objective: a high level of IDS Life, investment
Portfolio - Federal current income and safety of manager; AEFC
Income Fund principal consistent with an investment advisor.
investment in U.S. government and
government agency securities.
Invests primarily in debt
obligations issued or guaranteed
as to principal and interest by
the U.S. government, its agencies
or instrumentalities.
- --------------------------------------------------------------------------------------------------------------
EVG AXP(SM) Variable Objective: long-term capital IDS Life, investment
Portfolio -Growth Fund growth. Invests primarily in manager; AEFC
common stocks and securities investment advisor.
convertible into common stocks
that appear to offer growth
opportunities.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS -- MAY 1, 2000 25
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
EMG AXP(SM) Variable Objective: maximum total IDS Life, investment
Portfolio - Managed investment return through a manager; AEFC
Fund combination of capital growth and investment advisor.
current income. Invests primarily
in a combination of common and
preferred stocks, convertible
securities, bonds and other debt
securities.
- --------------------------------------------------------------------------------------------------------------
EGD AXP(SM) Variable Objective: long-term growth of IDS Life, investment
Portfolio -New capital. Invests primarily in manager; AEFC
Dimensions Fund common stocks of U.S. and foreign investment advisor.
-Registered Trademark- companies showing potential for
significant growth.
- --------------------------------------------------------------------------------------------------------------
EVS AXP(SM) Variable Objective: long-term capital IDS Life, investment
Portfolio -Small Cap growth. Invests primarily in manager; AEFC
Advantage Fund equity stocks of small companies investment advisor.
that are often included in the
S&P Small Cap 600 Index or the
Russell 2000 Index.
- --------------------------------------------------------------------------------------------------------------
ECA AIM V.I. Capital Objective: growth of capital. A I M Advisors, Inc.
Appreciation Fund Invests primarily in common
stocks, with emphasis on medium-
or small-sized growth companies.
- --------------------------------------------------------------------------------------------------------------
ECD AIM V.I. Capital Objective: long term growth of A I M Advisors, Inc.
Development Fund capital. Invests primarily in
securities (including common
stocks, convertible securities
and bonds) of small- and
medium-sized companies.
- --------------------------------------------------------------------------------------------------------------
EVA AIM V.I. Value Fund Objective: long-term growth of A I M Advisors, Inc.
capital with income 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.
- --------------------------------------------------------------------------------------------------------------
EPP Alliance VP Premier Objective: long-term growth of Alliance Capital
Growth Portfolio capital by pursuing aggressive Management, L.P.
(Class B) investment policies. Invests
primarily in equity securities of
a limited number of large,
carefully selected, high-quality
U.S. companies that are judged
likely to achieve superior
earnings growth.
- --------------------------------------------------------------------------------------------------------------
ETC Alliance VP Technology Objective: growth of capital. Alliance Capital
Portfolio (Class B) Current income is only an Management, L.P.
incidental consideration. Invests
primarily in securities of
companies expected to benefit
from technological advances and
improvements.
- --------------------------------------------------------------------------------------------------------------
EHG Alliance VP U.S. Objective: high level of current Alliance Capital
Government/ High Grade income consistent with Management, L.P.
Securities Portfolio preservation of capital. Invest
(Class B) primarily in (1) U.S. Government
securities and (2) other
high-grade debt securities or, if
unrated, of equivalent quality.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
26 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
EAS Baron Capital Asset Objective: capital appreciation. BAMCO, Inc.
Fund Invests primarily in securities
of small and medium sized
companies with undervalued assets
or favorable growth prospects.
- --------------------------------------------------------------------------------------------------------------
EFG Fidelity VIP III Objective: high total return Fidelity Management &
Growth & Income through a combination of current Research Company
Portfolio (Service income and capital appreciation. (FMR), investment
Class) Invests primarily in common manager; FMR U.K. and
stocks with a focus on those that FMR Far East,
pay current dividends and show sub-investment
potential for capital advisors.
appreciation.
- --------------------------------------------------------------------------------------------------------------
EFM Fidelity VIP III Mid Objective: long-term growth of FMR, investment
Cap Portfolio (Service capital. Invests primarily in manager; FMR U.K. and
Class) medium market capitalization FMR Far East,
common stocks. sub-investment
advisors.
- --------------------------------------------------------------------------------------------------------------
EFO Fidelity VIP Overseas Objective: long-term growth of FMR, investment
Portfolio (Service capital. Invests primarily in manager; FMR U.K., FMR
Class) common stocks of foreign Far East, Fidelity
securities. International
Investment Advisors
(FIIA) and FIIA U.K.,
sub-investment advisors.
- --------------------------------------------------------------------------------------------------------------
ERE FTVIPT Franklin Real Objective: capital appreciation Franklin Advisers, Inc.
Estate Fund - Class 2 with a secondary goal to earn
(previously Franklin current income. Invests primarily
Real Estate Securities in securities of companies
Fund) operating in the real estate
industry, primarily equity real
estate investment trusts (REITS).
- --------------------------------------------------------------------------------------------------------------
EMU FTVIPT Mutual Shares Objective: capital appreciation Franklin Mutual
Securities Fund - with income as a secondary goal. Advisers, LLC
Class 2 Invests primarily in equity
securities of companies that the
manager believes are available at
market prices less than their
value based on certain recognized
or objective criteria (intrinsic
value).
- --------------------------------------------------------------------------------------------------------------
EIS FTVIPT Templeton Objective: long-term capital Templeton Investment
International Smaller appreciation. Invests primarily Counsel, Inc.
Companies Fund - Class 2 in equity securities of smaller
companies located outside the
U.S., including in emerging
markets.
- --------------------------------------------------------------------------------------------------------------
JCG Goldman Sachs VIT Objective: long-term growth of Goldman Sachs Asset
Capital Growth Fund capital. Invests primarily in Management
equity securities considered by
the Investment Advisor to have
long-term capital appreciation
potential.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS -- MAY 1, 2000 27
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
JUS Goldman Sachs VIT Objective: long-term growth of Goldman Sachs Asset
CORE(SM) U.S. Equity capital and dividend income. Management
Fund Invests primarily in a broadly
diversified portfolio of
large-cap and blue chip equity
securities representing all major
sectors of the U.S. economy.
- --------------------------------------------------------------------------------------------------------------
JGL Goldman Sachs VIT Global Objective: high total return, Goldman Sachs Asset
Income Fund emphasizing current income, and, Management
to a lesser extent, providing 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.
- --------------------------------------------------------------------------------------------------------------
JIF Goldman Sachs VIT Objective: long-term capital Goldman Sachs Asset
International Equity appreciation. Invests primarily Management
Fund in equity securities of companies International
that are organized outside the
U.S., or whose securities are
principally traded outside the
U.S.
- --------------------------------------------------------------------------------------------------------------
EIT Goldman Sachs VIT Objective: long-term growth of Goldman Sachs Asset
Internet Tollkeeper capital. Invests primarily in Management
Fund equity securities of companies
that the Investment Advisor
believes will benefit from the
growth of the Internet by
providing access, infrastructure,
content and services to Internet
companies and customers.
- --------------------------------------------------------------------------------------------------------------
EJA Janus Aspen Series Objective: long-term growth of Janus Capital
Aggressive Growth capital. Invests primarily in
Portfolio: Service common stocks selected for their
Shares growth potential and normally
invests at least 50% of its
equity assets in medium-sized
companies.
- --------------------------------------------------------------------------------------------------------------
EJT Janus Aspen Series Objective: long-term growth of Janus Capital
Global Technology capital. Invests primarily in
Portfolio: Service equity securities of U.S. and
Shares foreign companies selected for
their growth potential. Normally
invests at least 65% of assets in
securities of companies that the
manager believes will benefit
significantly from advancements
or improvements in technology.
- --------------------------------------------------------------------------------------------------------------
EJG Janus Aspen Series Objective: long-term growth of Janus Capital
Growth Portfolio: capital in a manner consistent
Service Shares with the preservation of capital.
Invests primarily in common
stocks selected for their growth
potential.
- --------------------------------------------------------------------------------------------------------------
EJI Janus Aspen Series Objective: long-term growth of Janus Capital
International Growth capital. Invests at least 65% of
Portfolio: Service its total assets in securities of
Shares issuers from at least five
different countries, excluding
the U.S. It may at times invest
all of its assets in fewer than
five countries or even a single
country.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
28 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
EDE J.P. Morgan U.S. Objective: seeks to provide a J.P. Morgan
Disciplined Equity high total return from a
Portfolio portfolio comprised of selected
equity securities. The portfolio
invests primarily in the common
stocks of U.S. corporations with
market capitalizations above $1.5
billion. The portfolio is
designed for investors who want
an actively managed portfolio of
selected equity securities that
seeks to outperform the S&P 500
Index.
- --------------------------------------------------------------------------------------------------------------
ERQ Lazard Retirement Objective: long-term capital Lazard Asset Management
Series Equity Portfolio appreciation. Invests 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.
- --------------------------------------------------------------------------------------------------------------
ERI Lazard Retirement Objective: long-term capital Lazard Asset Management
Series International appreciation. Invests primarily
Equity Portfolio in equity securities, principally
common 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.
- --------------------------------------------------------------------------------------------------------------
END MFS-Registered Trademark- Objective: capital appreciation. MFS Investment
New Discovery Series Invests primarily in equity Management-Registered
securities of emerging growth Trademark-
companies.
- --------------------------------------------------------------------------------------------------------------
ERS MFS-Registered Trademark- Objective: long-term growth of MFS Investment
Research Series capital and future income. Management-Registered
Invests primarily in common Trademark-
stocks and 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.
- --------------------------------------------------------------------------------------------------------------
EUT MFS-Registered Trademark- Objective: capital growth and MFS Investment Management
Utilities Series current income. Invests primarily -Registered Trademark-
in equity and debt securities of
domestic and foreign companies in
the utilities industry.
- --------------------------------------------------------------------------------------------------------------
EPG Putnam VT Growth and Objective: capital growth and Putnam Investment
Income Fund - Class IB current income. Invests primarily Management, Inc.
Shares in common stocks that offer
potential of capital growth,
current income or both.
- --------------------------------------------------------------------------------------------------------------
EPL Putnam VT Objective: capital appreciation. Putnam Investment
International Growth Invests primarily in growth Management, Inc.
Fund - Class IB Shares stocks outside the U.S.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
PROSPECTUS -- MAY 1, 2000 29
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SUBACCOUNT INVESTING IN INVESTMENT OBJECTIVES AND POLICIES: INVESTMENT ADVISOR OR MANAGER
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
EPN Putnam VT Objective: long-term capital Putnam Investment
International New appreciation by investing in Management, Inc.
Opportunities Fund companies that have above-average
-Class IB Shares growth prospects due to the
fundamental growth of their
market sector. Invests primarily
in growth stocks outside the U.S.
- --------------------------------------------------------------------------------------------------------------
EMC Royce Micro-Cap Objective: long-term growth of Royce & Associates,
Portfolio capital. Invests primarily in a Inc.
broadly diversified portfolio of
equity securities issued by
micro-cap companies (companies
with stock market capitalizations
below $300 million).
- --------------------------------------------------------------------------------------------------------------
EPR Royce Premier Portfolio Objective: long-term growth of Royce & Associates,
capital with current income as a Inc.
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.
- --------------------------------------------------------------------------------------------------------------
ETV Third Avenue Value Objective: long-term capital EQSF Advisers, Inc.
Portfolio appreciation. Invests primarily
in common stocks of well-financed
companies at a substantial
discount to what the Advisor
believes is their true value.
- --------------------------------------------------------------------------------------------------------------
EIC Wanger International Objective: long-term growth of Wanger Asset
Small Cap capital. Invests primarily in Management, L.P.
stocks of small- and medium-size
non-U.S. companies.
- --------------------------------------------------------------------------------------------------------------
EUC Wanger U.S. Small Cap Objective: long-term growth of Wanger Asset
capital. Invests primarily in Management, L.P.
stocks of small- and medium-size
U.S. companies.
- --------------------------------------------------------------------------------------------------------------
EEG Warburg Pincus Trust - Objective: maximum capital Credit Suisse Asset
Emerging Growth appreciation. Invests primarily Management, LLC
Portfolio in equity securities of small- or
medium-sized U.S. emerging growth
companies.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
30 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an 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, and those
results may differ significantly from other funds with similar investment
objectives and policies.
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 also 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
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
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, policy owners and tax-deferred retirement 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 tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the funds' prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 31
<PAGE>
THE FIXED ACCOUNTS
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
- - Securities issued by the U.S. government or its agencies or instrumentalities,
which issues may or may not be guaranteed by the U.S. government;
- - Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally recognized
rating agencies -- Standard & Poor's, Moody's Investors Service or Duff and
Phelp's -- or are rated in the two highest grades by the National Association
of Insurance Commissioners;
- --------------------------------------------------------------------------------
32 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
- - Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
- - Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer or withdraw money out of the Guarantee Period
Accounts prior to the end of the Guarantee Period. The amount transferred or
withdrawn will receive a MVA which will increase or decrease the actual amount
transferred or withdrawn. We calculate the MVA using the formula shown below and
we base it on the current level of interest rates compared to the rate of your
Guarantee Period Account.
Amount transferred x ( l + i ) n/12
----------------
( l + j + .001 )
Where: i = rate earned in the account from which
funds are being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current
Guarantee Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states may restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing these
annuities, the rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 33
<PAGE>
BUYING YOUR CONTRACT
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You can own a nonqualified annuity in joint tenancy
with rights of survivorship only in spousal situations. You cannot own a
qualified annuity in joint tenancy. You can buy a contract or become an
annuitant if you are 90 or younger.
When you apply, you may select:
- - one of three death benefit options if both you and the annuitant are age 79
or younger*: Option A -- Return of purchase payment death benefit, Option B
-- Maximum anniversary value death benefit, or Option C -- 5% Accumulation
death benefit rider**;
- - the optional Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit
Base)***;
- - the optional 8% Performance Credit Rider;
- - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
- - how you want to make purchase payments;
- - the date you want to start receiving annuity payouts (the
retirement date); and
- - a beneficiary.
* If either you or the annuitant are age 80 or older, Option A -- Return
of purchase payment death benefit will apply.
** May not be available in all states.
*** You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not
both. Riders may not be available in all states. The Guaranteed Minimum
Income Benefit Rider (6% Accumulation Benefit Base) is only avaialble
if the annuitant is age 75 or younger.
**** Some states may restrict the amount you can allocate to the
fixed accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). You must make an initial purchase payment of at least $5,000 in
Texas, Washington, Pennsylvania or South Carolina or $2,000 in all other states.
Then, to begin the SIP, you will complete and send a form and your first SIP
payment along with your application. There is no charge for SIP. You can stop
your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
- --------------------------------------------------------------------------------
34 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
THE RETIREMENT DATE
Annuity payouts are to begin on the retirement date. You can align this date
with your actual retirement from a job, or it can be a different future date,
depending on your needs and goals and on certain restrictions. You also can
change the date, provided you send us written instructions at least 30 days
before annuity payouts begin.
FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be:
- - no earlier than the 60th day after the contract's effective date; and
- - no later than the annuitant's 85th birthday (or the tenth contract
anniversary, if later).
FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the
retirement date generally must be:
- - on or after the date the annuitant reaches age 59 1/2; and
- - for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2; or
- - for TSAs, by April 1 of the year following the calendar year when the
annuitant reaches age 70 1/2 or, if later, retires (except that 5% business
owners may not select a retirement date that is later than April 1 of the
year following the calendar year when they reach age 70 1/2).
If you are taking the minimum IRA or TSA distributions as required by the Code
from another tax-qualified investment, or in the form of partial withdrawals
from this contract, annuity payouts can start as late as the annuitant's 85th
birthday or the tenth contract anniversary, if later.
BENEFICIARY
If death benefits become payable before the retirement date (while the contract
is in force and before annuity payouts begin), we will pay your named
beneficiary all or part of the contract value. If there is no named beneficiary,
then you or your estate will be the beneficiary. (See "Benefits in Case of
Death" for more about beneficiaries.)
PURCHASE PAYMENTS
MINIMUM INITIAL PURCHASE PAYMENT (INCLUDING SIPS):
$5,000 in Texas, Washington, Pennsylvania and South Carolina
$2,000 in all other states
MINIMUM ADDITIONAL PURCHASE PAYMENTS:
$ 50 for SIPs
$100 for regular payments
MAXIMUM TOTAL PURCHASE PAYMENTS* (WITHOUT PRIOR APPROVAL):
$1,000,000 for ages up to 85
$ 100,000 for ages 86 to 90
* These limits apply in total to all American Enterprise Life annuities you own.
We reserve the right to increase maximum limits. For qualified annuities the
tax-deferred retirement plan's limits on annual contributions also apply.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 35
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
- --------------------------------------------------------------------------------
1 BY LETTER:
- --------------------------------------------------------------------------------
Send your check along with your name and contract number to:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
- --------------------------------------------------------------------------------
2 BY SIP:
- --------------------------------------------------------------------------------
Contact your sales representative to complete the necessary SIP paperwork.
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $30
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals 1.25% of their average daily net assets on an
annual basis. This fee includes coverage under any of the three death benefit
options. This fee covers the mortality and expense risk that we assume.
Approximately two-thirds of this amount is for our assumption of mortality risk,
and one-third is for our assumption of expense risk. This fee does not apply to
the fixed accounts.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
- --------------------------------------------------------------------------------
36 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
Expense risk arises because we cannot increase the contract administrative
charge or variable account administrative charge and these charges may not cover
our expenses. We would have to make up any deficit from our general assets. We
could profit from the expense risk fee if future expenses are less than
expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
- - first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
- - then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE) FEE
We charge a fee based on an adjusted contract value for this optional feature
only if you choose this option.* If selected, we deduct the fee (currently
0.35%) from the contract value on your contract anniversary at the end of each
contract year. We prorate this fee among the subaccounts and fixed accounts in
the same proportion your interest in each account bears to your total contract
value.
We apply the fee on an adjusted contract value calculated as the contract value
plus the lesser of zero or (a)-(b), where:
(a) is the transfers from the subaccounts to the fixed accounts in the last
six months, and
(b) is the total contract value in the fixed accounts.
This adjustment to the contract value allows us to base the charge largely on
the subaccounts, and not on the fixed accounts. We will deduct the fee, adjusted
for the number of calendar days coverage was in place, if the contract is
terminated for any reason or when annuity payouts begin. We cannot increase this
fee after the rider effective date and it does not apply after annuity payouts
begin. We can increase this fee on new contracts up to a maximum of 0.75%.
8% PERFORMANCE CREDIT RIDER FEE
We charge a fee for this optional feature only if you choose this option.* If
selected, we deduct the fee of 0.25% of your contract value on your contract
anniversary date at the end of each contract year. We prorate this fee among the
subaccounts and fixed accounts in the same proportion as your interest in each
account bears to your total contract value.
We will deduct this fee, adjusted for the number of calendar days coverage was
in place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the 8% Performance Credit Rider fee.
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within seven years before withdrawal. The
withdrawal charge percentages that apply to you are shown in your contract. In
addition, amounts withdrawn from a Guarantee Period Account prior to the end of
the applicable Guarantee Period will be subject to a MVA. (See "The Fixed
Accounts -- Market Value Adjustments (MVA).")
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 37
<PAGE>
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract in the following order:
- - First, in each contract year, we withdraw amounts totaling up to 10% of your
prior anniversary contract value. (We consider your initial purchase payment
to be the prior anniversary contract value during the first contract year.)
We do not assess a withdrawal charge on this amount.
- - Next, we withdraw contract earnings, if any, that are greater than the annual
10% free withdrawal amount described above. Contract earnings equal contract
value less purchase payments received and not previously withdrawn. We do not
assess a withdrawal charge on contract earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed account.
- - Next, we withdraw purchase payments we received prior to the withdrawal
charge period shown in your contract. We do not assess a withdrawal charge on
these purchase payments.
- - Finally, if necessary, we withdraw purchase payments that are all within the
withdrawal charge period shown in your contract. We withdraw these payments
on a "first-in, first-out" (FIFO) basis. We do assess a withdrawal charge on
these payments.
We determine your withdrawal charge by multiplying each of these payments by the
applicable withdrawal charge percentage, and then totaling the withdrawal
charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn.
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
- --------------------------------------------------------------------------------
1 7%
- --------------------------------------------------------------------------------
2 7
- --------------------------------------------------------------------------------
3 6
- --------------------------------------------------------------------------------
4 6
- --------------------------------------------------------------------------------
5 5
- --------------------------------------------------------------------------------
6 4
- --------------------------------------------------------------------------------
7 2
- --------------------------------------------------------------------------------
Thereafter 0
- --------------------------------------------------------------------------------
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example:Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E: Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. The
discount rate we use in the calculation will be 5.27% if the assumed investment
rate is 3.5% and 6.77% if the assumed investment rate is 5%. The withdrawal
charge is equal to the difference in discount values using the above discount
rates and the assumed investment rate. In no event would your withdrawal charge
exceed 9% of the amount available for payouts under the plan.
- --------------------------------------------------------------------------------
38 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
WITHDRAWAL CHARGE CALCULATION EXAMPLE
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
- - The contract date is July 1, 2000 with a contract year of July 1 through
June 30 and with an anniversary date of July 1 each year; and
- - We received these payments:
-- $10,000 July 1, 2000;
-- $8,000 Dec. 31, 2005;
-- $6,000 Feb. 20, 2008; and
- - The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
- - The prior anniversary July 1, 2010 contract value was $38,488.
WITHDRAWAL CHARGE EXPLANATION
$0 $3,848.80 is 10% of the prior anniversary
contract value withdrawn without withdrawal
charge; and
0 $10,252.20 is contract earnings in excess of
the 10% free withdrawal amount
withdrawn without withdrawal charge; and
0 $10,000 July 1, 2000 payment was received
eight or more years before withdrawal and
is withdrawn without withdrawal charge; and
400 $8,000 Dec. 31, 2005 payment is in its fifth
year from receipt, withdrawn with a 5%
withdrawal charge; and
360 $6,000 Feb. 20, 2008 payment is in its
third year from receipt, withdrawn with a
6% withdrawal charge.
--------------
$760
WAIVER OF WITHDRAWAL CHARGE
We do not assess a withdrawal charge for:
- - withdrawals of any contract earnings;
- - withdrawals of amounts totaling up to 10% of your prior contract anniversary
contract value to the extent they exceed contract earnings;
- - required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
- - contracts settled using an annuity payout plan;
- - death benefits;
- - withdrawals you make under your contract's "Waiver of Withdrawal Charges"
provision. To the extent permitted by state law, your contract will include
this provision when the owner and annuitant are under age 76 on the date we
issue the contract. We will waive withdrawal charges that we normally assess
upon full or partial withdrawal if you provide proof satisfactory to us that,
as of the date you request the withdrawal, you or the annuitant are confined
to a hospital or nursing home and have been for the prior 60 days. (See your
contract for additional conditions and restrictions on this waiver); and
- - to the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 39
<PAGE>
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average
contribution and the use of group enrollment procedures. In such cases, we
may be able to reduce or eliminate the contract administrative and withdrawal
charges. However, we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium tax when annuity
payouts begin, but we reserve the right to deduct this tax at other times such
as when you make purchase payments or when you make a full withdrawal from your
contract.
VALUING YOUR INVESTMENT
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
- - the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
- - plus any contract value credits allocated to the fixed accounts;
- - plus interest credited;
- - minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
- - minus any prorated contract administrative charge;
- - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) fee (if applicable); and
- - minus any prorated portion of the 8% Performance Credit Rider fee (if
applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any contract value credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge, or the 8% Performance Credit Rider fee,
or the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
fee, we subtract a certain number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
NUMBER OF UNITS: to calculate the number of accumulation units for a particular
subaccount we divide your investment by the current accumulation unit value.
ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
- --------------------------------------------------------------------------------
40 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
WE DETERMINE THE NET INVESTMENT FACTOR BY:
- -- adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
- -- dividing that sum by the previous adjusted net asset value per share; and
- -- subtracting the percentage factor representing the mortality and expense
risk fee and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may
change in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
- -- additional purchase payments you allocate to the subaccounts;
- -- any contract value credits allocated to the subaccounts;
- -- transfers into or out of the subaccounts;
- -- partial withdrawals;
- -- withdrawal charges;
- -- prorated portions of the contract administrative
charge;
- -- prorated portions of the Guaranteed Minimum Income Benefit Rider
(6% Accumulation Benefit Base) fee (if selected); and/or
- -- prorated portions of the 8% Performance Credit Rider fee (if selected).
Accumulation unit values will fluctuate due to:
- -- changes in funds' net asset value;
- -- dividends distributed to the subaccounts;
- -- capital gains or losses of funds;
- -- fund operating expenses; and/or
- -- mortality and expense risk fee and the variable account administrative
charge.
CONTRACT VALUE CREDITS
Before annuity payouts begin, and starting in the eighth contract year while
this contract is in force, we periodically will apply a "contract value credit"
to your contract value if:
- -- you chose death benefit Option A -- Return of
purchase payment death benefit, at the time of application (see
"Benefits in Case of Death"); and
- -- there are "eligible purchase payments" at the time we calculate the credit.
"Eligible purchase payments" means payments you made to the contract that you
have not withdrawn and that are no longer subject to a withdrawal charge.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 41
<PAGE>
On an annual basis, the contract value credit is 0.50% of an amount we
calculate by multiplying (a) times (b) where:
(a) is the contract value at the time we make the calculation; and
(b) is the ratio of "eligible purchase payments" to total purchase payments.
We reserve the right to calculate and apply the contract value credit on a
quarterly or monthly basis. If we calculate the credit on a quarterly basis,
the percentage will be 0.125% instead of 0.50%. If we calculate the credit on a
monthly basis, the percentage will be 0.04167% instead of 0.50%.
We will apply the contract value credit to your contract value according to
your fixed accounts and subaccount allocation instructions that are in effect
at the time. We will continue to apply the contract value credit, if
applicable, for the life of your contract until full withdrawal or until
annuity payouts begin. The contract value credit will be taxable when we
distribute it to you.
The contract value credit is available because of lower costs associated with a
reduced death benefit guarantee. Because the guaranteed death benefit is lower
in situations where the contract value credit is paid, there may be
circumstances where you may be worse off for having received the credit than in
other contracts. In particular, if the market were to decline, and a death
benefit became payable, the amount paid might be less.
MAKING THE MOST OF YOUR CONTRACT
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount
to a more aggressive one, or to several others, or from the one-year fixed
account or the two-year Guarantee Period Accounts to one or more subaccounts.
The three to ten year Guarantee Period Accounts are not available for automated
transfers. You can also obtain the benefits of dollar-cost averaging by setting
up regular automatic SIP payments. There is no charge for dollar-cost
averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is
to lower your average cost per unit.
<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 number of
dollars each month ... Jan $100 $20 5.00
Feb 100 18 5.56
Mar 100 17 5.88
you automatically --> Apr 100 15 6.67
buy more units May 100 16 6.25
when the per unit Jun 100 18 5.56
market price is low ... Jul 100 17 5.88
Aug 100 19 5.26
and fewer units --> Sep 100 21 4.76
when the per unit Oct 100 20 5.00
market price is high.
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
- -------------------------------------------------------------------------------
42 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success 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. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract 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
contract 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 accounts. There
is no charge for asset rebalancing. The contract value must be at least $2,000.
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 contract 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.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed accounts.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
- -- requiring a minimum time period between each transfer;
- -- not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
- -- limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 43
<PAGE>
TRANSFER POLICIES
- -- Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
- -- You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
- -- You may transfer contract values from a Guarantee Period Account any time
after 60 days of transfer or payment allocation to the account. Transfers
made before the end of the Guarantee Period will receive a MVA, which may
result in a gain or loss of contract value.
- -- If we receive your request on or within 30 days before or after the contract
anniversary date, the transfer from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
- -- We will not accept requests for transfers from the one-year fixed account at
any other time.
- -- Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the right
to limit the number of subaccounts in which you may invest.
- -- Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
- -------------------------------------------------------------------------------
44 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
HOW TO REQUEST A TRANSFER OR A WITHDRAWAL
- -------------------------------------------------------------------------------
1 BY LETTER:
- -------------------------------------------------------------------------------
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
829 AXP FINANCIAL CENTER
MINNEAPOLIS, MN 55474
MINIMUM AMOUNT
Transfers or withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers or withdrawals: Contract value or the entire account balance
- -------------------------------------------------------------------------------
2 BY AUTOMATED TRANSFERS AND AUTOMATED PARTIAL WITHDRAWALS:
- -------------------------------------------------------------------------------
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method
acceptable to us. You must allow 30 days for us to change any instructions
that are currently in place.
- -- Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
- -- Automated withdrawals may be restricted by applicable law under some
contracts.
- -- You may not make additional purchase payments if automated partial
withdrawals are in effect.
- -- Automated partial withdrawals may result in IRS taxes and penalties on all or
part of the amount withdrawn.
MINIMUM AMOUNT
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
MAXIMUM AMOUNT
Transfers or withdrawals: Contract value (except for automated transfers from
the one-year fixed account)
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 45
<PAGE>
- -------------------------------------------------------------------------------
3 BY PHONE:
- -------------------------------------------------------------------------------
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
MINIMUM AMOUNT
Transfers or withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers: Contract value or the entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable
for any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may
request that telephone transfers and withdrawals not be authorized from
your account by writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE)
This optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge (see "Charges -- Guaranteed Minimum
Income Rider (6% Accumulation Benefit Base) fee"). You cannot select this rider
if you select the 8% Performance Credit Rider. The rider guarantees a minimum
amount of fixed annuity lifetime income during the annuity payout period if
your contract has been in force for at least seven years, subject to the
conditions described below. The rider also provides you the option of variable
annuity payouts, with a guaranteed minimum initial payment. This rider is only
available at the time you purchase your contract.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add
this rider at the next contract anniversary with the contract value at that
anniversary reflected as the premium. All conditions of the rider would use
this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates based on the guaranteed
annuitant mortality table in your contract and a 2.5% interest rate. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base
subsequent payments on the initial payment and an assumed annual return of 5%.
Because this rider is based on guaranteed actuarial factors for the fixed
option, the level of fixed lifetime income it guarantees may be less than the
level that would be provided by applying the then current annuity factors.
Likewise, for the variable annuity payout option, we base the rider on more
conservative factors resulting in a lower initial payment and lower lifetime
payments than those provided otherwise if the same benefit base were used.
However, the Guaranteed Income Benefit Base described below establishes a
floor, which when higher than the contract value, can result in a higher
annuity payout level. Thus, the rider is a guarantee of a minimum amount
of annuity income.
- -------------------------------------------------------------------------------
46 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
The Guaranteed Income Benefit Base uses the same calculation as the Variable
account 5% floor but uses a 6% accumulation rate.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments paid in the last five years
before exercise of the benefit in the calculation of the Guaranteed Income
Benefit Base. We would do so only if such payments total $50,000 or more or if
they are 25% or more of total payments paid into the contract.
If we exclude such payments, the Guaranteed Income Benefit Base would be
calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments"
(b) total payments less prior five years of payments and adjusted partial
withdrawals
(c) the Variable account 6% floor, less the "6% adjusted prior five years
of payments"
"Market value adjusted prior five years of payments" are calculated as the sum
of each such payment, multiplied by the ratio of the current contract value
over the estimated contract value on the anniversary prior to such payment. We
calculate the estimated contract value at such anniversary by assuming that
payments and partial withdrawals occurring in a contract year take place at the
beginning of the year for that anniversary and every year after that to the
current contract year.
"6% Adjusted prior 5 years of payments" are calculated as the sum of each
payment accumulated at 6% for the number of full contract years they have been
in the contract.
CONDITIONS ON ELECTION OF THE RIDER:
- -- you must elect the rider at the time you purchase your contract,
- -- you must elect either the Maximum anniversary value death benefit or the 5%
Accumulation death benefit and
- -- the annuitant must be age 75 or younger on the contract date.
FUND SELECTION TO CONTINUE THE RIDER: You may allocate your purchase payments
to any of the subaccounts or the fixed accounts. However, we reserve the right
to limit the amount in the AXP-SM- Variable Portfolio - Cash Management Fund to
10% of the total amount in the subaccounts. If we are required to activate this
restriction, and you have more than 10% of your subaccount value in this fund,
we will send you notice and ask that you reallocate your contract value so that
the limitation is satisfied within 60 days. If after 60 days the limitation is
not satisfied, we will terminate the rider.
EXERCISING THE RIDER:
- -- you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a seven-year waiting period from
the effective date of the rider, and
- -- the annuitant on the retirement date must be between 50 and 86 years old, and
- -- you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity -- no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity -- no refund
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 47
<PAGE>
TERMINATING THE RIDER:
- -- You may terminate the rider within 30 days after the first anniversary of the
effective date of the rider.
- -- You may terminate the rider any time after the seventh anniversary of the
effective date of the rider.
- -- The rider will terminate on the date you make a full withdrawal from
the contract, or annuity payouts begin, or on
the date that a death benefit is payable.
- -- The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
EXAMPLE:
- -- You purchase the contract with a payment of $104,000 on Jan. 1, 2000.
- -- There are no additional purchase payments and no partial withdrawals.
- -- The money is fully allocated to the subaccounts.
- -- The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is
female and age 55 on the contract date.
- -- The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
is exercised, the minimum fixed annuity monthly payout or the first year
variable annuity monthly payout would be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
Plan A-- Plan B-- Plan D--
Life Annuity-- Life Annuity with Joint and lost survivor
Contract Anniversary At Exercise Guaranteed Income Benefit Base no refund ten years certain life annuity - no refund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
10 $186,248 $970.35 $944.28 $772.93
15 $249,242 $1,485.48 $1,415.69 $1,149.00
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
8% PERFORMANCE CREDIT RIDER
If this rider is available in your state, you may choose to add this benefit to
your contract at issue. You cannot select this rider if you select the
Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base). This
feature provides certain benefits if your contract value has not reached or
exceeded a target value (as defined below) on the seventh and tenth rider
anniversaries.
Your benefits under this rider are as follows:
(a) if on the seventh rider anniversary, your contract value has not met or
exceeded the target value, we will make a credit to your contract equal
to 3% of your purchase payments less adjusted partial withdrawals and
purchase payments made in the prior five years; and
(b) if on the tenth rider anniversary, your contract value has not met or
exceeded the target value, we will make an additional credit to your
contract equal to 5% of your purchase payments less adjusted partial
withdrawals and purchase payments made in the prior five years.
- -------------------------------------------------------------------------------
48 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
On the tenth rider anniversary and every ten years thereafter while you have
the contract, the ten year calculation period restarts. We use the contract
value (after any credits) on that contract anniversary as the initial
purchase payment for the calculation of the target value and any credit.
Additional credits may then be made at the end of each ten year period as
described above.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add
this rider at the next contract anniversary with the contract value at that
anniversary reflected as the initial purchase payment for the calculation
of the target value and any credit.
TARGET VALUE: The target value accumulates purchase payments at an annual
interest rate of 8% until the tenth rider anniversary less adjusted partial
withdrawals also accumulated at 8% until the tenth rider anniversary.
ADJUSTED PARTIAL WITHDRAWALS: We calculate the adjusted partial withdrawals
for the 8% Performance Credit Rider for each partial withdrawal as the
product of (a) times (b) where:
(a) is the ratio of the amount of partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of
(but prior to) the partial withdrawal, and
(b) is the Target Value on the date of (but prior to) the partial
withdrawal.
RESET OPTION: You can elect to lock in the growth in your contract by
restarting the ten-year period on any contract anniversary. If you elect
to restart the calculation period, the contract value on the restart date is
used as the initial purchase payment for the calculation of the target value
and any credit. The next ten year calculation period will then restart at the
end of the new ten year period from the most recent restart date. We must
receive your request to restart the calculation period within 30 days after
a contract anniversary.
FUND SELECTION TO CONTINUE THE RIDER: You may allocate your purchase payments
to any of the subaccounts or the fixed accounts. However, we reserve the right
to limit the amount in the fixed accounts and the AXP-SM- Variable Portfolio
Cash Management Fund to 10% of the contract value. If we are required to
activate this restriction and you have more than 10% of your contract value in
these accounts, we will send you notice and ask you that you reallocate your
contract value so that the limitation is satisfied in 60 days. If after 60 days
the limitation is not satisfied, we will terminate the rider.
TERMINATING THE RIDER:
- -- You may terminate the rider within 30 days following the first anniversary
after the effective date of the rider.
- -- You may terminate the rider within 30 days following the tenth anniversary
of the latest of the effective date of the rider or the last reset date.
- -- The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
EXAMPLE:
- -- You purchase the contract with a payment of $104,000 on January 1, 2000.
- -- There are no additional purchase payments and no partial withdrawals.
- -- On January 1, 2007, the contract value is $150,000.
- -- The credit on January 1, 2007 is determined as:
Target Value on January 1, 2007 =
104,000 x (1.08)^7 = 104,000 x 1.71382 = $178,237.72
As the target value of $178,237.72 is greater than the contract value of
$150,000, a credit is made to the contract equal to $3,120 (or 3% of the
purchase payment of $104,000). Your total contract value on that date is
$153,120.
- -------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 49
<PAGE>
- -- On January 1, 2010, the contract value is $220,000.
- -- The credit on January 1, 2010 is determined as:
Target Value on January 1, 2010 =
$104,000 x (1.08)^10 = $104,000 x 2.158924 = $224,528.20
As the target value of $224,528.20 is greater than the contract value of
$220,000, a credit is made to the contract equal to $5,200 (or 5% of the
purchase payment of $104,000). Your total contract value on that date is
$225,200.
- -- The benefit automatically restarts on January 1, 2010 with the "initial
payment" equal to $225,200 and the credit determination made on January 1,
2017 and January 1, 2020.
WITHDRAWALS
You may withdraw all or part of your contract at any time before annuity
payouts begin by sending us a written request or calling us. We will process
your withdrawal request on the valuation date we receive it. For total
withdrawals, we will compute the value of your contract at the next
accumulation unit value calculated after we receive your request. We may ask
you to return the contract. You may have to pay charges (see "Charges --
Withdrawal charge") and IRS taxes and penalties (see "Taxes"). You cannot
make withdrawals after annuity payouts begin except under Plan E (see "The
Annuity Payout Period -- Annuity payout plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to
your total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
- -- payable to owner;
- -- mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
- -------------------------------------------------------------------------------
50 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
TSA -- SPECIAL WITHDRAWAL PROVISIONS
PARTICIPANTS IN TAX-SHELTERED ANNUITIES
The Code imposes certain restrictions on your right to receive early
distributions from a TSA:
- - Distributions attributable to salary reduction contributions (plus earnings)
made after Dec. 31, 1988, or to transfers or rollovers from other contracts,
may be made from the TSA only if:
-- you are at least age 59 1/2;
-- you are disabled as defined in the Code;
-- you separated from the service of the employer
who purchased the contract; or
-- the distribution is because of your death.
- - If you encounter a financial hardship (as defined by the Code), you may
receive a distribution of all contract values attributable to salary
reduction contributions made after Dec. 31, 1988, but not the earnings on
them.
- - Even though a distribution may be permitted under the above rules, it may be
subject to IRS taxes and penalties (see "Taxes").
- - The above restrictions on distributions do not affect the availability of the
amount credited to the contract as of Dec. 31, 1988. The restrictions also do
not apply to transfers or exchanges of contract value within the contract, or
to another registered variable annuity contract or investment vehicle
available through the employer.
CHANGING OWNERSHIP
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in similar capacity, ownership of the contract may be
transferred to the annuitant.
BENEFITS IN CASE OF DEATH
There are two standard death benefit options under this contract (Option A --
Return of purchase payment death benefit and Option B -- Maximum Anniversary
Value death benefit) or you may choose to select Option C -- 5% Accumulation
death benefit rider. If either you or the annuitant are age 80 or older (in most
states) on the contract date, Option A will apply. If both you and the annuitant
are age 79 or younger (in most states) on the contract date, you can elect
Option A, Option B or Option C on your application. Once you elect an option,
you cannot change it. We show the option that applies in your contract.
Under all options, we will pay the death benefit to your beneficiary upon the
earlier of your death or the annuitant's death. If a contract has more than one
person as the owner, we will pay benefits upon the first to die of any owner or
the annuitant. Other rules apply to qualified annuities. (See "Taxes").
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 51
<PAGE>
OPTION A -- RETURN OF PURCHASE PAYMENT DEATH BENEFIT
We will pay the beneficiary the greater of:
- - the contract value; or
- - the total purchase payments paid minus "adjusted partial withdrawals."
Contract value credits may apply if you choose Option A at the time of
application (see "Valuing your Investment -Contract value credits").
OPTION B -- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
We will pay the beneficiary the greatest of:
- - the contract value; or
- - the total purchase payments paid minus any "adjusted partial withdrawals"; or
- - the "maximum anniversary value" immediately preceding the date of death plus
the dollar amount of any payments since that anniversary and minus any
"adjusted partial withdrawals" since that anniversary.
MAXIMUM ANNIVERSARY VALUE: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total payments made to the contract minus "adjusted partial withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and minus
any "adjusted partial withdrawals."
ADJUSTED PARTIAL WITHDRAWALS: Under either Option A or Option B, we calculate
"adjusted partial withdrawals" for each partial withdrawal as the product of (a)
times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but prior
to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
EXAMPLE: OPTION A - RETURN OF PURCHASE PAYMENT DEATH BENEFIT
- - You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 you make an additional purchase payment of $5,000.
- - On March 1, 2001 the contract value falls to $22,000 and you take a $1,500
partial withdrawal.
- - On March 1, 2002 the contract value falls to $23,000.
We calculate the death benefit on March 1, 2002 as follows:
Total purchase payments paid: $25,000.00
minus any "adjusted partial withdrawals"
calculated as: 1,500 x 25,000 = - 1,704.54
-------------------- -----------
22,000
for a death benefit of: $23,295.45
----------
- --------------------------------------------------------------------------------
52 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
EXAMPLE: OPTION B -- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
- - You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 (the first contract anniversary) the contract value
grows to $29,000.
- - On March 1, 2001 the contract value falls to $22,000, at which point
you take a $1,500 partial withdrawal, leaving a contract value
of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
The highest contract value on any prior contract anniversary: $29,000.00
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal"
taken since that anniversary,
calculated as: 1,500 x 29,000 = - 1,977.27
-------------------- ------------
22,000
for a death benefit of: $27,022.72
OPTION C -- 5% ACCUMULATION DEATH BENEFIT RIDER
If this optional rider is available in your state and both you and the annuitant
are age 79 or younger on the contract date, you may choose to add this benefit
to your contract. This optional rider provides that if you or the annuitant die
before annuity payouts begin while this contract is in force, we will pay the
beneficiary the greatest of the following amounts:
- - the contract value; or
- - the total purchase payments paid less any "adjusted partial withdrawals"; or
- - the Variable account 5% floor
We calculate the "adjusted partial withdrawals" as described above except that
only the first two benefits are taken into account.
THE VARIABLE ACCOUNT 5% FLOOR
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments allocated to the subaccounts. On any day that you allocate additional
amounts to, or withdraw or transfer from the subaccounts, we adjust the floor by
adding the additional amounts and subtracting the "adjusted partial withdrawals"
or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional amounts allocated to the subaccounts since
that anniversary plus purchase payment credits and reduced by any "adjusted
partial withdrawals" since that anniversary.
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where:
(a) is the ratio of the amount of withdrawal (including any withdrawal
charges) or transfer from the subaccounts to the total value in the
subaccounts on the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the
withdrawal or transfer.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 53
<PAGE>
EXAMPLE:
- - You purchase the contract with a payment of $25,000 on Jan. 1, 2000 with
$5,000 allocated to the one-year fixed account and $20,000 allocated
to the subaccounts.
- - On Jan. 1, 2001 (the first contract anniversary), the one-year fixed account
value is $5,200 and the subaccount value is $17,000. Total contract value
is $23, 200.
- - On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $19,000. Total contract value is $24,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $22,800.
We calculate the death benefit on March 1, 2001 as follows:
The variable account floor on Jan. 1, 2001,
calculated as: 1.05 x 20,000 = $21,000
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the subaccounts,
calculated as: 1,500 x 21,000 = -$1,657.89
----------------------- ----------
19,000
Variable account floor benefit $19,342.10
plus the one-year fixed account value + 5,300.00
----------
for a death benefit of: $24,642.10
==========
IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your
spouse may keep the contract as owner. To do this your spouse must, within 60
days after we receive proof of death, give us written instructions to keep the
contract in force. The Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base), if selected, is then terminated.
PAYMENTS: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
- - the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- - payouts begin no later than one year after your death, or other
date as permitted by the Code; and
- - the payout period does not extend beyond the beneficiary's life
or life expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
- --------------------------------------------------------------------------------
54 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
THE ANNUITY PAYOUT PERIOD
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
- - the annuity payout plan you select;
- - the annuitant's age and, in most cases, sex;
- - the annuity table in the contract; and
- - the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 55
<PAGE>
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
- - PLAN A -- LIFE ANNUITY -- NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
- - PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
- - PLAN C -- LIFE ANNUITY -- INSTALLMENT REFUND: We make monthly payouts
until the annuitant's death, with our guarantee that payouts will continue
for some period of time. We will make payouts for at least the number of
months determined by dividing the amount applied under this option by the
first monthly payout, whether or not the annuitant is living.
- - PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY -- NO REFUND: We make
monthly payouts while both the annuitant and a joint annuitant are living.
If either annuitant dies, we will continue to make monthly payouts at the
full amount until the death of the surviving annuitant. Payouts end with
the death of the second annuitant.
- - PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the
payout period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. The discount rate we use in the
calculation will vary between 5.27% and 6.77% depending on the applicable
assumed investment rate. (See "Charges-- Withdrawal charge under Annuity
Payout Plan E.") You can also take a portion of the discounted value once
a year. If you do so, your monthly payouts will be reduced by the
proportion of your withdrawal to the full discounted value. A 10% IRS
penalty tax could apply if you take a withdrawal. (See "Taxes.")
RESTRICTIONS FOR SOME TAX-DEFERRED RETIREMENT PLANS: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
- - over the life of the annuitant;
- - over the joint lives of the annuitant and a designated beneficiary;
- - for a period not exceeding the life expectancy of the annuitant; or
- - for a period not exceeding the joint life expectancies of the annuitant
and a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the fixed accounts will provide fixed
dollar payouts and contract values that you allocated among the subaccounts will
provide variable annuity payouts.
- --------------------------------------------------------------------------------
56 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to the owner in a lump sum or to change
the frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
TAXES
Generally, under current law, your contract has a tax deferral feature. That is
any increase in the value of the fixed accounts and/or subaccounts in which you
invest is taxable to you only when you receive a payout or withdrawal (see
detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
QUALIFIED ANNUITIES: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement, or
consult a tax advisor for more information about these distribution rules.
ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
WITHDRAWALS: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 59 1/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you make withdrawals from your contract
before your plan specifies that you can receive payouts.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 57
<PAGE>
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except a
Roth IRA) is not tax exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax deferred.
PENALTIES: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
- - because of your death;
- - because you become disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or joint
lives or life expectancies of you and your beneficiary); or
- - if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal) we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also may impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
WITHHOLDING FROM TSAS: If you receive directly all or part of the contract value
from your TSA, mandatory 20% Federal income tax withholding (and possibly state
income tax withholding) generally will be imposed at the time we make the
payout. This mandatory withholding is in place of the elective withholding
discussed above. This mandatory withholding will not be imposed if:
- - instead of receiving the distribution check, you elect to have the
distribution rolled over directly to an IRA or another eligible plan;
- - the payout is one in a series of substantially equal periodic payouts, made
at least annually, over your life or the life expectancy (or the joint lives
or life expectancies of you and your designated beneficiary) or over a
specified period of ten years or more; or
- - the payout is a minimum distribution required under the Code.
- --------------------------------------------------------------------------------
58 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
Payments we make to a surviving spouse instead of being directly rolled over to
an IRA also may be subject to a mandatory 20% income tax withholding.
State withholding also may be imposed on taxable distributions.
TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
VOTING RIGHTS
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
- - the reserve held in each subaccount for your contract;
- - divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
- --------------------------------------------------------------------------------
PROSPECTUS -- MAY 1, 2000 59
<PAGE>
SUBSTITUTION OF INVESTMENTS
We may substitute the funds in which the subaccounts invest if:
- - laws or regulations change;
- - the existing funds become unavailable; or
- - in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur, and if we believe it is in the best interest
of persons having voting rights under the contract, we have the right to
substitute the funds currently listed in this prospectus for other funds.
We may also:
- - add new subaccounts;
- - combine any two or more subaccounts;
- - make additional subaccounts investing in additional funds;
- - transfer assets to and from the subaccounts or the variable account; and
- - eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
ABOUT THE SERVICE PROVIDERS
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its offices are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American
Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
- --------------------------------------------------------------------------------
60 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of
AEFC. AEFC is a wholly-owned subsidiary of American Express Company. American
Express Company is a financial services company principally engaged through
subsidiaries (in addition to AEFC) in travel related services, investment
services and international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Our administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is
100 Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, RICHARD W. AND ELIZABETH J. THORESEN VS.
AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION LIFE ASSURANCE
COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE
INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF
NEW YORK which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs 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 is included as a party to preliminary settlement of
all three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE
SELECTED FINANCIAL DATA
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<TABLE>
<CAPTION>
YEARS ENDED DEC. 31, (THOUSANDS) 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments 6,565 (4,788) (509) (5,258) (1,154)
Other 8,338 7,662 6,329 5,753 4,214
- ----------------------------------------------------------------------------------------------------------------------
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Total assets $4,603,343 $4,885,621 $4,973,413 $4,425,837 $3,570,960
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 61
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 COMPARED TO 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a
decrease in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which
was partially offset by an increase in realized gain on investments. Net
investment income, the largest component of revenues, decreased 5 percent from
the prior year, reflecting decreases in investments owned and investment
yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce.
The Company receives mortality and expense risk fees from the separate
accounts. Mortality and expense risk fees increased 77 percent to $2.3
million in 1999, compared with $1.3 million in 1998, this reflects the
increase in separate account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force
and lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was
due primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
1998 COMPARED TO 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
- --------------------------------------------------------------------------------
62 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
RISK MANAGEMENT
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in
the future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a
competitive rate of return on their investments while minimizing risk, and to
provide a dependable and targeted spread between the interest rate earned on
investments and the interest rate credited to contractholders' accounts. The
Company does not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the
liability portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may
be negatively impacted by increases in the general level of interest rates.
Part of the committee's strategy includes the purchase of some types of
derivatives, such as interest rate caps, swaps and floors, for hedging
purposes. These derivatives protect margins by increasing investment
returns if there is a sudden and severe rise in interest rates, thereby
mitigating the impact of an increase in rates credited to contractholders'
accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior
based on the application of proprietary models to the book of business at
December 31, 1999, would be appoximately $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well
as maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 63
<PAGE>
secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage
loans totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated
the potential effect of future assessments on the Company's financial position
and results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards
require the computation of a risk-based capital amount which is then compared
to a company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks:
asset default, adverse insurance experience, interest rate risk and external
events. These standards provide for regulatory attention when the percentage
of total adjusted capital to authorized control level risk-based capital is
below certain levels. As of December 31, 1999, the Company's total adjusted
capital was well in excess of the levels requiring regulatory attention.
YEAR 2000 ISSUE
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. All of the major systems
used by American Enterprise Life and the variable account are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. American
Enterprise Life's and the variable account's businesses are heavily dependent
upon AEFC's computer systems and have significant interaction with systems of
third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of
Dec. 31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on American
Enterprise Life's and the variable account's operations.
- --------------------------------------------------------------------------------
64 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate,
we are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We
reimburse AEFC for rent based on direct and indirect allocation methods.
Facilities occupied by us are believed to be adequate for the purposes for
which they are used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana
Department of Insurance. An annual statement in the prescribed form is
filed with the Indiana Department of Insurance each year covering our
operation for the preceding year and its financial condition at the end
of such year. Regulation by the Indiana Department of Insurance includes
periodic examination to determine American Enterprise's contract liabilities
and reserves so that the Indiana Department of Insurance may certify that
these items are correct. The Company's books and accounts are subject to
review by the Indiana Department of Insurance at all times. Such regulation
does not, however, involve any supervision of the account's management or the
company's investment practices or policies. In addition, American Enterprise
Life is subject to regulation under the insurance laws of other jurisdictions
in which it operates. A full examination of American Enterprise Life's
operations is conducted periodically by the National Association of Insurance
Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses
incurred by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 65
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
DIRECTORS
JAMES E. CHOAT
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
RICHARD W. KLING
Born 1940
Director and chairman of the board since March 1989.
PAUL S. MANNWEILER**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
PAULA R. MEYER
Born in 1954
Director and executive vice president, assured assets since 1998; vice
president, AEFC since 1998; Piper Capital Management (PCM) President from Oct.
1997 to May 1998; PCM Director of Marketing from June 1995 to Oct. 1997; PCM
Director of Retail Marketing from Dec. 1993 to June 1995.
WILLIAM A. STOLTZMANN
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
OFFICERS OTHER THAN DIRECTORS
JEFFREY S. HORTON
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
PHILIP C. WENTZEL
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
* The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an
independent director.
** Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
- --------------------------------------------------------------------------------
66 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR NUMBER IN GROUP POSITION HELD CASH COMPENSATION
<S> <C> <C>
Five most highly compensated executive officers as a group: $ 7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group (11) $11,535,043
</TABLE>
- --------------------------------------------------------------------------------
PROSPECTUS - MAY 1, 2000 67
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and
for each of the three years in the period ended Dec. 31, 1999, and the
individual and combined statements of the segregated asset subaccounts of
American Enterprise Variable Annuity Account (comprised of subaccounts ESI,
ECR, EMS, EIA, EMG, EGD, ECA, ECD, EVA, EPP, ETC, EHG, EAS, EFG, EFM, EFO,
ERE, EMU, EIS, JCG, JUS, JGL, JIF, EDE, ERQ, ERI, END, ERS, EUT, EPG, EPL,
EPN, EMC, EPR, EIC, EUC and EEG) as of Dec. 31, 1999 and for the periods
indicated therein, as set forth in their reports. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority
as experts in accounting and auditing.
- --------------------------------------------------------------------------------
68 AMERICAN EXPRESS SIGNATURE VARIABLE ANNUITY
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
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 (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $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 IDS Life 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
of ($588) 1,093 -- -- 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
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
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:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
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.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<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, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
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>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 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.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, 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 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. 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.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 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 $486 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:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</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>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</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:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
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 $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 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:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has 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 $8,258 and
$6,651 at December 31, 1999 and 1998, 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 $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, 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 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, 1999 or 1998.
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, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</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 2006.
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,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Performance Information.............................p.3
Calculating Annuity Payouts........................p.14
Rating Agencies....................................p.15
Principal Underwriter..............................p.16
Independent Auditors...............................p.16
Financial Statements
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
[ ] American Express Signature Variable Annuity(SM)
[ ] American Express Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] Alliance variable Products Series Fund
[ ] Baron Capital Funds
[ ] Fidelity Variable Insurance Products Funds - Service Class
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] Goldman Sachs Variable Insurance Trust (VIT)
[ ] Janus Aspen Series: Series Trust II
[ ] J.P. Morgan Series Trust II
[ ] Lazard Retirement Series, Inc.
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust - Class IB shares
[ ] Royce Capital Fund
[ ] Third Avenue Variable Series Trust
[ ] Third Avenue Variable Series Trust
[ ] Wanger Advisors Trust
[ ] Warburg Pincus Trust - Emerging Growth Portfolio
MAIL YOUR REQUEST TO:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name ___________________________________________________________________
Address _____________________________________________________________________
City ___________________________________State _________________Zip __________
<PAGE>
Prospectus
May 1, 2000
American Express Signature One Variable Annuity
Individual or group flexible premium deferred combination fixed/variable annuity
American Enterprise Variable Annuity Account
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
<TABLE>
<CAPTION>
<S> <C>
o American Express(R) Variable Portfolio Funds o J. P. Morgan Series Trust II
o AIM Variable Insurance Funds o Lazard Retirement Series, Inc.
o Alliance Variable Products Series Fund o MFS(R) Variable Insurance Trust(SM)
o Baron Capital Funds o Royce Capital Fund
o Fidelity Variable Insurance Products - Service Class o Third Avenue Variable Series Trust
o Franklin Templeton Variable Insurance Products Trust (FTVIPT) o Wanger Advisors Trust
o Goldman Sachs Variable Insurance Trust (VIT) o Warburg Pincus Trust
o Janus Aspen Series: Service Shares o Wells Fargo Variable Trust Funds
</TABLE>
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges from
contracts with purchase payment credits may be higher than charges for contracts
without such credits. The amount of the credit may be more than offset by
additional fees and charges associated with the credit.
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
An investment in this contract 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 contract
involves investment risk including the possible loss of principal.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
<PAGE>
Table of Contents
Key Terms 3
The Contract in Brief 5
Expense Summary 7
Condensed Financial Information (Unaudited) 16
Financial Statements 16
Performance Information 16
The Variable Account and the Funds 18
The Fixed Accounts 24
Buying Your Contract 27
Charges 30
Valuing Your Investment 35
Making the Most of Your Contract 37
Withdrawals 45
Changing Ownership 45
Benefits in Case of Death 46
The Annuity Payout Period 50
Taxes 52
Voting Rights 55
Substitution of Investments 55
About the Service Providers 56
Additional Information About American Enterprise Life 57
Directors and Executive Officers 62
Experts 63
American Enterprise Life Insurance Company Financial Information 64
Table of Contents of the Statement of Additional Information 80
<PAGE>
Key Terms
These terms can help you understand details about your contract.
Accumulation unit -- A measure of the value of each subaccount before annuity
payouts begin.
Annuitant -- The person on whose life or life expectancy the annuity payouts are
based.
Annuity payouts -- An amount paid at regular intervals under one of several
plans.
Beneficiary -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
Close of business -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
Contract -- An individual deferred annuity contract or a certificate showing
your interest under a group annuity contract, that permits you to accumulate
money for retirement by making one or more purchase payments. It provides for
lifetime or other forms of payouts beginning at a specified time in the future.
Contract value -- The total value of your contract before we deduct any
applicable charges.
Contract year -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
Fixed accounts -- The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
Funds -- Mutual funds and/or portfolios that are investment options under your
contract, each with a different investment objective. You may allocate your
purchase payments into subaccounts investing in shares of any or all of these
funds.
Guarantee Period -- The number of years that a guaranteed interest rate is
credited.
Market Value Adjustment (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
<PAGE>
Owner (you, your) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
Purchase payment credits -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit based on your current payment.
Qualified annuity -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
o Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
o Roth IRAs under Section 408A of the Code
o Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered nonqualified annuities.
Retirement date -- The date when annuity payouts are scheduled to begin.
Valuation date -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
Variable account -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
Withdrawal value -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
<PAGE>
The Contract in Brief
Purpose: The purpose of the contract is to allow you to accumulate money for
retirement. You do this by making one or more purchase payments; you may
allocate your purchase payments to the fixed accounts and/or subaccounts under
the contract. These accounts, in turn, may earn returns that increase the value
of the contract. Beginning at a specified time in the future called the
retirement date, the contract provides lifetime or other forms of payouts of
your contract value (less any applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to purchase this contract as a
replacement for, in addition to an existing contract.
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is tax-deferred. However, the contract
has features other than tax deferral that may make it an appropriate investment
for your retirement plan. You should compare these features and their costs with
other investment options before deciding to purchase this contract.
Free look period: You may return your contract to our office within 10 days
after it is delivered to you and receive a full refund of the contract value,
less any purchase payment credits up to the maximum withdrawal charges. (See
"Buying Your Contract -- Purchase payment credits.") However, you bear the
investment risk from the time of purchase until you return the contract; the
refund amount may be more or less than the payment you made. (Exception: If the
law requires, we will refund all of your purchase payments.)
Accounts: Currently, you may allocate your purchase payments among any or all
of:
o the subaccounts, each of which invests in a fund with a particular
investment objective. The value of each subaccount varies with the
performance of the particular fund in which it invests. We cannot guarantee
that the value at the retirement date will equal or exceed the total
purchase payments you allocate to the subaccounts. (p. 18)
o the fixed accounts, which earn interest at rates that we adjust
periodically. Some states restrict the amount you can allocate to the fixed
accounts. (p. 24)
Buying your contract: Your sales representative will help you complete and
submit an application. Applications are subject to acceptance at our office. You
may buy a nonqualified annuity or a qualified annuity. After your initial
purchase payment, you have the option of making additional purchase payments in
the future. (p. 27)
o Minimum initial purchase payment (including Systematic Investment Plans
(SIPs)) -- $25,000.
o Minimum additional purchase payment -- $100 ($50 for (SIPs)).
o Maximum total purchase payments
(without prior approval) -- $1,000,000 for issue ages up to 85
$100,000 for issue ages 86 to 90.
Transfers: Subject to certain restrictions you currently may redistribute your
money among the subaccounts and the fixed accounts without charge at any time
until annuity payouts begin, and once per contract year among the subaccounts
after annuity payouts begin. Transfers out of the Guarantee Period Accounts
before the end of the Guarantee Period will be subject to a MVA. You may
establish automated transfers among the fixed accounts and subaccounts. Fixed
account transfers are subject to special restrictions. (p. 38)
<PAGE>
Withdrawals: You may withdraw all or part of your contract value at any time
before the retirement date. You also may establish automated partial
withdrawals. Withdrawals may be subject to charges and tax penalties (including
a 10% IRS penalty if you make withdrawals prior to your reaching age 591/2) and
may have other tax consequences; also, certain restrictions apply. (p. 45)
Changing ownership: You may change ownership of a nonqualified annuity by
written instruction, but this may have federal income tax consequences.
Restrictions apply to changing ownership of a qualified annuity. (p. 45)
Benefits in case of death: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at least equal to the contract
value. (p. 46)
Annuity payouts: You can apply your contract value to an annuity payout plan
that begins on the retirement date. You may choose from a variety of plans to
make sure that payouts continue as long as you like. If you purchased a
qualified annuity, the payout schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or variable basis, or both. Total
monthly payouts may include amounts from each subaccount and the one-year fixed
account. During the annuity payout period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not available during the payout
period. (p. 50)
Taxes: Generally, your contract grows tax-deferred until you make withdrawals
from it or begin to receive payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to someone else, you will be taxed
on the income if you are the owner. Roth IRAs, however, may grow and be
distributed tax free if you meet certain distribution requirements. (p. 52)
Charges: We assess certain charges in connection with your contract (p. 30):
o $40 annual contract administrative charge;
o a 0.15% variable account administrative charge;
o a 1.45% mortality and expense risk fee (if you allocate money to one or
more subaccounts);
o if you select Option B - the Value option return of purchase payment death
benefit* rider, a reduction of 0.10% in the mortality and expense risk fee
(if you allocate money to one or more subaccounts);
o if you select the Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base)**, an annual fee based on an adjusted contract value
(currently at 0.35%);
o if you select the 8% Performance Credit Rider**, an annual fee of 0.25% of
the contract anniversary contract value;
o withdrawal charge;
o any premium taxes that may be imposed on us by state or local governments
(currently, we deduct any applicable premium tax when you make a total
withdrawal or when annuity payouts begin, but we reserve the right to
deduct this tax at other times such as when you make purchase payments);
and
o the operating expenses of the funds in which the subaccounts invest.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
**You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
<PAGE>
Expense Summary
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
Withdrawal charge: contingent deferred sales charge as a percentage of purchase
payment withdrawn.
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 8
4 8
5 7
6 6
7 6
8 4
9 2
Thereafter 0
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period:
The amount equal to the difference in the present value of remaining payments
using the assumed investment rate and such present value using the assumed
investment rate plus 1.86%. In no event would your withdrawal charge exceed 9%
of the amount available for payouts under the plan.
Annual contract administrative charge $40*
*We will waive this charge when your contract value is $100,000 or more on the
current contract anniversary
Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) fee:**
as a percentage of an adjusted contract value charged annually.
This is an optional expense. 0.35%
8% Performance Credit Rider fee:**
as a percentage of the contract value at contract anniversary
charged annually. This is an optional expense. 0.25%
**You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
<PAGE>
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the death benefit guarantee provided.
<TABLE>
<CAPTION>
Death Benefit
Option A -- Maximum Option B -- Value
anniversary value or option return of
Option C-- 5% Accumulation purchase payment*
<S> <C> <C>
Variable account administrative charge 0.15% 0.15%
Mortality and expense risk fee 1.45% 1.35%
Total annual variable account expenses 1.60% 1.50%
* Available if both you and the annuitant are age 79 or younger. May not be available in all states.
</TABLE>
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
<TABLE>
<CAPTION>
Management 12b-1 Other
Fees Fees Expenses Total
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund .56% .13 .26 .95%(1)
Bond Fund .60% .13 .08 .81%(2)
Capital Resource Fund .60% .13 .06 .79%(2)
Cash Management Fund .51% .13 .05 .69%(2)
Diversified Equity Income Fund .56% .13 .26 .95%(1)
Extra Income Fund .62% .13 .08 .83%(2)
Federal Income Fund .61% .13 .14 .88%(1)
Growth Fund .63% .13 .19 .95%(1)
Managed Fund .59% .13 .04 .76%(2)
New Dimensions Fund(R) .61% .13 .07 .81%(2)
Small Cap Advantage Fund .79% .13 .31 1.23%(1)
AIM V.I.
Capital Appreciation Fund .62% -- .11 .73%(3)
Capital Development Fund --% -- 1.23 1.23%(3,4)
Value Fund .61% -- .15 .76%(3)
Alliance VP
Premier Growth Portfolio (Class B) 1.00% .25 .04 1.29%(5)
Technology Portfolio (Class B) .71% .25 .24 1.20%(5)
U.S. Government/High Grade Securities Portfolio (Class B) .60% .25 .30 1.15%(5)
Baron Funds
Baron Capital Asset Fund 1.00% .25 .25 1.50%(6)
Fidelity VIP
III Growth & Income Portfolio (Service Class) .48% .10 .12 .70%(7)
III Mid Cap Portfolio (Service Class) .57% .10 .40 1.07%(8)
Overseas Portfolio (Service Class) .73% .10 .18 1.01%(7)
FTVIPT
Franklin Real Estate Fund - Class 2 .56% .25 .02 .83%(9)
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(10)
Templeton International Smaller Companies Fund - Class 2 .85% .25 .26 1.36%(11)
Goldman Sachs VIT
Capital Growth Fund .75% -- .25 1.00%(12)
CORE(SM) U.S. Equity Fund .70% -- .20 .90%(12)
Global Income Fund .90% -- .25 1.15%(12)
International Equity Fund 1.00% -- .35 1.35%(12)
Internet Tollkeeper Fund 1.00% -- .25 1.25%(13)
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
Global Technology Portfolio : Service Shares .65% .25 .13 1.03%(14)
Growth Portfolio: Service Shares .65% .25 .02 .92%(14)
International Growth Portfolio: Service Shares .65% .25 .11 1.01%(14)
J.P. Morgan
U.S. Disciplined Equity Portfolio .35% -- .50 .85%(15)
Lazard Retirement Series
Equity Portfolio .75% .25 .25 1.25%(16)
International Equity Portfolio .75% .25 .25 1.25%(16)
<PAGE>
Annual operating expenses of the funds (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
Management 12b-1 Other
Fees Fees Expenses Total
MFS(R)
New Discovery Series .90% -- .17 1.07%(17,18)
Research Series .75% -- .11 .86%(17)
Utilities Series .75% -- .16 .91%(17)
Royce
Micro-Cap Portfolio 1.25% -- .10 1.35%(19)
Premier Portfolio 1.00% -- .35 1.35%(19)
Third Avenue
Value Portfolio .90% -- .40 1.30%(20)
Wanger
International Small Cap 1.25% -- .24 1.49%(21)
U.S. Small Cap .95% -- .07 1.02%(21)
Warburg Pincus Trust -
Emerging Growth Portfolio --% -- 1.40 1.40% (22)
Wells Fargo VT
Equity Income Fund .38% .25 .37 1.00%(23)
</TABLE>
<PAGE>
1 Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be: 0.39% and 1.08% for AXP(SM) Variable Portfolio - Blue Chip
Advantage and AXP(SM) Variable Portfolio - Diversified Equity Income Funds,
0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund, 0.32%
and 1.08% for AXP(SM) Variable Portfolio - Growth Fund, and 0.43% and 1.35%
for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
2 The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of
0.125% that went into effect Sept. 21, 1999.
3 Figures in "Management Fees," "Other Expenses" and "Total" are based on
actual expenses for the fiscal year ended Dec. 31, 1999.
4 Had there been no fee waivers or expense reimbursements, expenses would
have been: 0.75%, 0.00%, 2.67% and 3.42%, respectively.
5 Figures in "Management Fee," "12b-1 Fees," "Other Expenses" and "Total" are
based on actual expenses for the fiscal period ended Dec. 31, 1999. Absent
fee waivers and expense reimbursements "Management Fees", "12b-1 Fees",
"Other Expenses" and "Total" would be, respectively, 1.00%, 0.25%, 0.27%
and 1.52% for Alliance Technology Portfolio.
6 The adviser is contractually obligated to reduce its fee to the extent
required to limit Baron Capital Asset Fund's total operating expenses to
1.50% for the first $250 million of assets in the Fund, 1.35% for the Fund
assets over $250 million and 1.25% for Fund assets over $500 million. With
the expense limitations, total operating expenses for the Fund for the
period Jan. 1, 1999 through Dec. 31, 1999 would have been and 1.88%.
7 A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds'
custodians, credits realized as a result of uninvested cash balances were
used to reduce a portion of each applicable funds' expenses. With these
reductions, "Other Expenses," and "Total" presented in the table would have
been 0.11% and 0.69% for Growth & Income Portfolio and 0.15% and 0.98% for
Overseas Portfolio.
8 FMR agreed to reimburse a portion of Mid Cap Portfolio's expenses during
the period. Without this reimbursement, the Portfolio's management fee,
distribution & service fee (12b-1), other expenses and total expenses would
have been 0.57%, 0.10%, 2.74% and 3.41% respectively.
9 Previously Franklin Real Estate Securities Fund. The fund administration
fee is paid indirectly through the management fee. The fund's Class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus.
10 On Feb. 8, 2000, a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund,
effective May 1, 2000. The table shows total expenses based on the fund's
assets as of Dec.31, 1999, and not the assets of the combined fund.
However, if the table reflected combined assets, the fund's expenses after
May 1, 2000 would be estimated as:"Management Fees" 0.60%, "12b-1 Fees"
0.25%, "Other Expenses" 0.19%, and "Total" 1.04%. The fund's Class 2
distribution plan or "Rule 12b-1 plan" is described in the fund's
prospectus. The fund's Class 2 distribution plan or "Rule 12-b-1 plan" is
described in the fund's prospectus.
11 The funds' Class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus.
12 The fund's expenses are based on estimated expenses for the fiscal year
ended Dec. 31, 2000. Goldman Sachs Asset Management and Goldman Sachs Asset
Management International, the investment advisers, have voluntarily agreed
to reduce or limit certain other expenses (excluding management fees,
taxes, interest, brokerage fee, litigation, indemnification and other
extraordinary expenses) to the extent such expenses exceed the percentage
stated in the above table (as calculated per annum) of each fund's
respective average daily net assets. Without the limitations described
above, "Other expenses" and "Total" of the funds would be as follows: 0.94%
and 1.69% for Capital Growth Fund, 1.78% and 2.68% for Global Income Fund,
0.77% and 1.77% for International Equity Fund, and 0.20% and 0.90% for
CORE(sm) U.S. Equity Fund. CORE(SM) is a service mark of Goldman, Sachs &
Co.
13 Based on projected assets of $150 million, there will be no expense
reimbursement.
14 Expenses are based on the estimated expenses that the new Service Shares
Class of each portfolio expects to incur in its initial fiscal year. All
expenses are shown without the effect of expenses offset arrangements.
15 Fees are stated net of waivers and/or reimbursements. Absent fee waivers
and/or reimbursements, the Management Fee, Other Expenses and Total
Expenses 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%.
16 Effective May 1, 1999, the investment adviser agreed to waive its fees
and/or reimburse the Funds through Dec. 31, 2000 to the extent that total
Fund expenses exceed 1.25% for Equity and 1.25% for International Equity of
the Funds' average net assets. Absent fee waivers and/or reimbursements,
"Other Expenses" and "Total Expenses" for the year ended Dec. 31, 1999
would have been 4.63% and 5.63% for Equity, and 11.94% and 12.94% for
International Equity.
17 Each series has an expense offset arrangement which reduces the series'
custodian fees based upon the amount of cash maintained by the series with
its custodian and dividend disbursing agent. Each series may enter into
other such arrangements and directed brokerage arrangements, which would
also have the effect of reducing the series' expenses. "Other Expenses" do
not take into account these expense reductions, and are therefore higher
than the actual expenses of the series. Had these fee reductions been taken
into account, "Net Expenses" would be lower for certain series and would
equal: 1.05% for New Discovery Series, 0.85% for Research Series, and 0.90%
for Utilities Series.
18 MFS has contractually agreed, subject to reimbursement, to bear expenses
for these series such that each such series' "Other Expenses" (after taking
into account the expense offset arrangement described above), do not exceed
the following percentages of the average daily net assets of the series
during the current fiscal year 0.15% for the new Discovery Series. Without
this agreement, "Other" and "Total Expenses" would have been 1.59% and
2.49%. These contractual fee arrangements will continue until at least May
1, 2001, unless changed with the consent of the board of trustees which
oversees the series.
19 Royce has contractually agreed to waive its fees and reimburse expenses to
the extent necessary to maintain the Funds Net Annual Operating Expense
ratio at or below 1.35% through Dec. 31, 1999 and 1.99% through Dec. 31,
2008. Absent fee waivers "Other Expenses" and "Total" would be 0.99% and
2.24% for Royce Micro-Cap Portfolio and 4.63% and 5.63% for Royce Premier
Portfolio.
20 These expenses reflect reimbursements by the Adviser. The Adviser
reimbursed the Fund for all expenses incurred by the Fund in excess of
1.30% of Fund assets. The Fund will repay the Adviser the amount of its
reimbursement for up to three years following the reimbursement to the
extent Fund expenses drop below 1.30%. The Adviser expects to continue to
reimburse the Fund for these expenses for the foreseeable future. Either
the Fund or the Advisor can terminate this arrangement at any time. Without
this reimbursement, the Fund's "Other Expenses" and "Total" would have been
2.05% and 2.95%. Other expenses are based on estimated amounts for the
current fiscal year.
21 Actual operating expenses of funds at Dec. 31, 1999.
22 Expense ratios are shown after fee waivers and expense reimbursements by
the investment advisor. The total expense ratio before the waiver and
reimbursement would have been 11.16% for Emerging Growth Portfolio of the
Warburg Pincus Trust.
23 Amounts represent expenses as of Dec. 31, 1999 and have been adjusted for
changes in contract rates that occurred during 1999. Expenses are shown
after fee waivers and expense reimbursements. Absent fee waivers
"Management Fees" and "Total" would have been 0.55% and 1.17% for Wells
Fargo VT Equity Income.
<PAGE>
Examples: *
You would pay the following expenses on a $1,000 investment if you selected the
value option return of purchase payment death benefit rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
<S> <C> <C> <C> <C>
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $106.14 $160.30 $26.14 $80.30
Bond Fund 104.70 156.00 24.70 76.00
Capital Resource Fund 104.50 155.38 24.50 75.38
Cash Management Fund 103.47 152.30 23.47 72.30
Diversified Equity Income Fund 106.14 160.30 26.14 80.30
Extra Income Fund 104.91 156.61 24.91 76.61
Federal Income Fund 105.42 158.15 25.42 78.15
Growth Fund 106.14 160.30 26.14 80.30
Managed Fund 104.19 154.46 24.19 74.46
New Dimensions Fund(R) 104.70 156.00 24.70 76.00
Small Cap Advantage Fund 109.01 168.86 29.01 88.86
AIM V.I.
Capital Appreciation Fund 103.88 153.54 23.88 73.54
Capital Development Fund 109.01 168.86 29.01 88.86
Value Fund 104.19 154.46 24.19 74.46
Alliance VP
Premier Growth Portfolio (Class B) 109.62 170.69 29.62 90.69
Technology Portfolio (Class B) 108.70 167.95 28.70 87.95
U.S. Government/High Grade Securities Portfolio (Class B) 108.19 166.42 28.19 86.42
Baron Funds
Baron Capital Asset Fund 111.78 177.07 31.78 97.07
Fidelity VIP
III Growth & Income Portfolio (Service Class) 103.58 152.61 23.58 72.61
III Mid Cap Portfolio (Service Class) 107.37 163.97 27.37 83.97
Overseas Portfolio (Service Class) 106.75 162.41 26.75 82.14
FTVIPT
Franklin Real Estate Fund - Class 2 104.91 156.61 24.91 76.61
Mutual Shares Securities Fund - Class 2 107.06 163.06 27.06 83.06
Templeton International Smaller Companies Fund - Class 2 110.34 172.82 30.34 92.82
Goldman Sachs VIT
Capital Growth Fund 106.65 161.83 26.65 81.83
CORE(SM) U.S. Equity Fund 105.63 158.76 25.63 78.76
Global Income Fund 108.19 166.42 28.19 86.42
International Equity Fund 110.24 172.52 30.24 92.52
Internet Tollkeeper Fund 109.21 169.47 29.21 89.47
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares $105.83 $159.38 $25.83 $79.38
Global Technology Portfolio:Service Shares 106.96 162.75 26.96 82.75
Growth Portfolio: Service Shares 105.83 159.38 25.83 79.38
International Growth Portfolio: Service Shares 106.75 162.14 26.75 82.14
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
value option return of purchase payment death benefit rider and assuming a 5%
annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
J.P. Morgan
U.S. Disciplined Equity Portfolio 105.11 157.23 25.11 77.23
Lazard Retirement Series
Equity Portfolio 109.21 169.47 29.21 89.47
International Equity Portfolio 109.21 169.47 29.21 89.47
MFS(R)
New Discovery Series 107.37 163.97 27.37 83.97
Research Series 105.22 157.54 25.22 77.54
Utilities Series 105.73 159.07 25.73 79.07
Royce
Micro-Cap Portfolio 110.24 172.52 30.24 92.52
Premier Portfolio 110.24 172.52 30.24 92.52
Third Avenue
Value Portfolio 109.73 171.00 29.73 91.00
Wanger
International Small Cap 111.67 176.77 31.67 96.77
U.S. Small Cap 106.86 162.44 26.86 82.44
Warburg Pincus Trust -
Emerging Growth Portfolio 110.75 174.04 30.75 94.04
Wells Fargo VT
Equity Income Fund 106.65 161.83 26.65 81.83
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
AXP(SM) Variable Portfolio -
Blue Chip Advantage Fund $110.75 $174.04 $30.75 $94.04
Bond Fund 109.32 169.78 29.32 89.78
Capital Resource Fund 109.11 169.17 29.11 89.17
Cash Management Fund 108.09 166.11 28.09 86.11
Diversified Equity Income Fund 110.75 174.04 30.75 94.04
Extra Income Fund 109.52 170.39 29.52 90.39
Federal Income Fund 110.03 171.91 30.03 91.91
Growth Fund 110.75 174.04 30.75 94.04
Managed Fund 108.80 168.25 28.80 88.25
New Dimensions Fund(R) 109.32 169.78 29.32 89.78
Small Cap Advantage Fund 113.62 182.52 33.62 102.52
AIM V.I.
Capital Appreciation Fund 108.50 167.34 28.50 87.34
Capital Development Fund 113.62 182.52 33.62 102.52
Value Fund 108.80 168.25 28.80 88.25
Alliance VP
Premier Growth Portfolio (Class B) 114.24 184.33 34.24 104.33
Technology Portfolio (Class B) 113.31 181.61 33.31 101.61
U.S. Government/High Grade Securities Portfolio (Class B) 112.80 180.10 32.80 100.10
Baron Funds
Baron Capital Asset Fund 116.39 190.66 36.39 110.66
Fidelity VIP
III Growth & Income Portfolio (Service Class) 108.19 166.42 28.19 86.42
III Mid Cap Portfolio (Service Class) 111.98 177.68 31.98 97.68
Overseas Portfolio (Service Class) 111.37 175.86 31.37 94.86
FTVIPT
Franklin Real Estate Fund - Class 2 109.52 170.39 29.52 90.39
Mutual Shares Securities Fund - Class 2 111.67 176.77 31.67 96.77
Templeton International Smaller Companies Fund - Class 2 114.95 186.44 34.95 106.44
Goldman Sachs VIT
Capital Growth Fund 111.26 175.56 31.26 95.56
CORE(SM) U.S. Equity Fund 110.24 172.52 30.24 92.52
Global Income Fund 112.80 180.10 32.80 100.10
International Equity Fund 114.85 186.14 34.85 106.14
Internet Tollkeeper Fund 113.83 183.13 33.83 103.13
Janus Aspen Series
Aggressive Growth Portfolio: Service Shares 110.44 173.13 30.44 93.13
Global Technology Portfolio: Service Shares 111.57 176.47 31.57 96.47
Growth Portfolio: Service Shares 110.44 173.13 30.44 93.13
International Growth Portfolio: Service Shares 111.37 175.86 31.37 95.86
<PAGE>
You would pay the following expenses on a $1,000 investment if you selected the
0.35% Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) and
assuming a 5% annual return and....
no withdrawal or selection
a total withdrawal at the of an annuity payout plan at the
end of each time period end of each time period
1 year 3 years 1 year 3 years
J.P. Morgan
U.S. Disciplined Equity Portfolio 109.73 171.00 29.73 91.00
Lazard Retirement Series
Equity Portfolio 113.83 183.13 33.83 103.13
International Equity Portfolio 113.83 183.13 33.83 103.13
MFS(R)
New Discovery Series 111.98 177.68 31.98 97.68
Research Series 109.83 171.30 29.83 91.30
Utilities Series 110.34 172.82 30.34 92.82
Royce
Micro-Cap Portfolio 114.85 186.14 34.85 106.14
Premier Portfolio 114.85 186.14 34.85 106.14
Third Avenue
Value Portfolio 114.34 184.63 34.34 104.63
Wanger
International Small Cap 116.29 190.35 36.29 110.35
U.S. Small Cap 111.47 176.16 31.47 96.16
Warburg Pincus Trust -
Emerging Growth Portfolio 115.36 187.65 35.36 107.65
Wells Fargo VT
Equity Income Fund 111.26 175.56 31.26 95.56
</TABLE>
* In these examples, the $40 contract administrative charge is approximated as a
0.100% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in these examples.
We entered into certain arrangements under which we are compensated by the
funds' advisors and/or distributors for the administrative services we provide
to the funds.
You should not consider these examples as representations of past or future
expenses. Actual expenses may be more or less than those shown.
<PAGE>
Condensed Financial Information (Unaudited)
We have not provided any condensed financial information for the subaccounts
because they are new and do not have any history.
Financial Statements
You can find our audited financial statements later in this prospectus. The SAI
does not include the audited financial statements of the subaccounts because
they are new and do not have any assets.
Performance Information
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. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information 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.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures reflect deduction of all applicable charges, including:
o the contract administrative charge,
o the variable account administrative charge,
o the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
* fee,
o the 8% Performance Credit Rider* fee,
o mortality and expense risk fee and
o withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
Riders may not be available in all states. The Guaranteed Minimum Income Benefit
Rider (6% Accumulation Benefit Base) is only available to annuitants age 75 or
younger.
We may make optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal), the Guaranteed Minimum Income
Benefit Rider (6% Accumulation Benefit Base) fee and the 8% Performance Credit
Rider fee. We also may make optional total return quotations that reflect the
reduced mortality and expense risk fee associated with the Value option return
of purchase payment death benefit. Total return quotations may be shown by means
of schedules, charts or graphs.
Average annual total return is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
Cumulative total return is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
<PAGE>
Annualized simple yield (for subaccounts investing in money market funds)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
Annualized compound yield (for subaccounts investing in money market funds) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than the simple yield because of
the compounding effect of the assumed reinvestment.
Annualized yield (for subaccounts investing in income funds) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
<PAGE>
The Variable Account and the Funds
You may allocate payments to any or all of the subaccounts of the variable
account that invest in shares of the following funds:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SBCA1 AXP(SM) Variable Portfolio - Blue Chip Objective: long-term total IDS Life,
WBCA3 Advantage Fund return exceeding that of the investment
U.S. stock market. Invests manager;
primarily in common stocks of American
companies included in the Express
unmanaged S&P 500 Index. Financial
Corporation
(AEFC)
investment
advisor.
SBND1 AXP(SM) Variable Portfolio - Bond Fund Objective: high level of current IDS Life,
SBND2 income while conserving the investment
value of the investment and manager;
continuing a high level of AEFC,
income for the longest time investment
period. Invests primarily in advisor.
bonds and other debt obligations.
SCAR1 AXP(SM) Variable Portfolio - Capital Objective: capital appreciation. IDS Life,
WCAR3 Resource Fund Invests primarily in U.S. common investment
stocks and other securities manager;
convertible into common stocks. AEFC,
investment
advisor.
SCMG1 AXP(SM) Variable Portfolio-Cash Management Objective: maximum current income IDS Life,
SCMG2 Fund consistent with liquidity and investment
conservation of capital. Invests manager; AEFC,
in money market securities. investment
advisor.
SDEI1 AXP(SM) Variable Portfolio - Diversified Objective: a high level of IDS Life,
WDEI3 Equity Income Fund current income and, as a investment
secondary goal, steady growth of manager;
capital. Invests primarily in AEFC
dividend-paying common and investment
preferred stocks. advisor.
SEXI1 AXP(SM) Variable Portfolio - Extra Objective: high current income, IDS Life,
WEXI3 Income Fund with capital growth as a investment
secondary objective. Invests manager;
primarily in high-yielding, AEFC,
high-risk corporate bonds issued investment
by U.S. and foreign companies advisor.
and governments.
SFDI1 AXP(SM) Variable Portfolio - Federal Objective: a high level of IDS Life,
WFDI3 Income Fund current income and safety of investment
principal consistent with an manager;
investment in U.S. government AEFC
and government agency investment
securities. Invests primarily in advisor.
debt obligations issued or
guaranteed as to principal and
interest by the U.S. government,
its agencies or
instrumentalities.
SGRO1 AXP(SM) Variable Portfolio - Growth Fund Objective: long-term capital IDS Life,
SGRO2 growth. Invests primarily in investment
common stocks and securities manager;
convertible into common stocks AEFC
that appear to offer growth investment
opportunities. advisor.
SMGD1 AXP(SM) Variable Portfolio - Managed Fund Objective: maximum total IDS Life,
SMGD2 investment return through a investment
combination of capital growth manager;
and current income. Invests AEFC,
primarily in a combination of investment
common and preferred stocks, advisor.
convertible securities, bonds
and other debt securities.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SNDM1 AXP(SM) Variable Portfolio - Objective: long-term growth of IDS Life,
WNDM3 New Dimensions Fund(R) capital. Invests primarily in investment
common stocks of U.S. and manager;
foreign companies showing AEFC,
potential for significant growth. investment
advisor.
SSCA1 AXP(SM) Variable Portfolio - Objective: long-term capital IDS Life,
WSCA3 Small Cap Advantage Fund growth. Invests primarily in investment
equity stocks of small companies manager;
that are often included in the AEFC
S&P SmallCap 600 Index or the investment
Russell 2000 Index. advisor.
SCAP1 AIM V.I. Capital Appreciation Fund Objective: growth of capital. A I M
WCAP3 Invests primarily in common Advisors,
stocks, with emphasis on medium- Inc.
and small-sized growth companies.
SCDV1 AIM V.I. Capital Development Fund Objective: long term growth of A I M
SCDV2 capital. Invests primarily in Advisors,
securities (including common Inc.
stocks, convertible securities
and bonds) of small- and
medium-sized companies.
SVAL1 AIM V.I. Value Fund Objective: long-term growth of A I M
WVAL3 capital with income as a Advisors,
secondary objective. Invests Inc.
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.
SPGR1 Alliance VP Premier Growth Portfolio Objective: growth of capital by Alliance
SPGR2 (Class B) pursuing aggressive investment Capital
policies. Invests primarily in Management,
equity securities of a limited L.P.
number of large, carefully
selected, high-quality U.S.
companies that are judged likely
to achieve superior earnings
growth. As a matter of
fundamental policy, the
Portfolio normally invests at
least 85% of its total assets in
the equity securities of U.S.
companies.
STEC1 Alliance VP Technology Portfolio (Class B) Objective: growth of capital. Alliance
STEC2 Current income is only an Capital
incidental consideration. Management,
Invests primarily in securities L.P.
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.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SUGH1 Alliance VP U.S. Government/ High Grade Objective: high level of current Alliance
SUGH2 Securities Portfolio (Class B) income consistent with Capital
preservation of capital. Invest Management,
primarily in (1) U.S. Government L.P.
securities and (2) other
high-grade debt securities rated
AAA, AA or A by Standard &
Poor's, Duff and Phelps or
Fitch, or rated Aaa, Aa or A by
Moody's Investors Service or, if
unrated, of equivalent quality.
As a matter of fundamental
policy, the Portfolio invests at
least 65% of its total assets in
investment grade corporate debt
securities and CMOs.
SCAS1 Baron Capital Asset Fund Objective: capital appreciation. BAMCO, Inc.
SCAS2 Invests primarily in securities
of small and medium sized
companies with undervalued
assets or favorable growth
prospects.
SGRI1 Fidelity VIP III Growth & Income Objective: high total return Fidelity Management
SGRI2 Portfolio (Service Class) through a combination of current & Research Company
income and capital appreciation. (FMR), investment
Invests primarily in common manager; FMR U.K.
stocks with a focus on those and FMR Far East,
that pay current dividends and sub-investment
show potential for capital advisors.
appreciation.
SMDC1 Fidelity VIP III Mid Cap Portfolio Objective: long-term growth of FMR, investment
SMDC2 (Service Class) capital. Invests primarily in manager; FMR U.K. and
medium market capitalization and FMR Far East,
common stocks. sub-investment
advisors.
SOVS1 Fidelity VIP Overseas Portfolio (Service Objective: long-term growth of FMR, investment
SOVS2 Class) capital. Invests primarily in manager; FMR U.K.,
common stocks of foreign FMR Far East,
securities. Fidelity International
Investment Advisors (FIIA)
and FIIA U.K.,
sub-investment advisors.
SRES1 FTVIPT Franklin Real Estate Fund - Class Objective: capital appreciation Franklin
WRES3 2 (previously Franklin Real Estate with a secondary goal to earn Advisers,
Securities Fund) current income. Invests Inc.
primarily in securities of
companies operating in the
real estate industry,
primarily equity real estate
investment trusts (REITS).
SMSS1 FTVIPT Mutual Shares Securities Fund - Objective: capital appreciation Franklin Mutual
WMSS3 Class 2 with income as a secondary goal. Advisers, LLC
Invests primarily in equity
securities of companies that
the manager believes are
available at market prices
less than their value based on
certain recognized or objective
criteria (intrinsic value).
SISC1 FTVIPT Templeton International Smaller Objective: long-term capital Templeton
SISC2 Companies Fund - Class 2 appreciation. Invests primarily Investment
in equity securities of smaller Counsel, Inc.
companies located outside the
U.S., including in emerging
markets.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SCGR1 Goldman Sachs VIT Capital Growth Fund Objective: long-term growth of Goldman
SCGR2 capital. Invest primarily in Sachs Asset
equity securities considered by Management
the Investment Advisor to have
long-term capital appreciation
potential.
SUSE1 Goldman Sachs VIT CORE(SM) U.S. Equity Objective: long-term growth of Goldman
WUSE3 Fund capital and dividend income. Sachs Asset
Invests primarily in a broadly Management
diversified portfolio of
large-cap and blue chip equity
securities representing all
major sectors of the U.S.
economy.
SGLI1 Goldman Sachs VIT Global Income Fund Objective: high total return, Goldman
WGLI3 emphasizing current income, and, Sachs Asset
to a lesser extent, providing Management
opportunities for capital International
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.
SIEQ1 Goldman Sachs VIT International Equity Objective: long-term capital Goldman
SIEQ2 Fund appreciation. Invests primarily Sachs Asset
in equity securities of Management
companies that are organized International
outside the U.S., or whose
securities are principally
traded outside the U.S.
SITO1 Goldman Sachs VIT Internet Tollkeeper Fund Objective: long-term growth of Goldman
SITO2 capital. Invests primarily in Sachs Asset
equity securities of companies Management
the Investment Advisor believes
will benefit from the growth of
the Internet by providing
access, infrastructure, content
and services to Internet
companies and customers.
SAGP1 Janus Aspen Series Aggressive Growth Objective: long-term growth of Janus Capital
SAGP2 Portfolio: Service Shares capital. Invests primarily in
common stocks selected for
their growth potential and
normally invests at least 50%
of its equity assets in
medium-sized companies.
SGLT1 Janus Aspen Series Global Technology Objective: long-term growth of Janus Capital
SGLT2 Portfolio: Service Shares capital. Invests primarily in
equity securities of
U.S. and foreign companies
selected for their growth
potential. Normally invests
at least 65% of assets in
securities of companies that
the manager believes will
benefit significantly from
advancements or improvements in
technology.
SGIP1 Janus Aspen Series Growth Portfolio: Objective: long-term growth of Janus Capital
SGIP2 Service Shares capital in a manner consistent
with the preservation of
capital. Invests primarily in
common stocks selected for their
growth potential.
SINT1 Janus Aspen Series International Growth Objective: long-term growth of Janus Capital
SINT2 Portfolio: Service Shares capital. Invests at least 65% of
its total assets in securities of
issuers from at least five different
countries, excluding the U.S. It may
at times invest all of its assets in
fewer than five countries or
even a single country.
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SUDE1 J.P. Morgan U.S. Disciplined Equity Objective: seeks to provide a J.P. Morgan
SUDE2 Portfolio high total return from a
portfolio comprised of
selected equity securities. The
portfolio invests primarily in the
common stocks of U.S. corporations
with market capitalizations above
$1.5 billion. The portfolio is
designed for investors who
want an actively managed
portfolio of selected equity
securities that seeks to
outperform the S&P 500 Index.
SREQ1 Lazard Retirement Series Equity Portfolio Objective: long-term capital Lazard Asset
SREQ2 appreciation. Invests primarily Management
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.
SRIE1 Lazard Retirement Series International Objective: long-term capital Lazard Asset
SRIE2 Equity Portfolio appreciation. Invests primarily Management
in equity securities, principally
common 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.
SNDS1 MFS(R)New Discovery Series Objective: capital appreciation. MFS
SNDS2 Invests primarily in equity Investment
securities of emerging growth Management(R)
companies.
SRSS1 MFS(R)Research Series Objective: long-term growth of MFS
SRSS2 capital and future income. Investment
Invests primarily in common Management(R)
stocks and 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.
SUTS1 MFS(R)Utilities Series Objective: capital growth and MFS
WUTS3 current income. Invests Investment
primarily in equity and debt Management (R)
securities of domestic and
foreign companies in the
utilities industry.
SMCC1 Royce Micro-Cap Portfolio Objective: long-term growth of Royce &
SMCC2 capital. Invests primarily in a Associates,
broadly diversified portfolio of Inc.
equity securities issued by
micro-cap companies (companies
with stock market
capitalizations below $300
million).
<PAGE>
__________________________________________________________________________________________________________________
Subaccount Investing In Investment Objectives and Investment
Policies: Advisor or
Manager
__________________________________________________________________________________________________________________
SPRM1 Royce Premier Portfolio Objective: long-term growth of Royce &
SPRM2 capital with current income as a Associates,
secondary objective. Invests Inc.
primarily in a limited number of
equity securities issued by
small companies with stock
market capitalization between
$300 million and $1.5 billion.
SVLU1 Third Avenue Value Portfolio Objective: long-term capital EQSF
SVLU2 appreciation. Invests primarily Advisers,
in common stocks of Inc.
well-financed companies at a
substantial discount to what the
Advisor believes is their true
value.
SISM1 Wanger International Small Cap Objective: long-term growth of Wanger Asset
SISM2 capital. Invests primarily in Management,
stocks of small- and medium-size L.P.
non-U.S. companies.
SUSC1 Wanger U.S. Small Cap Objective: long-term growth of Wanger Asset
SUSC2 capital. Invests primarily in Management,
stocks of small- and medium-size L.P.
U.S. companies.
SEGR1 Warburg Pincus Trust - Emerging Growth Objective: maximum capital Credit
SEGR2 Portfolio appreciation. Invests primarily Suisse
in equity securities of small- Asset
or medium-sized U.S. Management,
emerging-growth companies. LLC.
SEQI1 Wells Fargo VT Equity Income Fund Objective: long-term capital Wells Fargo
WEQI3 appreciation and above-average Bank, N.A.,
dividend income. Invests advisor;
primarily in common stocks of Wells
large, high-quality domestic Capital
companies with above-average Management
return potential and Incorporated,
above-average dividend income. sub-advisor.
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an 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, and those
results may differ significantly from other funds with similar investment
objectives and policies.
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 also 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
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
<PAGE>
Although the insurance company and the funds do not currently foresee any such
disadvantages, the boards of directors or trustees of the appropriate funds will
monitor events in order to identify any material conflicts between annuity
owners, policy owners and tax-deferred retirement 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 tax-deferred retirement plan accounts, you would not
bear any expenses associated with establishing separate funds. Please refer to
the fund's prospectuses for risk disclosure regarding simultaneous investments
by variable annuity, variable life insurance and tax-deferred retirement plan
accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
The Fixed Accounts
Guarantee Period Accounts
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Some states also restrict the amount you can allocate to these accounts. Each
Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
<PAGE>
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
o Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
o Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies -- Standard & Poor's, Moody's Investors Service
or Duff and Phelp's -- or are rated in the two highest grades by the
National Association of Insurance Commissioners;
o Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
o Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
<PAGE>
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer money out of a Guarantee Period Account at any time
after 60 days of transfer or payment allocation into the account. The amount
transferred or withdrawn will receive a MVA which will increase or decrease the
actual amount transferred or withdrawn. We calculate the MVA using the formula
shown below and we base it on the current level of interest rates compared to
the rate of your Guarantee Period Account.
Amount transferred x ( l + i ) n/12
--------------
(l + j + .001)
Where: i = rate earned in the account from which funds are
being transferred
j = current rate for a new Guarantee Period equal to
the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two-year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. Some
states restrict the amount you can allocate to this account. We back the
principal and interest guarantees relating to the one-year fixed account. The
value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, interest
rate environment, returns earned on investments backing these annuities, the
rates currently in effect for new and existing company annuities, product
design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
<PAGE>
Buying Your Contract
You or your sales representative will send an application along with your
initial purchase payment to our office. As the owner, you have all rights and
may receive all benefits under the contract. You can own a nonqualified annuity
in joint tenancy with rights of survivorship only in spousal situations. You
cannot own a qualified annuity in joint tenancy. You can buy a contract or
become an annuitant if you are 90 or younger. (The age limit may be younger for
qualified annuities in some states.)
When you apply, you may select:
o one of three death benefit options if both you and the annuitant are age 79
or younger*: Option A -- Maximum anniversary value death benefit, Option B
-- Value option return of purchase payment death benefit rider, or Option C
-- 5% accumulation death benefit rider**;
o the optional Guaranteed Minimum Income Benefit Rider (6% Accumulation
Benefit Base)***;
o the optional 8% Performance Credit Rider***;
o the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest****;
o how you want to make purchase payments; and
o a beneficiary.
* If either you or the annuitant are age 80 or older Option B will apply.
** May not be available in all states.
*** You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not
both. Riders may not be available in all states. The Guaranteed Minimum
Income Benefit Rider (6% Accumulation Benefit Base) is only available to
annuitants 75 or younger.
**** Some states restrict the amount you can allocate to the fixed accounts.
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). You must make an initial purchase payment of $25,000. Then, to begin
the SIP, you will complete and send a form and your first SIP payment along with
your application. There is no charge for SIP. You can stop your SIP payments at
any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
<PAGE>
For nonqualified annuities and Roth IRAs, the retirement date must be:
o no earlier than the 60th day after the contract's effective date; and
o no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
For qualified annuities (except Roth IRAs), to avoid IRS penalty taxes, the
retirement date generally must be:
o on or after the date the annuitant reaches age 59 1/2; and
o for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
Minimum initial purchase payment (including SIPs): $25,000
Minimum additional purchase payments:
If paying by SIP: $50
If paying by any other method: $100
Maximum total allowable purchase payments*
(without prior approval): $1,000,000 for issue
ages up to 85
$100,000 for issue
ages 86 to 90
*This limit applies in total to all American Enterprise Life annuities you own.
We reserve the right to increase the maximum limit. For qualified annuities, the
tax-deferred retirement plan's limits on annual contributions also apply.
<PAGE>
HOW TO MAKE PURCHASE PAYMENTS
1 By letter:
Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2 By SIP:
Contact your sales representative to complete the necessary SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with every payment you make
to your contract. We apply this credit immediately. We allocate the credit to
the fixed accounts and subaccounts in the same proportions as your purchase
payment. We apply the credit as a percentage of your current payment based on
the following schedule:
If total net payments* made during then the purchase payment
the life of the contract equals....... credit percentage equals...
$25,000 to less than $100,000 3%
$100,000 to less than $1 million 4
$1 million and over 5
*Net payments equal total payments less total withdrawals.
If you make any future payments which cause the contract to become eligible for
a higher percentage credit, we will add credits to increase the credit
percentage on prior payments (less total withdrawals). We allocate credits
according to the purchase payment allocation on the date we add the credits to
the contract.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges -- Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
<PAGE>
Because of these higher charges, there may be circumstances where you may be
worse off for having received the credit than in other contracts. All things
being equal (such as guarantee availability or fund performance and
availability), this may occur if you hold your contract for 15 years or more.
For contracts less than $100,000, this may also occur if you make a full
withdrawal in the fifth to ninth contract years. You should consider these
higher charges and other relevant factors before you buy this contract or before
you exchange a contract you currently own for this contract.
This credit is available because of lower costs associated with larger sized
contracts and through revenue from a higher and longer withdrawal charge
schedule, a higher contract administrative charge and a higher mortality and
expense risk fee. In general, we do not profit from the higher charges assessed
to cover the cost of the purchase payment credit. We use all the revenue from
these higher charges to pay for the cost of the credits. However, we could
profit from the higher charges if market appreciation is higher than expected or
if contract owners hold their contracts for longer than expected.
We reserve the right to increase the amount of the credit for certain groups of
contract owners. The increase will not be greater than 8% of total net payments.
Increases in credit amounts are funded by reduced expenses expected from such
groups.
Charges
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct $40
from the contract value on your contract anniversary at the end of each contract
year. We prorate this charge among the subaccounts and the fixed accounts in the
same proportion your interest in each account bears to your total contract
value.
We will waive this charge when your contract value is $100,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct the charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of the subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee and it totals 1.45% of their average daily net assets on an
annual basis. This fee includes coverage in the contract under either the
Maximum anniversary value death benefit or the 5% Accumulation death benefit.
The fee would be 1.35% if you choose the Value option return of purchase payment
death benefit rider. We cannot increase this fee. These fees cover the mortality
and expense risk that we assume. Approximately two-thirds of this amount is for
our assumption of mortality risk, and one-third is for our assumption of expense
risk. These fees do not apply to the fixed accounts.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
<PAGE>
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
o first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
o then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE) FEE
We charge a fee based on an adjusted contract value for this optional feature
only if you choose this option.* If selected, we deduct the fee (currently
0.35%) from the contract value on your contract anniversary at the end of each
contract year. We prorate this fee among the subaccounts and fixed accounts in
the same proportion your interest in each account bears to your total contract
value.
We apply the fee on an adjusted contract value calculated as the contract value
plus the lesser of zero or (a) - (b), where:
(a) is the transfers from the subaccounts to the fixed accounts in the last
six months, and
(b) is the total contract value in the fixed accounts.
This adjustment to the contract value allows us to base the charge largely on
the subaccounts, and not on the fixed accounts. We will deduct the fee, adjusted
for the number of calendar days coverage was in place, if the contract is
terminated for any reason or when annuity payouts begin. We cannot increase this
fee after the rider effective date and it does not apply after annuity payouts
begin. We can increase this fee on new contracts up to a maximum of 0.75%.
8% PERFORMANCE CREDIT RIDER FEE
We charge a fee for this optional feature only if you choose this option.* If
selected, we deduct the fee of 0.25% of your contract value on your contract
anniversary at the end of each contract year. We prorate this fee among the
subaccounts and fixed accounts in the same proportion as your interest in each
account bears to your total contract value.
We will deduct this fee, adjusted for the number of calendar days coverage was
in place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the 8% Performance Credit Rider fee.
*You may select either the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) or the 8% Performance Credit Rider, but not both.
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within nine years before withdrawal. The
withdrawal charge percentages that apply to you are shown in your contract. In
addition, amounts withdrawn from a Guarantee Period Account prior to the end of
the applicable Guarantee Period will be subject to a MVA. (See "The Fixed
Accounts -- Market Value Adjustments (MVA).")
<PAGE>
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (Your initial purchase payment is
considered the prior anniversary contract value during the first contract
year.) We do not assess a withdrawal charge on this amount.
2. Next we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period shown in your contract. We do not assess a withdrawal charge on
these purchase payments.
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period shown in your contract. We
withdraw these payments on a first-in, first-out (FIFO) basis. We do assess
a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn:
Years from purchase Withdrawal charge
payment receipt percentage
1 8%
2 8
3 8
4 8
5 7
6 6
7 6
8 4
9 2
Thereafter 0
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1,075.26. This charge represents 7% of the total amount
withdrawn and we deduct it form the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
also will deduct the applicable contract administrative charge.
Withdrawal charge under Annuity Payout Plan E -- Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. The
discount rate we use in the calculation will be 5.36% if the assumed investment
rate is 3.5% and 6.86% if the assumed investment rate is 5%. The withdrawal
charge is equal to the difference in discount values using the above discount
rates and the assumed investment rate. In no event would your withdrawal charge
exceed 9% of the amount available for payouts under the plan.
<PAGE>
Withdrawal charge calculation example:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
o The contract date is Nov. 1, 2000 with a contract year of Nov. 1 through
Oct. 30 and with an anniversary date of Nov. 1 each year; and
o We received these payments
-- $10,000 Nov. 1, 2000;
-- $8,000 Dec. 31, 2006; and
-- $6,000 Feb. 20, 2008; and
o The owner withdraws the contract for its total withdrawal value of $38,101
on Aug. 5, 2010 and had not made any other withdrawals during that contract
year; and
o The prior anniversary Nov. 1, 2009 contract value was $38,488.
Withdrawal Charge Explanation
$0 $3,848.80 is 10% of the prior anniversary contract
value withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10%
free withdrawal amount withdrawn without withdrawal
charge; and
0 $10,000 Nov. 1, 2000 payment was received more than
nine years before withdrawal and is withdrawn without
withdrawal charge; and
640 $8,000 Dec. 31, 2006 payment is in its fourth year
from receipt, withdrawn with an 8% withdrawal charge;
and
480 $6,000 Feb. 20, 2008 payment is in its third year
from receipt withdrawn with an 8% withdrawal charge.
___________
$1,120
<PAGE>
Waiver of withdrawal charges
We do not assess withdrawal charges for:
o withdrawals of any contract earnings;
o withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent that it exceeds contract earnings;
o required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
o contracts settled using an annuity payout plan;
o withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
o amounts we refund to you during the free look period*; and
o death benefits.*
*However, we will reverse certain purchase payment credits up to the maximum
withdrawal charge. (See "Buying Your Contract -- Purchase payment credits.")
Contingent events
o Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request withdrawal.
o To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
Possible group reductions: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we deduct any applicable premium tax when annuity
payouts begin but we reserve the right to deduct this tax at other times, such
as when you make purchase payments or when you make a full withdrawal from your
contract.
<PAGE>
Valuing Your Investment
We value your fixed accounts and subaccounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
o the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
o plus any purchase payment credits allocated to the fixed accounts;
o plus interest credited;
o minus the sum of amounts withdrawn after any applicable MVA (including any
applicable withdrawal charges) and amounts transferred out;
o minus any prorated contract administrative charge;
o minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
(6% Accumulation Benefit Base) fee (if applicable); and
o minus any prorated portion of the 8% Performance Credit Rider fee (if
applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge, or the 8% Performance Credit Rider fee,
or the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base)
fee, we subtract a certain number of accumulation units from your contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
Number of units: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
Accumulation unit value: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
<PAGE>
We determine the net investment factor by:
o adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
o dividing that sum by the previous adjusted net asset value per share; and
o subtracting the percentage factor representing the mortality and expense
risk fee and the variable account administrative charge from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
Factors that affect subaccount accumulation units: accumulation units may change
in two ways -- in number and in value.
The number of accumulation units you own may fluctuate due to:
o additional purchase payments you allocate to the subaccounts;
o any purchase payment credits allocated to the subaccounts;
o transfers into or out of the subaccounts;
o partial withdrawals;
o withdrawal charges;
o prorated portions of the contract administrative charge;
o prorated portions of the Guaranteed Minimum Income Benefit Rider (6%
Accumulation Benefit Base) fee (if selected); and/or
o prorated portions of the 8% Performance Credit Rider fee (if selected).
Accumulation unit values will fluctuate due to:
o changes in funds' net asset value;
o dividends distributed to the subaccounts;
o capital gains or losses of funds;
o fund operating expenses; and/or
o mortality and expense risk fee and the variable account administrative
charge.
<PAGE>
Making the Most of Your Contract
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
How dollar-cost averaging works
Month Amount Accumulation Number of units
invested unit value purchased
By investing an equal number Jan $100 $20 5.00
of dollars each month...
Feb 100 18 5.56
Mar 100 17 5.88
you automatically buy Apr 100 15 6.67
more units when the per unit
market price is low... May 100 16 6.25
Jun 100 18 5.56
Jul 100 17 5.88
Aug 100 19 5.26
and fewer units when the Sep 100 21 4.76
per unit market price is
high. Oct 100 20 5.00
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success 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. For specific features contact us.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract 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
contract 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 accounts. 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 contract value. You must allow 30 days for us to change
any instructions that currently are in place. For more information on asset
rebalancing, contact your sales representative.
<PAGE>
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed accounts.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
o requiring a minimum time period between each transfer;
o not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
o limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payouts begin, see "Transfer
policies" below.
Transfer policies
o Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
o You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
o You may transfer contract values from a Guarantee Period Account any time
after 60 days of transfer or payment allocation to the account. Transfers
made before the end of the Guarantee Period will receive a MVA, which may
result in a gain or loss of contract value.
o If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
o We will not accept requests for transfers from the one-year fixed account
at any other time.
o Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, your choices of
subaccounts may be limited.
o Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
<PAGE>
How to request a transfer or withdrawal
1 By letter:
Send your name, contract number, Social Security Number or Taxpayer
Identification Number and signed request for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers or withdrawals: Contract value or entire account
balance
2 By automated transfers and automated partial withdrawals:
Your sales representative can help you set up automated transfers or partial
withdrawals among your subaccounts or fixed accounts.
You can start or stop this service by written request or other method acceptable
to us. You must allow 30 days for us to change any instructions that are
currently in place.
o Automated transfers from the one-year fixed account to any one of the
subaccounts may not exceed an amount that, if continued, would deplete the
one-year fixed account within 12 months.
o Automated withdrawals may be restricted by applicable law under some
contracts.
o You may not make additional purchase payments if automated partial
withdrawals are in effect.
o Automated partial withdrawals may result in IRS taxes and penalties on all
or part of the amount withdrawn.
Minimum amount
Transfers or withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
<PAGE>
3 By phone:
Call between 8 a.m. and 6 p.m. Central time:
1-800-333-3437
Minimum amount
Transfers or withdrawals: $500 or entire account balance
Maximum amount
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals not be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER (6% ACCUMULATION BENEFIT BASE)
This optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge, (see "Charges -- Guaranteed Minimum
Income Rider (6% Accumulation Benefit Base) fee"). You cannot select this rider
if you select the 8% Performance Credit Rider. The rider guarantees a minimum
amount of fixed annuity lifetime income during the annuity payout period if your
contract has been in force for at least seven years, subject to the conditions
described below. The rider also provides you the option of variable annuity
payouts, with a guaranteed minimum initial payment. This rider is only available
at the time you purchase your contract.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add this
rider at the next contract anniversary with the contract value at that
anniversary reflected as the premium. All conditions of the rider would use this
date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates based on the guaranteed annuitant
mortality table in your contract and a 2.5% interest rate. We base first year
payments from the variable annuity payout option offered under this rider on the
same factors as the fixed annuity payout option. We base subsequent payments on
the initial payment and an assumed annual return of 5%. Because this rider is
based on guaranteed actuarial factors for the fixed option, the level of fixed
lifetime income it guarantees may be less than the level that would be provided
by applying the then current annuity factors. Likewise, for the variable annuity
payout option, we base the rider on more conservative factors resulting in a
lower initial payment and lower lifetime payments than those provided otherwise
if the same benefit base were used. However, the Guaranteed Income Benefit Base
described below establishes a floor, which when higher than the contract value,
can result in a higher annuity payout level. Thus, the rider is a guarantee of a
minimum amount of annuity income.
<PAGE>
The Guaranteed Income Benefit Base uses the same calculation as the Variable
account 5% floor but uses a 6% accumulation rate.
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit in the calculation of
the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments paid
into the contract.
If we exclude such payments and credits, the Guaranteed Income Benefit Base
would be calculated as the greatest of:
(a) contract value less "market value adjusted prior 5 years of payments and
purchase payment credits"
(b) total payments and purchase payment credits less prior 5 years of payments
and purchase payment credits, less adjusted partial withdrawals
(c) the Variable Account 6% Floor, less the "6% adjusted prior 5 years of
payments and purchase payment credits"
"Market value adjusted prior 5 years of payments and purchase payment credits"
are calculated as the sum of each such payment or credit, multiplied by the
ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. We calculate the estimated contract
value at such anniversary by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
"6% Adjusted prior 5 years of payments and purchase payment credits" are
calculated as the sum of each payment or payment credit accumulated at 6% for
the number of full contract years they have been in the contract.
Conditions on election of the rider:
o you must elect the rider at the time you purchase your contract,
o you must elect either the Maximum anniversary value death benefit or the 5%
Accumulation death benefit and
o the annuitant must be age 75 or younger on the contract date.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the AXP(SM) Variable Portfolio -- Cash Management Fund to
10% of the total amount in the subaccounts. If we are required to activate this
restriction, and you have more than 10% of your subaccount value in this fund,
we will send you notice and ask that you reallocate your contract value so that
the limitation is satisfied within 60 days. If after 60 days the limitation is
not satisfied, the rider will be terminated.
Exercising the rider:
o you may only exercise the rider within 30 days after any contract
anniversary following the expiration of a seven-year waiting period from
the effective date of the rider, and
o the annuitant on the retirement date must be between 50 and 86 years old,
and
o you can only take an annuity payout in one of the following annuity payout
plans:
-- Plan A -- Life Annuity -- no refund
-- Plan B -- Life Annuity with ten years certain
-- Plan D -- Joint and last survivor life annuity -- no refund
<PAGE>
Terminating the rider:
o You may terminate the rider within 30 days after the first anniversary of
the effective date of the rider.
o You may terminate the rider any time after the seventh anniversary of the
effective date of the rider.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
o The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
Example:
o The contract is purchased with a payment of $100,000 on Jan. 1, 2000, and a
$4,000 purchase payment credit is added to the contract.
o There are no additional purchase payments and no partial withdrawals.
o The money is fully allocated to the subaccounts.
o The annuitant is male and age 55 on the contract date. For the joint and
last survivor option (annuity payout Plan D), the joint annuitant is female
and age 55 on the contract date.
o The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base) is
exercised, the minimum fixed annuity monthly payout or the first year variable
annuity monthly payout would be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
Plan A -- Plan B -- Plan D --
Life Annuity - Life Annuity with Joint and last survivor
Contract Anniversary At Exercise Guaranteed Income Benefit Base no refund ten years certain life annuity - no refund
<S> <C> <C> <C> <C>
10 $186,248 $970.35 $944.28 $772.93
15 $249,242 $1,485.48 $1,415.69 $1,149.00
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
8% PERFORMANCE CREDIT RIDER
If this rider is available in your state, you may choose to add this benefit to
your contract at issue. You cannot select this rider if you select the
Guaranteed Minimum Income Benefit Rider (6% Accumulation Benefit Base). This
feature provides certain benefits if your contract value has not reached or
exceeded a target value (as defined below) on the seventh and tenth rider
anniversaries.
Your benefits under this rider are as follows:
(a) if on the seventh rider anniversary, your contract value has not met or
exceeded the target value, we will make a credit to your contract equal to
3% of your purchase payments and purchase payment credits less adjusted
partial withdrawals, purchase payments and purchase payment credits made in
the prior five years; and
(b) if on the tenth rider anniversary, your contract value has not met or
exceeded the target value, we will make an additional credit to your
contract equal to 5% of your purchase payments and purchase payment credits
less adjusted partial withdrawals, purchase payments and purchase payment
credits made in the prior five years.
<PAGE>
On the tenth rider anniversary and every ten years thereafter while you have the
contract, the ten year calculation period restarts. We use the contract value
(after any credits) on that contract anniversary as the initial purchase payment
for the calculation of the target value and any credit. Additional credits may
then be made at the end of each ten year period as described above.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances we would add this
rider at the next contract anniversary with the contract value at that
anniversary reflected as the initial purchase payment for the calculation of the
target value and any credit.
Target value: The target value accumulates purchase payments and purchase
payment credits at an annual interest rate of 8% until the tenth rider
anniversary less adjusted partial withdrawals also accumulated at 8% until the
tenth rider anniversary.
Adjusted partial withdrawals: We calculate the adjusted partial withdrawals for
the 8% Performance Credit Rider for each partial withdrawal as the product of
(a) times (b) where:
(a) is the ratio of the amount of partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of
(but prior to) the partial withdrawal, and
(b) is the Target Value on the date of (but prior to) the partial
withdrawal.
Reset option: You can elect to lock in the growth in your contract by restarting
the ten-year period on any contract anniversary. If you elect to restart the
calculation period, the contract value on the restart date is used as the
initial purchase payment for the calculation of the target value and any credit.
The next ten year calculation period will then restart at the end of the new ten
year period from the most recent restart date. We must receive your request to
restart the calculation period within 30 days after a contract anniversary.
Fund selection to continue the rider: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the fixed accounts and the AXP(SM) Variable Portfolio Cash
Management Fund to 10% of the contract value. If we are required to activate
this restriction and you have more than 10% of your contract value in these
accounts, we will send you notice and ask you that you reallocate your contract
value so that the limitation is satisfied in 60 days. If after 60 days the
limitation is not satisfied, we will terminate the rider.
Terminating the rider:
o You may terminate the rider within 30 days following the first anniversary
after the effective date of the rider.
o You may terminate the rider within 30 days following the tenth anniversary
of the latest of the effective date of the rider or the last reset date.
o The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
<PAGE>
Example:
o The contract is purchased with a payment of $100,000 on January 1, 2000 and
a $4,000 purchase payment credit is added to the contract.
o There are no additional purchase payments and no partial withdrawals.
o On January 1, 2007, the contract value is $150,000.
o The credit on January 1, 2007 is determined as:
Target Value on January 1, 2007 =
104,000 x (1.08)^7 = 104,000 x 1.71382 = $178,237.72
As the target value of $178,237.72 is greater than the contract value of
$150,000, a credit is made to the contract equal to $3,120 (or 3% of the
purchase payment and credits of $104,000). Your total contract value on
that date is $153,120.
o On January 1, 2010, the contract value is $220,000.
o The credit on January 1, 2010 is determined as:
Target Value on January 1, 2010 =
$104,000 x (1.08)^10 = $104,000 x 2.158924 = $224,528.20
As the target value of $224,528.20 is greater than the contract value of
$220,000, a credit is made to the contract equal to $5,200 (or 5% of the
purchase payment and credits of $104,000). Your total contract value on
that date is $225,200.
o The benefit automatically restarts on January 1, 2010 with the "initial
payment" equal to $225,200 and the credit determination made on January 1,
2017 and January 1, 2020.
<PAGE>
Withdrawals
You may withdraw all or part of your contract at any time before annuity payouts
begin by sending us a written request or calling us. We will process your
withdrawal request on the valuation date we receive it. For total withdrawals,
we will compute the value of your contract at the next accumulation unit value
calculated after we receive your request. We may ask you to return the contract.
You may have to pay charges (see "Charges") and IRS taxes and penalties (see
"Taxes"). You cannot make withdrawals after annuity payouts begin except under
Plan E (see "The Annuity Payout Period -- Annuity payout plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
o payable to owner;
o mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
Changing Ownership
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
<PAGE>
Benefits in Case of Death
There are three death benefit options under this contract: Option A - Maximum
anniversary value death benefit, Option B - Value option return of purchase
payment death benefit rider, and Option C - 5% Accumulation death benefit rider.
If either you or the annuitant are age 80 or older (in most states) on the
contract date, Option B will apply. If both you and the annuitant are age 79 or
younger (in most states) on the contract date, you can elect Option A, Option B
or Option C on your application. Once you elect an option, you cannot change it.
We show the option that applies in your contract.
Under all options we will pay the death benefit to your beneficiary upon the
earlier of your death or the annuitant's death. The benefit paid will be based
on the death benefit coverage you select when you purchased the contract. If a
contract has more than one person as the owner, we will pay benefits upon the
first to die of any owner or the annuitant. If you own the contract in joint
tenancy with rights of survivorship, we will pay benefits upon the first to die
of either you or the annuitant.
OPTION A -- MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT
Available if you and the annuitant are age 79 or younger on the contract date.
If you or the annuitant die before annuity payouts begin while this contract is
in force, we will pay the beneficiary the greatest of the following amounts less
any purchase payment credits added in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
Maximum anniversary value: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment
credits and minus any "adjusted partial withdrawals".
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
Adjusted partial withdrawals: We calculate an "adjusted partial withdrawal " for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
applicable withdrawal charge) to the contract value on the date of (but
prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial withdrawal.
After your or the annuitant's 81st birthday, the death benefit continues to be
the death benefit value as of that date, plus any subsequent payments and
purchase payment credits and minus any "adjusted partial withdrawals."
<PAGE>
Example:
o You purchase the contract with a payment of $25,000 on Jan. 1, 2000. We add
a purchase payment credit of $750 to the contract.
o On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $29,000.
o On March 1, 2001 the contract value falls to $27,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $25,500.
We calculate the death benefit on March 1, 2001 as follows:
The "maximum anniversary value": $29,000.00
(the greatest of the anniversary values which was
the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 x 29,000 = - 1,611.11
27,000
for a death benefit of: $27,388.89
OPTION B -- VALUE OPTION RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER
If you and the annuitant are age 79 or younger on the contract date, you may
choose to add this benefit to your contract. If you or the annuitant are age 80
or older on the contract date you will automatically receive this death benefit.
This rider provides that if you or the annuitant dies before annuity payouts
begin while this contract is in force, we will pay the beneficiary the greatest
of the following amounts:
1. the contract value; or
2. the total purchase payments paid minus "adjusted partial withdrawals".
Example:
o You purchase the contract with a payment of $100,000.
o On January 1, 2001, you make an additional payment of $20,000.
o On March 1, 2001, the contract value is $110,000 and you take a $10,000
withdrawal.
o On March, 1, 2002, the contract value is $105,000.
We calculate the death benefit on March 1, 2002, as follows:
Total purchase payments paid: $120,000.00
Minus "adjusted partial withdrawals"
calculated as: 10,000 x 120,000 = - 10,909.09
_________________
110,000
for a death benefit of: $109,090.91
<PAGE>
Option C -- 5% ACCUMULATION DEATH BENEFIT RIDER
If this optional rider is available in your state and both you and the annuitant
are age 79 or younger on the contract date, you may choose to add this benefit
to you contract. This optional rider provides that if you or the annuitant die
before annuity payouts begin while this contract is in force, we will pay the
beneficiary the greatest of the following amounts less any purchase payment
credits added in the last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
3. the Variable account 5% floor
We calculate the "adjusted partial withdrawals" as described above except that
only the benefit in number two is taken into account.
The Variable account 5% floor
The Variable account 5% floor is the sum of the value in the fixed accounts plus
the variable account floor. On each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we increase the variable account floor by
accumulating the prior anniversary's floor at 5%. On the first contract
anniversary, the floor is increased by 5% of the accumulated initial purchase
payments plus purchase payment credits allocated to the subaccounts. On any day
that you allocate additional amounts to, or withdraw or transfer from the
subaccounts, we adjust the floor by adding the additional amounts and
subtracting the "adjusted partial withdrawals" or "adjusted transfers."
After the contract anniversary immediately following either your or the
annuitant's 81st birthday, the Variable account floor is the floor on that
anniversary increased by additional amounts allocated to the subaccounts since
that anniversary plus purchase payment credits and reduced by any "adjusted
partial withdrawals" since that anniversary.
For the Variable account 5% floor, we calculate the "adjusted partial
withdrawals" or "adjusted transfers" as the result of (a) times (b) where:
(a) is the ratio of the amount of withdrawal (including any withdrawal charges)
or transfer from the subaccounts to the total value in the subaccounts on
the date of (but prior to) the withdrawal or transfer.
(b) is the variable account floor on the date of (but prior to) the withdrawal
or transfer.
Example:
o You purchase the contract with a payment of $25,000 on Jan. 1, 2000 and we
add a $750 purchase payment credit to the contract with $5,100 allocated to
the one-year fixed account and $20,650 allocated to the subaccounts.
o On Jan. 1, 2001 (the first contract anniversary), the one-year fixed
account value is $5,200 and the subaccount value is $17,000. Total contract
value is $23, 200.
o On March 1, 2001, the one-year fixed account value is $5,300 and the
subaccount value is $19,000. Total contract value is $24,300. You take a
$1,500 partial withdrawal all from the subaccounts, leaving the contract
value at $22,800.
<PAGE>
We calculate the death benefit on March 1, 2001 as follows:
The variable account floor on Jan. 1, 2001,
calculated as: 1.05 x 20,650 = $21,682.50
plus any purchase payments paid since that anniversary: + 0.00
minus any "adjusted partial withdrawals" from the
subaccounts, calculated as: 1,500 x 21,682.50 =
--------------------
19,000 - $1,711.78
-----------
Variable account floor benefit $19,970.72
plus the one-year fixed account value + 5,300.00
-----------
for a death benefit of: $ 25,270.72
===========
If your spouse is sole beneficiary and you die before the retirement date, your
spouse may keep the contract as owner with the contract value equal to the death
benefit that would have otherwise been paid. To do this your spouse must, within
60 days after we receive proof of death, give us written instructions to keep
the contract in force. There will be no withdrawal charges on the contract from
that point forward unless additional purchase payments are made. The Guaranteed
Minimum Income Benefit Rider (6% Accumulation Benefit Base), if selected, is
then terminated.
Payments: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
o the beneficiary asks us in writing within 60 days after we receive proof of
death; and
o payouts begin no later than one year after your death, or other date as
permitted by the Code; and
o the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
<PAGE>
The Annuity Payout Period
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
o the annuity payout plan you select;
o the annuitant's age and, in most cases, sex;
o the annuity table in the contract; and
o the amounts you allocated to the accounts at the settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
<PAGE>
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
o Plan A -- Life annuity -- no refund: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
o Plan B -- Life annuity with five, ten or 15 years certain: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
o Plan C -- Life annuity -- installment refund: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
o Plan D -- Joint and last survivor life annuity -- no refund: We make
monthly payouts while both the annuitant and a joint annuitant are living.
If either annuitant dies, we will continue to make monthly payouts at the
full amount until the death of the surviving annuitant. Payouts end with
the death of the second annuitant.
o Plan E -- Payouts for a specified period: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level at the initial payment. The discount rate we use in the
calculation will vary between 5.36% and 6.86% depending on the applicable
assumed investment rate. (See "Charges -- Withdrawal charge under Annuity
Payout Plan E"). You can also take a portion of the discounted value once a
year. If you do so, your monthly payouts will be reduced by the proportion
of your withdrawal to the full discounted value. A 10% IRS penalty tax
could apply if you take a withdrawal. (See "Taxes").
Restrictions for some tax-deferred retirement plans: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
o over the life of the annuitant;
o over the joint lives of the annuitant and a designated beneficiary;
o for a period not exceeding the life expectancy of the annuitant; or
o for a period not exceeding the joint life expectancies of the annuitant and a
designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
<PAGE>
If we do not receive instructions: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
If monthly payouts would be less than $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
Taxes
Generally, under current law, your contract has a tax deferral feature. That is
any increase in the value of the fixed accounts and/or subaccounts in which you
invest is taxable to you only when you receive a payout or withdrawal (see
detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income are normally taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
Qualified annuities: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
Annuity payouts under nonqualified annuities: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuities issued by the same
company (and possibly its affiliates) to the same owner during a calendar year
be taxed as a single, unified contract when you take distributions from any one
of those contracts.
<PAGE>
Annuity payouts under qualified annuities (except Roth IRAs): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
Purchase payment credits and 8% Performance Credit Rider credits: These are
considered earnings and are taxed accordingly.
Withdrawals: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the withdrawal exceeds your
investment. You also may have to pay a 10% IRS penalty for withdrawals you make
before reaching age 591/2 unless certain exceptions apply. For qualified
annuities, other penalties may apply if you withdraw your contract before your
plan specifies that you can receive payouts.
Death benefits to beneficiaries: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
Annuities owned by corporations, partnerships or trusts: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
Penalties: If you receive amounts from your contract before reaching age 591/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
o because of your death;
o because you become disabled (as defined in the Code);
o if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
o if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
<PAGE>
Withholding, generally: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
Transfer of ownership of a nonqualified annuity: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
Collateral assignment of a nonqualified annuity: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
Important: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
Tax qualification: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
<PAGE>
Voting Rights
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
o the reserve held in each subaccount for your contract;
o divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
Substitution of Investments
We may substitute the funds in which the subaccounts invest if:
o laws or regulations change,
o existing funds become unavailable, or
o in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
o add new subaccounts;
o combine any two or more subaccounts;
o add subaccounts investing in additional funds;
o transfer assets to and from the subaccounts or the variable account; and
o eliminate or close any subaccounts.
In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
<PAGE>
About the Service Providers
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its offices are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Its administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Its statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, Richard W. and Elizabeth J. Thoresen vs.
American Express Financial Corporation, American Centurion Life Assurance
Company, American Enterprise Life Insurance Company, American Partners Life
Insurance Company, IDS Life Insurance Company and IDS Life Insurance Company of
New York which was commenced in Minnesota State Court in October 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs 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 is included as a party to preliminary settlement of all
three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
<PAGE>
Additional Information About American Enterprise Life
Selected financial data
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Years ended Dec. 31, (thousands) 1999 1998 1997 1996 1995
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on investments 6,565 (4,788) (509) (5,258) (1,154)
Other 8,338 7,662 6,329 5,753 4,214
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
Total assets $ 4,603,343 $ 4,885,621 $ 4,973,413 $ 4,425,837 $ 3,570,960
</TABLE>
Management's discussion and analysis of financial condition and results of
operations
1999 Compared to 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities in force and
lower interest rates. Amortization of deferred policy acquisition costs
decreased to $43 million, compared to $54 million in 1998. This decrease was due
primarily to decreased aggregate amounts in force, as well as the impact of
changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
<PAGE>
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
1998 Compared to 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
Risk Management
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
<PAGE>
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be approximately $4.2 million.
Liquidity and Capital Resources
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to go
under regulatory supervision. This circumstance has resulted in assessments by
state guaranty associations to cover losses to policyholders of insolvent or
rehabilitated companies. Some assessments can be partially recovered through a
reduction in future premium taxes in certain states. The Company established an
asset for guaranty association assessments paid to those states allowing a
reduction in future premium taxes over a reasonable period of time. The asset is
being amortized as premium taxes are reduced. The Company has also estimated the
potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
<PAGE>
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
Year 2000 Issue
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. All of the major systems used by American Enterprise
Life and by the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interactions with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
Reserves
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
Investments
Our total investments of $4,107,559 at Dec. 31, 1999, 28% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
<PAGE>
Competition
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. Best's Insurance Reports, Life-Health
edition 1999, assigned us one of its highest classifications, A+ (Superior).
Employees
As of Dec. 31, 1999, we had no employees.
Properties
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
State Regulation
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
<PAGE>
Directors and Executive Officers*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
Directors
James E. Choat
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president Institutional Products Group, AEFA, 1994 to 1997.
Richard W. Kling
Born 1940
Director and chairman of the board since March 1989.
Paul S. Mannweiler**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
Paula R. Meyer
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
William A. Stoltzmann
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
Officers other than directors
Jeffrey S. Horton
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
Philip C. Wentzel
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474 except for Mr. Mannweiler who is an
independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
<PAGE>
Executive compensation
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
<TABLE>
<CAPTION>
<S> <C> <C>
Name of individual or number in group Position held Cash compensation
Five most highly compensated executive officers as a group: $7,960,888
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group (11) $11,535,043
</TABLE>
Security ownership of management
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
Experts
Ernst & Young LLP, independent auditors, have audited the consolidated financial
statements of American Enterprise Life Insurance Company at Dec. 31, 1999 and
1998, and for each of the three years in the period ended Dec. 31, 1999, as set
forth in their report. We've included our financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
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 (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $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 IDS Life 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
of ($588) 1,093 -- -- 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
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
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:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
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.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<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, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
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>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 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.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, 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 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. 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.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 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 $486 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:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</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>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</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:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
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 $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 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:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has 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 $8,258 and
$6,651 at December 31, 1999 and 1998, 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 $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, 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 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, 1999 or 1998.
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, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</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 2006.
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,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
Performance Information.................................................p.3
Calculating Annuity Payouts............................................p.13
Rating Agencies........................................................p.15
Principal Underwriter..................................................p.15
<PAGE>
Please check the box to receive a copy of the Statement of Additional
Information for:
- -- American Express Signature One Variable Annuity(SM)
- -- American Express(R)Variable Portfolio Funds
- -- AIM Variable Insurance Funds, Inc.
- -- Alliance Variable Products Series Fund
- -- Baron Capital Funds
- -- Fidelity Variable Insurance Products - Service Class
- -- Franklin Templeton Variable Insurance Products Trust
- -- Goldman Sachs Variable Insurance Trust (VIT)
- -- Janus Aspen Series: Service Shares
- -- J. P. Morgan Series Trust II
- -- Lazard Retirement Series, Inc.
- -- MFS(R) Variable Insurance TrustSM
- -- Royce Capital Fund
- -- Third Avenue Variable Series Trust
- -- Wanger Advisors Trust
- -- Warburg Pincus Trust
- -- Wells Fargo Variable Trust Funds
Mail your request to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name _____________________________________________
Address _______________________________________________
City _____________________ State _________ Zip ________
<PAGE>
<PAGE>
PROSPECTUS
May 1, 2000
AMERICAN EXPRESS NEW SOLUTIONS VARIABLE ANNUITY(SM)
INDIVIDUAL OR GROUP FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED/VARIABLE ANNUITY
AMERICAN ENTERPRISE VARIABLE ANNUITY ACCOUNT
Issued by: American Enterprise Life Insurance Company (American Enterprise Life)
829 AXP Financial Center
Minneapolis, MN 55474
Telephone: 1-800-333-3437
This prospectus contains information that you should know before investing. You
also will receive the prospectuses for:
- - American Express(R) Variable Portfolio Funds
- - AIM Variable Insurance Funds
- - Alliance Variable Products Series Fund
- - Evergreen Variable Annuity Trust
- - Fidelity Variable Insurance Products - Service Class
- - Franklin Templeton Variable Insurance Products Trust (FTVIPT)
- - MFS(R) Variable Insurance Trust(SM)
- - Putnam Variable Trust - Class IB Shares
Please read the prospectuses carefully and keep them for future reference.
The contract provides for purchase payment credits which we may reverse up to
the maximum withdrawal charge under certain circumstances. Expense charges for
contracts with purchase payment credits may be higher than expenses for
contracts without such credits. The amount of the credit may be more than offset
by any additional fees and charges associated with the credit.
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THIS CONTRACT 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 CONTRACT
INVOLVES INVESTMENT RISK INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
A Statement of Additional Information (SAI), dated the same date as this
prospectus, is incorporated by reference into this prospectus. It is filed with
the SEC and is available without charge by contacting American Enterprise Life
at the telephone number above or by completing and sending the order form on the
last page of this prospectus. The table of contents of the SAI is on the last
page of this prospectus.
1
<PAGE>
TABLE OF CONTENTS
- -----------------
KEY TERMS
THE CONTRACT IN BRIEF
EXPENSE SUMMARY
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
FINANCIAL STATEMENTS
PERFORMANCE INFORMATION
THE VARIABLE ACCOUNT AND THE FUNDS
THE FIXED ACCOUNTS
BUYING YOUR CONTRACT
CHARGES
VALUING YOUR INVESTMENT
MAKING THE MOST OF YOUR CONTRACT
WITHDRAWALS
CHANGING OWNERSHIP
BENEFITS IN CASE OF DEATH
THE ANNUITY PAYOUT PERIOD
TAXES
VOTING RIGHTS
SUBSTITUTION OF INVESTMENTS
ABOUT THE SERVICE PROVIDERS
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE
DIRECTORS AND EXECUTIVE OFFICERS
EXPERTS
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
2
<PAGE>
KEY TERMS
THESE TERMS CAN HELP YOU UNDERSTAND DETAILS ABOUT YOUR CONTRACT.
ACCUMULATION UNIT -- A measure of the value of each subaccount before annuity
payouts begin.
ANNUITANT -- The person on whose life or life expectancy the annuity payouts are
based.
ANNUITY PAYOUTS -- An amount paid at regular intervals under one of several
plans.
BENEFICIARY -- The person you designate to receive annuity benefits in case of
the owner's or annuitant's death while the contract is in force and before
annuity payouts begin.
CLOSE OF BUSINESS -- When the New York Stock Exchange (NYSE) closes, normally 4
p.m. Eastern time.
CONTRACT - A deferred annuity contract or a certificate showing your interest
under a group annuity contract, that permits you to accumulate money for
retirement by making one or more purchase payments. It provides for lifetime or
other forms of payouts beginning at a specified time in the future.
CONTRACT VALUE -- The total value of your contract before we deduct any
applicable charges.
CONTRACT YEAR -- A period of 12 months, starting on the effective date of your
contract and on each anniversary of the effective date.
FIXED ACCOUNTS - The one-year fixed account is an account to which you may
allocate purchase payments. Amounts you allocate to this account earn interest
at rates that we declare periodically. Guarantee Period Accounts are fixed
accounts to which you may also allocate purchase payments. These accounts have
guaranteed interest rates declared for periods ranging from two to ten years.
Withdrawals from these accounts prior to the end of the term specified will
receive a Market Value Adjustment, which may result in a gain or loss of
principal.
FUNDS -- Investment options under your contract. You may allocate your purchase
payments into subaccounts investing in shares of any or all of these funds.
GUARANTEE PERIOD -- The number of years that a guaranteed interest rate is
credited.
MARKET VALUE ADJUSTMENT (MVA) -- A positive or negative adjustment assessed if
any portion of a Guarantee Period Account is withdrawn or transferred prior to
the end of its Guarantee Period.
OWNER (YOU, YOUR) -- The person who controls the contract (decides on investment
allocations, transfers, payout options, etc.). Usually, but not always, the
owner is also the annuitant. The owner is responsible for taxes, regardless of
whether he or she receives the contract's benefits.
PURCHASE PAYMENT CREDITS -- An addition we make to your contract value. We base
the amount of the credit on total net payments (total payments less total
withdrawals). We apply the credit to your contract based on your current
payment.
QUALIFIED ANNUITY -- A contract that you purchase to fund one of the following
tax-deferred retirement plans that is subject to applicable federal law and any
rules of the plan itself:
- - Individual Retirement Annuities (IRAs) under Section 408(b) of the Internal
Revenue Code of 1986, as amended (the Code)
- - Roth IRAs under Section 408A of the Code
- - Simplified Employee Pension (SEP) plans under Section 408(k) of the Code
3
<PAGE>
A qualified annuity will not provide any necessary or additional tax deferral if
it is used to fund a retirement plan that is already tax-deferred.
All other contracts are considered NONQUALIFIED ANNUITIES.
RETIREMENT DATE -- The date when annuity payouts are scheduled to begin.
VALUATION DATE -- Any normal business day, Monday through Friday, that the NYSE
is open. Each valuation date ends at the close of business. We calculate the
value of each subaccount at the close of business on each valuation date.
VARIABLE ACCOUNT -- Consists of separate subaccounts to which you may allocate
purchase payments; each invests in shares of one fund. The value of your
investment in each subaccount changes with the performance of the particular
fund.
WITHDRAWAL VALUE -- The amount you are entitled to receive if you make a full
withdrawal from your contract. It is the contract value minus any applicable
charges.
4
<PAGE>
THE CONTRACT IN BRIEF
- ---------------------
PURPOSE: The purpose of the contract is to allow you to
accumulate money for retirement. You do this by
making one or more purchase payments; you may
allocate your purchase payments to the fixed
accounts and/or subaccounts under the contract.
These accounts in turn, may earn returns that
increase the value of the contract. Beginning at a
specified time in the future called the retirement
date, the contract provides lifetime or other
forms of payouts of your contract value (less any
applicable premium tax). As in the case of other
annuities, it may not be advantageous for you to
purchase this contract as a replacement for, or in
addition to, an existing annuity.
A qualified annuity will not provide any necessary
or additional tax deferral if it is used to fund a
retirement plan that is tax-deferred. However, the
contract has features other than tax deferral that
may make it an appropriate investment for your
retirement plan. You should compare these features
and their costs with other investment options
before deciding to purchase this contract.
FREE LOOK PERIOD: You may return your contract to your sales
representative or to our office within the time
stated on the first page of your contract and
receive a full refund of the contract value, less
any purchase payment credits up to the maximum
withdrawal charges. (See "Buying Your Contract -
Purchase payment credits.") However, you bear the
investment risk from the time of purchase until
you return the contract; the refund amount may be
more or less than the payment you made.
(Exception: If the law requires, we will refund
all of your purchase payments.)
ACCOUNTS: Currently, you may allocate your purchase payments
among any or all of:
- the subaccounts, each of which invests in a
fund with a particular investment objective.
The value of each subaccount varies with the
performance of the particular fund in which
it invests. We cannot guarantee that the
value at the retirement date will equal or
exceed the total purchase payments you
allocate to the subaccounts. (p. __)
- the fixed accounts, which earn interest at
rates that we adjust periodically. (p. __)
BUYING YOUR CONTRACT: Your sales representative will help you complete
and submit an application. Applications are
subject to acceptance at our office. You may buy a
nonqualified annuity or a qualified annuity. After
your initial purchase payment, you have the option
of making additional purchase payments in the
future.
- Minimum initial purchase payment (not
including Systematic Investment Plans (SIPs))
-- $5,000 for contracts sold in Pennsylvania,
Texas, Washington and South Carolina; and
$2,000 for contracts sold in other states.
5
<PAGE>
- Minimum additional purchase payment -- $100
($50 for SIPs).
- Maximum total purchase payments (without
prior approval) -- $1,000,000. (p.__ )
TRANSFERS: Subject to certain restrictions you currently may
redistribute your money among the accounts without
charge at any time until annuity payouts begin,
and once per contract year among the subaccounts
after annuity payouts begin. Transfers out of the
Guarantee Period Accounts before the end of the
Guarantee Period will be subject to a MVA. You may
establish automated transfers among the accounts.
Fixed account transfers are subject to special
restrictions. (p. __)
WITHDRAWALS: You may withdraw all or part of your contract
value at any time before the retirement date. You
also may establish automated partial withdrawals.
Withdrawals may be subject to charges and tax
penalties (including a 10% IRS penalty if you make
withdrawals prior to your reaching age 59 1/2) and
may have other tax consequences; also, certain
restrictions apply. (p. __)
CHANGING OWNERSHIP: You may change ownership of a nonqualified annuity
by written instruction, but this may have federal
income tax consequences. Restrictions apply to
changing ownership of a qualified annuity. (p. __)
BENEFITS IN CASE
OF DEATH: If you or the annuitant die before annuity payouts
begin, we will pay the beneficiary an amount at
least equal to the contract value. (p. __)
ANNUITY PAYOUTS: You can apply your contract value to an annuity
payout plan that begins on the retirement date.
You may choose from a variety of plans to make
sure that payouts continue as long as you like. If
you purchased a qualified annuity, the payout
schedule must meet the requirements of the
qualified plan. We can make payouts on a fixed or
variable basis, or both. Total monthly payouts may
include amounts from each subaccount and the
one-year fixed account. During the annuity payout
period, your choices for subaccounts may be
limited. The Guarantee Period Accounts are not
available during the payout period. (p. __)
TAXES: Generally, your contract grows tax-deferred until
you make withdrawals from it or begin to receive
payouts. (Under certain circumstances, IRS penalty
taxes may apply.) Even if you direct payouts to
someone else, you will be taxed on the income if
you are the owner. However, Roth IRAs may grow and
be distributed tax free if you meet certain
distribution requirements. (p. __)
CHARGES: We assess certain charges in connection with your
contract (p. __):
- $40 annual contract administrative charge;
- a 0.15% variable account administrative
charge;
- a 0.85% mortality and expense risk fee
applies (if you allocate money to one or more
subaccounts) for qualified annuities;
6
<PAGE>
- a 1.10% mortality and expense risk fee
applies (if you allocate money to one or more
subaccounts) for nonqualified annuities;
- if you select the Maximum Anniversary Value
Death Benefit Rider*, an additional 0.10%
mortality and expense risk fee applies (if
you allocate money to one or more
subaccounts);
- if you select the Guaranteed Minimum Income
Benefit Rider**, an annual fee based on the
adjusted contract value (currently at 0.30%);
- if you select the Performance Credit Rider**,
an annual fee of 0.15% of the contract value;
- withdrawal charge;
- any premium taxes that may be imposed on us
by state or local governments (currently, we
deduct any applicable premium tax when you
make a total withdrawal or when annuity
payouts begin, but we reserve the right to
deduct this tax at other times such as when
you make purchase payments or when you make a
total withdrawal); and
- the operating expenses of the funds in which
the subaccounts invest.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
EXPENSE SUMMARY
The purpose of the following information is to help you understand the various
costs and expenses associated with your contract.
You pay no sales charge when you purchase your contract. We show all costs that
we deduct directly from your contract or indirectly from the subaccounts and
funds below. Some expenses may vary as we explain under "Charges." Please see
the funds' prospectuses for more information on the operating expenses of each
fund.
CONTRACT OWNER EXPENSES
WITHDRAWAL CHARGE: contingent deferred sales charge as a percentage of
purchase payment withdrawn.
<TABLE>
<CAPTION>
YEARS FROM PURCHASE WITHDRAWAL CHARGE
PAYMENT RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 7
5 6
6 5
7 3
Thereafter 0
</TABLE>
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E - PAYOUTS FOR A SPECIFIED
PERIOD: The amount equal to the difference in the present value of
remaining payments using the assumed investment rate and such present value
using the assumed investment rate plus 1.36% under a qualified annuity and
1.61% under a nonqualified annuity. This withdrawal charge cannot be
greater than 9% of the amount available for payouts under the Plan.
7
<PAGE>
ANNUAL CONTRACT ADMINISTRATIVE CHARGE $40*
* We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
GUARANTEED MINIMUM INCOME BENEFIT RIDER** FEE:
as a percentage of the adjusted contract value
charged annually. This is an optional expense. 0.30%
PERFORMANCE CREDIT RIDER** FEE:
as a percentage of the contract value. 0.15%
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
ANNUAL VARIABLE ACCOUNT EXPENSES (as a percentage of average subaccount value)
You can choose the death benefit guarantee provided. The combination you choose
determines the fees you pay. The table below shows the combinations available to
you and their cost.
<TABLE>
<CAPTION>
- ------------------------------------------------------------- ------------------------- ---------------------------
QUALIFIED ANNUITIES NON-QUALIFIED
ANNUITIES
- ------------------------------------------------------------- ------------------------- ---------------------------
<S> <C> <C>
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE 0.15% 0.15%
- ------------------------------------------------------------- ------------------------- ---------------------------
MORTALITY AND EXPENSE RISK FEE 0.85% 1.10%
- ------------------------------------------------------------- ------------------------- ---------------------------
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE AS
PART OF THE MORTALITY AND EXPENSE RISK FEE (OPTIONAL) 0.10% 0.10%
- ------------------------------------------------------------- ------------------------- ---------------------------
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSES WITHOUT ANY
OPTIONAL RIDER FEES 1.00% 1.25%
- ------------------------------------------------------------- ------------------------- ---------------------------
TOTAL ANNUAL VARIABLE ACCOUNT EXPENSE WITH THE MAXIMUM
ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE 1.10% 1.35%
- ------------------------------------------------------------- ------------------------- ---------------------------
</TABLE>
8
<PAGE>
ANNUAL OPERATING EXPENSES OF THE FUNDS (after fee waivers and/or expense
reimbursements, if applicable, as a percentage of average daily net assets)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT 12b-1 OTHER
FEES FEES EXPENSES TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund .51% .13 .05 .69%(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund .61% .13 .14 .88%(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund .59% .13 .04 .76%(1)
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) .61% .13 .07 .81%(1)
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund .37% .13 -- .50%(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund .79% .13 .31 1.23%(2)
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund .62% -- .11 .73%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund .85% -- .55 1.40%(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund .61% -- .15 .76%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) .63% .25 .09 .97%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 1.00% .25 .04 1.29%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) .71% .25 .24 1.20%(5)
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund .68% -- .33 1.01%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund .80% -- .21 1.01%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund .37% -- .63 1.00%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund .52% -- .44 .96%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund .51% -- .50 1.01%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund .52% -- .32 .84%(6)
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) .57% .10 .40 1.07%(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) .58% .10 .10 .78%(8)
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) .58% .10 .11 .79%(8)
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 .55% .25 .27 1.07%(9,10)
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 .60% .25 .19 1.04%(9,11)
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities Fund - Class 2 1.25% .25 .31 1.81%(9,12)
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - Class 2 .69% .25 .19 1.13%(9,13)
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class .75% .20 .16 1.11%(14,15,16)
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class .90% .20 .17 1.27%(14,15,16)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class .75% .20 .15 1.10%(14,15)
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class IB Shares .46% .15 .04 .65%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities Fund - Class IB Shares 1.08% .15 .33 1.56%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares .65% .15 .10 .90%(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund's expense figures are based on actual expenses for the fiscal year
ended Aug. 31, 1999 restated to include a Rule 12b-1 distribution fee of .125%
that went into effect Sept. 21, 1999.
(2) Based on estimated expenses after fee waivers and expense reimbursements.
Without fee waivers and expense reimbursements "Other Expenses" and "Total"
would be: 0.26% and 1.00% for AXP(SM) Variable Portfolio - Federal Income Fund,
and 0.43% and 1.35% for AXP(SM) Variable Portfolio - Small Cap Advantage Fund.
(3) Figures in "Management Fees," "12b-1 Fees," "Other Expenses" and "Total" are
based on actual expenses for the fiscal year ended Dec. 31, 1999.
(4) Calculated based on estimated net assets.
9
<PAGE>
(5) Figures in "Management Fees," "12b-1 Fees," "Other Expenses," and "Total"
are based on actual expenses for the fiscal period ended Dec. 31, 1999. Absent
fee waivers and expense reimbursements "Management Fees," "12b-1 Fees," "Other
Expenses" and "Total" would be, respectively, 1.00%, 0.25%, 0.27% and 1.52% for
Alliance Technology Portfolio.
(6) Annualized operating expenses for the Evergreen Funds at Dec. 31, 1999,
restated to reflect current fees. If the underlying funds had borne all expenses
that were assumed or waived by the investment advisor, the ratios for
"Management Fees," "Other Expenses," and "Total" respectively would have been as
follows: Evergreen VA Global Leaders Fund: 0.83%, 0.33%, 1.20%; Evergreen VA
Growth and Income Fund: 0.87%, 0.21%, 1.08%; Evergreen VA Masters Fund: 0.87%,
0.63%, 1.50%; Evergreen VA Omega Fund: 0.52%, 0.44%, 0.96%; Evergreen VA Small
Cap Value Fund: 0.87%, 0.50%, 1.37%; and Evergreen VA Strategic Income Fund:
0.52%, 0.32%, 0.84%.
(7) FMR agreed to reimburse a portion of Mid Cap Portfolio's expenses during the
period. Without this reimbursement, the Portfolio's management fee, distribution
& service fee (12b-1), other expenses and total expenses would have been 0.57%,
0.10%, 2.74% and 3.41% respectively.
(8) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, through arrangements with certain funds'
custodians, credits realized as a result of uninvested cash balances were used
to reduce a portion of each applicable funds' expenses. With these reductions,
the "Other Expenses," and "Total" presented in the table would have been 0.07%
and 0.75% for Contrafund(R) Portfolio.
(9) The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus.
(10) On Feb 8, 2000, a merger and reorganization was approved that combined the
assets of the fund with a similar fund of the Templeton Variable products Series
Fund, effective May 1, 2000. On Feb. 8, 2000, fund shareholders approved new
management fees, which apply to the combined fund effective May 1, 2000. The
table shows restated total expenses based on the new fees and assets of the fund
as of Dec. 31, 1999, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's expenses
after May 1, 2000 would be estimated as: "Management Fees" 0.55%, "12b-1 Fees"
0.25%, "Other Expenses" 0.27%, and "Total" 1.07%.
(11) On Feb. 8, 2000 a merger and reorganization was approved that combined the
fund with a similar fund of Templeton Variable Products Series Fund, effective
May 1, 2000. The table shows total expenses based on the fund's assets as of
Dec. 31, 1999, and not the assets of the combined fund. However, if the table
reflected combined assets, the fund's expenses after May 1, 2000 would be
estimated as: "Management Fees" 0.60%, "12b-1 Fees" 0.25%, "Other Expenses"
0.19%, and "Total" 1.04%.
(12) Previously Templeton Developing Markets Fund. On Feb 8, 2000, shareholders
approved a merger and reorganization combined the fund with the Templeton
Developing Markets Equity Fund, effective May 1, 2000. The shareholders of that
fund had approved new management fees, which apply to the combined fund
effective May 1, 2000. The table shows restated total expenses based on the new
fees and assets of the fund as of Dec. 31, 1999, and not the assets of the
combined fund. However, if the table reflected both the new fees and the
combined assets, the fund's expenses after May 1, 2000 would be estimated as:
"Management Fees" 1.25%, "12b-1 Fees" 0.25%, "Other Expenses" 0.29%, and "Total"
1.79%. The fund's class 2 distribution plan or "Rule 12b-1 plan" is described in
the fund's prospectus. While the maximum amount payable under the fund's class 2
Rule 12b-1 plan is 0.35% per year of the fund'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.
(13) Previously Templeton International Fund. Feb 8, 2000, shareholders approved
a merger and reorganization combined the fund with the Templeton International
Equity Fund, effective May 1, 2000. The shareholders of that fund had approved
new management fees, which apply to the combined fund effective May 1, 2000. The
table shows restated total expenses based on the new fees and assets of the fund
as of Dec. 31, 1999, and not the assets of the combined fund. However, if the
table reflected both the new fees and the combined assets, the fund's expenses
after May 1, 2000 would be estimated as: "Management Fees" 0.65%, "12b-1 Fees"
0.25%, "Other Expenses" 0.20%, and "Total" 1.10%
(14) Each Series has adopted a distribution plan under Rule 12b-1 that permits
it to pay marketing and other fees to support the sales and distribution of
service class shares (these fees are referred to as distribution fees).
(15) Each series has an expense offset arrangement which reduces the series'
custodian fee based upon the amount of cash maintained by the series with its
custodian and dividend disbursing agent. The series may enter into other similar
arrangements and directed brokerage arrangements, which would also have the
effect of reducing the series' expenses. "Other Expenses" do not take into
account these expense reductions, and are therefore higher than the actual
expenses of the series. Had these fee reductions been taken into account, Net
Expenses would be lower, and for service class shares would be estimated to be:
1.10% for Growth Series, 1.25% for New Discovery Series and 1.09% for Total
Return Series.
(16) MFS has contractually agreed, subject to reimbursement, to bear expenses
for the series' expenses such that "Other Expenses" (after taking into account
the expense offset arrangement described above), do not exceed 0.15% annually.
Without this agreement, "Other Expenses" and "Total" would be 0.71%and 1.66% for
Growth Series and 1.59% and 2.69% for New Discovery Series. These contractual
fee arrangements will continue until at least May 1, 2001, unless changed with
the consent of the board of trustees which oversees the series.
10
<PAGE>
EXAMPLES: *
You would pay the following expenses on a $1,000 investment if you have a
qualified annuity without any optional riders and assuming a 5% annual return
and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $98.35 $126.80 $18.35 $56.80
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 100.30 132.71 20.30 62.71
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 99.07 128.98 19.07 58.98
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 99.58 130.54 19.58 60.54
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 96.40 120.87 16.40 50.87
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 103.88 143.54 23.88 73.54
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 98.76 128.05 18.76 58.05
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 105.63 148.76 25.63 78.76
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 99.07 128.98 19.07 58.98
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 101.22 135.50 21.22 65.50
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 104.50 145.38 24.50 75.38
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 103.58 142.61 23.58 72.61
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 101.53 136.43 21.53 66.43
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 101.12 135.19 21.12 65.19
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 99.89 131.47 19.89 61.47
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 102.24 138.60 22.24 68.60
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 99.27 129.60 19.27 59.60
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 99.37 129.92 19.37 59.92
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 102.24 138.60 22.24 68.60
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 101.94 137.67 21.94 67.67
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 109.83 161.30 29.83 91.30
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund 102.86 140.45 22.86 70.45
- Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 102.65 139.83 22.65 69.83
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 104.29 144.77 24.29 74.77
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 102.55 139.52 22.55 69.52
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 97.94 125.56 17.94 55.56
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New 107.27 153.67 27.27 83.67
Opportunities Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 100.50 133.33 20.50 63.33
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
qualified annuity with the optional 0.10% Maximum Anniversary Value Death
Benefit Rider, 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $102.45 $139.21 $22.45 $69.21
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 104.40 145.07 24.40 75.07
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 103.17 141.38 23.17 71.38
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 103.68 142.92 23.68 72.92
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 100.50 133.33 20.50 63.33
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 107.98 155.81 27.98 85.81
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 102.86 140.45 22.86 70.45
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 109.73 161.00 29.73 91.00
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 103.17 141.38 23.17 71.38
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 105.32 147.84 25.32 77.84
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 108.60 157.64 28.60 87.64
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 107.68 154.89 27.68 84.89
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 105.63 148.76 25.63 78.76
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 105.22 147.54 25.22 77.54
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 103.99 143.84 23.99 73.84
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 106.34 150.91 26.34 80.91
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 103.37 141.99 23.37 71.99
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 103.47 142.30 23.47 72.30
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 106.34 150.91 26.34 80.91
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 106.04 149.99 26.04 79.99
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 113.93 173.43 33.93 103.43
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 106.96 152.75 26.96 82.75
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 106.75 152.14 26.75 82.14
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 108.39 157.03 28.39 87.03
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 106.65 151.83 26.65 81.83
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 102.04 137.98 22.04 67.98
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 111.37 165.86 31.37 95.86
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 104.60 145.69 24.60 75.69
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
nonqualified annuity without any optional riders and assuming a 5% annual return
and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $100.91 $134.57 $20.91 $64.57
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 102.86 140.45 22.86 70.45
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 102.14 138.29 22.14 68.29
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 98.96 128.67 18.96 58.67
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 106.45 151.22 26.45 81.22
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 101.32 135.81 21.32 65.81
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 108.19 156.42 28.19 86.42
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 101.63 136.74 21.63 66.74
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 103.78 143.23 23.78 73.23
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 107.06 153.06 27.06 83.06
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 106.14 150.30 26.14 80.30
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 104.09 144.15 24.09 74.15
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 103.68 142.92 23.68 72.92
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 104.19 144.46 24.19 74.46
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 102.45 139.21 22.45 69.21
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 104.81 146.31 24.81 76.31
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 101.83 137.36 21.83 67.36
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 101.94 137.67 21.94 67.67
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 104.81 146.31 24.81 76.31
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 104.50 145.38 24.50 75.38
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 112.39 168.89 32.39 98.89
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 105.42 148.15 25.42 78.15
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 105.22 147.54 25.22 77.54
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 106.86 152.44 26.86 82.44
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 105.11 147.23 25.11 77.23
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 100.50 133.33 20.50 63.33
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 109.83 161.30 29.83 91.30
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 103.06 141.07 23.06 71.07
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE>
You would pay the following expenses on a $1,000 investment if you have a
nonqualified annuity with the optional 0.10% Maximum Anniversary Value Death
Benefit Rider, 0.30% Guaranteed Minimum Income Benefit Rider and assuming a 5%
annual return and....
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
A TOTAL WITHDRAWAL AT THE NO WITHDRAWAL OR SELECTION OF AN ANNUITY
END OF EACH TIME PERIOD PAYOUT PLAN AT THE END OF EACH TIME PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
1 YEAR 3 YEARS 1 YEAR 3 YEARS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AXP(SM) VARIABLE PORTFOLIO -
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Management Fund $105.01 $146.92 $25.01 $76.92
- ------------------------------------------------------------------------------------------------------------------------------------
Federal Income Fund 106.96 152.75 26.96 82.75
- ------------------------------------------------------------------------------------------------------------------------------------
Managed Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
New Dimensions Fund(R) 106.24 150.61 26.24 80.61
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index Fund 103.06 141.07 23.06 71.07
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Advantage Fund 110.55 163.43 30.55 93.43
- ------------------------------------------------------------------------------------------------------------------------------------
AIM V.I.
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Appreciation Fund 105.42 148.15 25.42 78.15
- ------------------------------------------------------------------------------------------------------------------------------------
Dent Demographic Trends Fund 112.29 168.59 32.29 98.59
- ------------------------------------------------------------------------------------------------------------------------------------
Value Fund 105.73 149.07 25.73 79.07
- ------------------------------------------------------------------------------------------------------------------------------------
ALLIANCE VP
- ------------------------------------------------------------------------------------------------------------------------------------
Growth & Income Portfolio (Class B) 107.88 155.50 27.88 85.50
- ------------------------------------------------------------------------------------------------------------------------------------
Premier Growth Portfolio (Class B) 111.16 165.25 31.16 95.25
- ------------------------------------------------------------------------------------------------------------------------------------
Technology Portfolio (Class B) 110.24 162.52 30.24 92.52
- ------------------------------------------------------------------------------------------------------------------------------------
EVERGREEN VA
- ------------------------------------------------------------------------------------------------------------------------------------
Global Leaders Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Growth and Income Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Masters Fund 108.19 156.42 28.19 86.42
- ------------------------------------------------------------------------------------------------------------------------------------
Omega Fund 107.78 155.20 27.78 85.20
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 108.29 156.73 28.29 86.73
- ------------------------------------------------------------------------------------------------------------------------------------
Strategic Income Fund 106.55 151.52 26.55 81.52
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP
- ------------------------------------------------------------------------------------------------------------------------------------
III Mid Cap Portfolio (Service Class) 108.91 158.56 28.91 88.56
- ------------------------------------------------------------------------------------------------------------------------------------
Contrafund(R) Portfolio (Service Class) 105.93 149.68 25.93 79.68
- ------------------------------------------------------------------------------------------------------------------------------------
High Income Portfolio (Service Class) 106.04 149.99 26.04 79.99
- ------------------------------------------------------------------------------------------------------------------------------------
FTVIPT
- ------------------------------------------------------------------------------------------------------------------------------------
Franklin Small Cap Fund - Class 2 108.91 158.56 28.91 88.56
- ------------------------------------------------------------------------------------------------------------------------------------
Mutual Shares Securities Fund - Class 2 108.60 157.64 28.60 87.64
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Securities 116.49 180.96 36.49 110.96
Fund - Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
Templeton International Securities Fund - 109.52 160.39 29.52 90.39
Class 2
- ------------------------------------------------------------------------------------------------------------------------------------
MFS(R) VIT
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Series - Service Class 109.32 159.78 29.32 89.78
- ------------------------------------------------------------------------------------------------------------------------------------
New Discovery Series - Service Class 110.96 164.64 30.96 94.64
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return Series - Service Class 109.21 159.47 29.21 89.47
- ------------------------------------------------------------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Growth and Income Fund - Class 104.60 145.69 24.60 75.69
IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT International New Opportunities 113.93 173.43 33.93 103.43
Fund - Class IB Shares
- ------------------------------------------------------------------------------------------------------------------------------------
Putnam VT Vista Fund - Class IB Shares 107.16 153.36 27.16 83.36
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*In these examples, the $40 contract administrative charge is approximated as a
0.100% charge based on our estimated average contract size. Premium taxes
imposed by some state and local governments are not reflected in these examples.
We entered into
14
<PAGE>
certain arrangements under which we are compensated by the funds' advisors
and/or distributors for the administrative services we provide to the funds.
YOU SHOULD NOT CONSIDER THESE EXAMPLES AS REPRESENTATIONS OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION (UNAUDITED)
The following tables give per-unit information about the financial history for
each subaccount. We have not provided this information for some of the
subaccounts because they are new and do not have any history.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
1999
<S> <C>
SUBACCOUNT PCMG1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- CASH
MANAGEMENT FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.01
at end of period
Number of accumulation 260
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
Simple yield(3) 4.62%
Compound yield(3) 4.73%
SUBACCOUNT PMGD1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO --
MANAGED FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.08
at end of period
Number of accumulation 259
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PNDM1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- NEW
DIMENSIONS FUND(R))
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.15
at end of period
Number of accumulation 257
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PSCA1(1) (INVESTING IN SHARES OF AXP(SM) VARIABLE PORTFOLIO -- SMALL
CAP ADVANTAGE FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.11
at end of period
Number of accumulation 254
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PCAP1(2) (INVESTING IN SHARES OF AIM V.I. CAPITAL APPRECIATION FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.26
at end of period
Number of accumulation 251
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PVAL1(2) (INVESTING IN SHARES OF AIM V.I. VALUE FUND)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.11
at end of period
Number of accumulation 258
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PMDC1(2) (INVESTING IN SHARES OF FIDELITY VIP III MID CAP PORTFOLIO -
SERVICE CLASS)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.24
at end of period
Number of accumulation 188
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PSMC1(2) (INVESTING IN SHARES OF FTVIPT FRANKLIN SMALL CAP FUND -
CLASS 2)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.43
at end of period
Number of accumulation 243
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PMSS1(2) (INVESTING IN SHARES OF FTVIPT MUTUAL SHARES SECURITIES
FUND - CLASS 2)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.03
at end of period
Number of accumulation 260
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PNDS1(2) (INVESTING IN SHARES OF MFS(R) VIT NEW DISCOVERY SERIES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.43
at end of period
Number of accumulation 238
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
SUBACCOUNT PTRS1(2) (INVESTING IN SHARES OF MFS(R) VIT TOTAL RETURN SERIES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $1.00
at end of period
Number of accumulation 259
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
SUBACCOUNT PGIN1(2) (INVESTING IN SHARES OF PUTNAM VT GROWTH AND INCOME FUND -
CLASS IB SHARES)
Accumulation unit $1.00
value at beginning
of period
Accumulation unit value $0.97
at end of period
Number of accumulation 262
units outstanding at end
of period
Ratio of operating 1.25%
expense to average
net assets
</TABLE>
(1) Operations commenced on Nov. 10, 1999.
(2) Operations commenced on Nov. 9, 1999.
FINANCIAL STATEMENTS
You can find the audited financial statements of the subaccounts with financial
history in the SAI. The SAI does not include the audited financial statements
for some of the subaccounts because they are new and do not have any assets. You
can find our audited financial statements later in this prospectus.
PERFORMANCE INFORMATION
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. We show actual performance from the date the subaccounts began investing
in the funds. Currently, we do not provide any performance information 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.
We include non-recurring charges (such as withdrawal charges) in total return
figures, but not in yield quotations. Excluding non-recurring charges in yield
calculations increases the reported value.
Total return figures do not reflect any purchase payment credits or performance
credits.
Total return figures reflect deduction of all applicable charges, including the:
- - contract administrative charge,
- - variable account administrative charge,
- - Maximum Anniversary Value Death Benefit Rider* fee,
- - Guaranteed Minimum Income Benefit Rider** fee,
- - Performance Credit Rider** fee,
- - mortality and expense risk fee, and
- - withdrawal charge (assuming a withdrawal at the end of the illustrated
period).
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
19
<PAGE>
We also show optional total return quotations that do not reflect deduction of
the withdrawal charge (assuming no withdrawal) and the Guaranteed Minimum Income
Benefit Rider fee. We may show total return quotations by means of schedules,
charts or graphs.
AVERAGE ANNUAL TOTAL RETURN is the average annual compounded rate of return of
the investment over a period of one, five and ten years (or up to the life of
the subaccount if it is less than ten years old).
CUMULATIVE TOTAL RETURN is the cumulative change in the value of an investment
over a specified time period. We assume that income earned by the investment is
reinvested. Cumulative total return generally will be higher than average annual
total return.
ANNUALIZED SIMPLE YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS)
"annualizes" the income generated by the investment over a given seven-day
period. That is, we assume the amount of income generated by the investment
during the period will be generated each seven-day period for a year. We show
this as a percentage of the investment.
ANNUALIZED COMPOUND YIELD (FOR SUBACCOUNTS INVESTING IN MONEY MARKET FUNDS) is
calculated like simple yield except that we assume the income is reinvested when
we annualize it. Compound yield will be higher than simple yield because of the
compounding effect of the assumed reinvestment.
ANNUALIZED YIELD (FOR SUBACCOUNTS INVESTING IN INCOME FUNDS) divides the net
investment income (income less expenses) for each accumulation unit during a
given 30-day period by the value of the unit on the last day of the period. We
then convert the result to an annual percentage.
You should consider performance information in light of the investment
objectives, policies, characteristics and quality of the fund in which the
subaccount invests and the market conditions during the specified time period.
Advertised yields and total return figures include charges that reduce
advertised performance. Therefore, you should not compare subaccount performance
to that of mutual funds that sell their shares directly to the public. (See the
SAI for a further description of methods used to determine total return and
yield.)
If you would like additional information about actual performance, please
contact us at the address or telephone number on the first page of this
prospectus.
THE VARIABLE ACCOUNT AND THE FUNDS
You may allocate payments to any or all the subaccounts of the variable account
that invest in shares of the following funds:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Subaccount Investing In Investment Objectives and Policies Investment Advisor or Manager
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
UCMG1 AXP(SM) Variable Objective: maximum current income consistent with IDS Life Insurance Company (IDS
UCMG2 Portfolio- Cash liquidity and conservation of capital. Invests in money Life), investment manager;
UCMG4 Management Fund market securities. American Express Financial
PCMG1 Corporation (AEFC) investment
advisor.
- ---------------------------------------------------------------------------------------------------------------------------------
UFIF1 AXP(SM) Variable Objective: a high level of current income and safety of IDS Life, investment manager;
UFIF2 Portfolio- Federal principal consistent with an investment in U.S. AEFC, investment advisor.
UFIF3 Income Fund government and government agency securities. Invests
UFIF4 primarily in debt obligations issued or guaranteed as
to principal and interest by the U.S. government, its
agencies or instrumentalities.
- ---------------------------------------------------------------------------------------------------------------------------------
UMGD1 AXP(SM) Variable Objective: maximum total investment return through a IDS Life, investment manager;
UMGD2 Portfolio- Managed Fund combination of capital growth and current income. AEFC, investment advisor.
UMGD4 Invests primarily in a combination of common and
PMGD1 preferred stocks, convertible securities, bonds and
other debt securities.
- ---------------------------------------------------------------------------------------------------------------------------------
UNDM1 AXP(SM) Variable Objective: long-term growth of capital. Invests IDS Life, investment manager;
UNDM2 Portfolio- New primarily in common stocks of U.S. and foreign AEFC, investment advisor.
UNDM4 Dimensions Fund(R) companies showing potential for significant growth.
PNDM1
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
USPF1 AXP(SM) Variable Objective: long-term capital appreciation. Invests IDS Life, investment manager;
USPF2 Portfolio- primarily in securities that are expected to provide AEFC investment advisor.
USPF3 S&P 500 Index Fund investment results that correspond to the performance
USPF4 of the S&P 500 Index.
- ---------------------------------------------------------------------------------------------------------------------------------
USCA1 AXP(SM) Variable Objective: long-term capital growth. Invests primarily IDS Life, investment manager;
USCA2 Portfolio- in equity securities of small companies that are often AEFC, investment advisor.
USCA4 Small Cap included in the S&P SmallCap 600 Index or the Russell
PSCA1 Advantage Fund 2000 Index.
- ---------------------------------------------------------------------------------------------------------------------------------
UCAP1 AIM V.I. Capital Objective: growth of capital. Invests primarily in A I M Advisors, Inc.
UCAP2 Appreciation Fund common stocks, with emphasis on medium- or small-sized
UCAP4 growth companies.
PCAP1
- ---------------------------------------------------------------------------------------------------------------------------------
UDDT1 AIM V.I. Dent Objective: long term growth of capital. Seeks to meet A I M Advisors, Inc.
UDDT2 Demographic Trends Fund its objective by investing in securities of companies
UDDT3 that are likely to benefit from changing demographic,
UDDT4 economic, and lifestyle trends.
- ---------------------------------------------------------------------------------------------------------------------------------
UVAL1 AIM V.I. Value Fund Objective: long-term growth of capital with income as a A I M Advisors, Inc.
UVAL2 secondary objective. Invests primarily in equity
UVAL4 securities judged to be undervalued relative to the
PVAL1 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.
- ---------------------------------------------------------------------------------------------------------------------------------
UGIP1 Alliance VP Growth & Objective: reasonable current income and reasonable Alliance Capital Management.
UGIP2 Income Portfolio appreciation. Invests primarily in dividend-paying L.P.
UGIP3 (Class B) common stocks of good quality.
UGIP4
- ---------------------------------------------------------------------------------------------------------------------------------
UPRG1 Alliance VP Premier Objective: long-term growth of capital by pursuing Alliance Capital Management.
UPRG2 Growth Portfolio aggresive investment policies. Invests primarily in L.P.
UPRG3 (Class B) equity securities of a limited number of large,
UPRG4 carefully selected, high-quality U.S. companies that
are judged likely to achieve superior earnings growth.
- ---------------------------------------------------------------------------------------------------------------------------------
UTEC1 Alliance VP Technology Objective: growth of capital. Current income is only an Alliance Capital Management.
UTEC2 Portfolio (Class B) incidental consideration. Invests primarily in L.P.
UTEC3 securities of companies expected to benefit from
UTEC4 technological advances and improvements.
- ---------------------------------------------------------------------------------------------------------------------------------
UEGL1 Evergreen VA Global Objective: long-term capital growth. Invests primarily Evergreen Asset Management
UEGL2 Leaders Fund in a diversified portfolio of equity securities of Corp. (EAMC)
UEGL3 companies located in the world's major industrialized
UEGL4 countries. The Fund will make investments in no less
than three countries, which may include the U.S., but
may invest more than 25% of its total assets in one
country.
- ---------------------------------------------------------------------------------------------------------------------------------
UEGI1 Evergreen VA Growth and Objective: capital growth and current income. Invests EAMC
UEGI2 Income Fund primarily in common stocks of mid-sized U.S. companies.
UEGI3 The Fund's stock selection is based on a diversified
UEGI4 style of equity that allows it to invest in both growth
and value equity securities and which have a catalyst
(new products, new management, changes in regulation
and/or restructuring potential) that will bring the
stock's price into line with its actual or potential
value.
- ---------------------------------------------------------------------------------------------------------------------------------
UEMS1 Evergreen VA Masters Objective: long-term capital appreciation. The Evergreen Investment
UEMS2 Fund portfolio's assets are invested on an approximately Management, investment advisor;
UEMS3 equal basis among the following four styles, each EAMC, MFS Institutional
UEMS4 implemented by a different sub-investment advisor: 1) Advisors Inc.,
equity securities of U.S. and foreign companies that OppenheimerFunds, Inc. and
are temporarily undervalued; 2) equity securities Putnam Investment Management,
expected to show growth above that of the overall Inc. sub-investment advisors.
economy and inflation; 3) blended growth and
value-oriented strategy focusing on foreign and
domestic large-cap equity securities; and 4) growth
oriented strategy focusing on large-cap equity
securities of U.S. and foreign issuers.
- ---------------------------------------------------------------------------------------------------------------------------------
UEOM1 Evergreen VA Omega Fund Objective: long-term capital growth. Invests primarily Evergreen Investment Management
UEOM2 in common stocks of U.S. companies across all market Company (EIMC)
UEOM3 capitalizations.
UEOM4
- ---------------------------------------------------------------------------------------------------------------------------------
UESC1 Evergreen VA Small Cap Objective: current income and capital growth. Invests EAMC
UESC2 Value Fund primarily in common stocks and convertible preferred
UESC3 stocks of small companies (less than $1.5 billion in
UESC4 market capitalization).
- ---------------------------------------------------------------------------------------------------------------------------------
UESI1 Evergreen VA Strategic Objective: high current income from interest on debt EIMC
UESI2 Income Fund securities with a secondary objective of potential for
UESI3 growth of capital. Invests primarily in domestic
UESI4 high-yield, high-risk bonds and debt securities of
foreign governments and corporations.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
<TABLE>
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
UMDC1 Fidelity VIP III Mid Objective: long-term growth of capital. Invests FMR investment manager; FMR
UMDC2 Cap Portfolio (Service primarily in medium market capitalization common stocks. U.K. and FMR Far East,
UMDC4 Class) sub-investment advisors.
PMDC1
- ---------------------------------------------------------------------------------------------------------------------------------
UCOF1 Fidelity VIP Objective: long-term capital appreciation. Invests FMR Investment manager; FMR
UCOF2 Contrafund(R) Portfolio primarily in common stocks of foreign and domestic U.K. and FMR Far East,
UCOF3 (Service Class) companies whose value is not fully recognized by the sub-investment advisors.
UCOF4 public.
- ---------------------------------------------------------------------------------------------------------------------------------
UHIP1 Fidelity VIP High Objective: high level of current income while also FMR Investment manager; FMR
UHIP2 Income Portfolio considering growth of capital. Invests primarily in U.K. and FMR Far East,
UHIP3 (Service Class) foreign and domestic issued income-producing debt sub-investment advisors.
UHIP4 securities, preferred stocks and convertible
securities, with an emphasis on lower-quality debt
securities. Invests in companies in troubled or
uncertain financial condition.
- ---------------------------------------------------------------------------------------------------------------------------------
USMC1 FTVIPT Franklin Small Objective: long-term capital growth. Invests primarily Franklin Advisers, Inc.
USMC2 Cap Fund - Class 2 in equity securities of U.S. small capitalization
USMC4 (small cap) growth companies.
PSMC1
- ---------------------------------------------------------------------------------------------------------------------------------
UMSS1 FTVIPT Mutual Shares Objective: capital appreciation with income as a Franklin Mutual Advisers, LLC
UMSS2 Securities Fund - secondary goal. Invests primarily in equity securities
UMSS4 Class 2 of companies that the manager believes are available at
PMSS1 market prices less than their value based on certain
recognized or objective criteria (intrinsic value).
- ---------------------------------------------------------------------------------------------------------------------------------
UDMS1 FTVIPT Templeton Objective: long-term capital appreciation. Invests Templeton Asset Management Ltd.
UDMS2 Developing Markets Fund primarily in emerging markets equity securities.
UDMS3 - Class 2 (previously
UDMS4 Templeton Developing
Markets Fund)
- ---------------------------------------------------------------------------------------------------------------------------------
UINT1 FTVIPT Templeton Objective: long-term capital growth. Invests primarily Templeton Investment Counsel,
UINT2 International in equity securities of non-U.S. companies, including Inc.
UINT3 Securities Fund emerging markets.
UINT4 (Class 2)
(previously Templeton
International Fund)
- ---------------------------------------------------------------------------------------------------------------------------------
UGRS1 MFS(R) VIT Growth Objective: long-term growth of capital and future MFS Investment Management(R)
UGRS2 Series - Service Class income. Invests at least 80% of its total assets in
UGRS3 common stocks and related securities of companies which
UGRS4 MFS believes offer better than average prospects for
long-term growth.
- ---------------------------------------------------------------------------------------------------------------------------------
UNDS1 MFS(R) VIT New Objective: capital appreciation. Invests primarily in MFS Investment Management(R)
UNDS2 Discovery Series - equity securities of emerging growth companies.
UNDS4 Service Class
PNDS1
- ---------------------------------------------------------------------------------------------------------------------------------
UTRS1 MFS(R) VIT New Total Objective: above-average income (compared to a MFS Investment Management(R)
UTRS2 Return Series - Service portfolio invested entirely in equity securities)
UTRS4 Class consistent with the prudent employment of capital, and
PTRS1 secondarily reasonable opportunity for growth of
capital and income. Invests primarily in a combination
of equity and fixed income securities.
- ---------------------------------------------------------------------------------------------------------------------------------
UGIN1 Putnam VT Growth and Objective: capital growth and current income. Invests Putnam Investment Management,
UGIN2 Income Fund - Class IB primarily in common stocks that offer potential of Inc.
UGIN4 Shares capital growth, current income or both.
PGIN1
- ---------------------------------------------------------------------------------------------------------------------------------
UINO1 Putnam VT International Objective: long-term capital appreciation by investing Putnam Investment Management,
UINO2 New Opportunities Fund in companies that have above-average growth prospects Inc.
UINO3 - Class IB Shares due to the fundamental growth of their market sector.
UINO4 Invests primarily in growth stocks outside the U.S.
- ---------------------------------------------------------------------------------------------------------------------------------
UVIS1 Putnam VT Vista Fund - Objective: capital appreciation. Invests primarily in a Putnam Investment Management,
UVIS2 Class IB Shares diversified portfolio of common stocks that Putnam Inc.
UVIS3 Management believes have the potential for
UVIS4 above-average capital appreciation.
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The investment objectives and policies of some of the funds are similar to the
investment objectives and policies of other mutual funds that an 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, and those
results may differ significantly from other funds with similar investment
objectives and policies.
22
<PAGE>
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 also 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
annuities. Some funds also are available to serve as investment options for
variable life insurance policies and tax-deferred retirement plans. It is
possible that in the future, it may be disadvantageous for variable annuity
accounts and variable life insurance accounts and/or tax-deferred retirement
plans to invest in the available funds simultaneously.
Although the insurance company and the funds do not currently foresee any such
disadvantages, the board of directors will monitor events in order to identify
any material conflicts between annuity owners, policy owners and tax-deferred
retirement 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
tax-deferred retirement plan accounts, you would not bear any expenses
associated with establishing separate funds. Please refer to the funds'
prospectuses for risk disclosure regarding simultaneous investments by variable
annuity, variable life insurance and tax-deferred retirement plan accounts.
The Internal Revenue Service (IRS) issued final regulations relating to the
diversification requirements under Section 817(h) of the Code. Each fund intends
to comply with these requirements.
The variable account was established under Indiana law on July 15, 1987, and the
subaccounts are registered together as a single unit investment trust under the
Investment Company Act of 1940 (the 1940 Act). This registration does not
involve any supervision of our management or investment practices and policies
by the SEC. All obligations arising under the contracts are general obligations
of American Enterprise Life.
The variable account meets the definition of a separate account under federal
securities laws. We credit or charge income, capital gains and capital losses of
each subaccount only to that subaccount. State insurance law prohibits us from
charging a subaccount with liabilities of any other subaccount or of our general
business. The variable account includes other subaccounts that are available
under contracts that are not described in this prospectus.
The U.S. Treasury and the IRS indicated that they may provide additional
guidance on investment control. This concerns how many variable subaccounts an
insurance company may offer and how many exchanges among subaccounts it may
allow before the contract owner would be currently taxed on income earned within
subaccount assets. At this time, we do not know what the additional guidance
will be or when action will be taken. We reserve the right to modify the
contract, as necessary, so that the owner will not be subject to current
taxation as the owner of the subaccount assets.
We intend to comply with all federal tax laws so that the contract continues to
qualify as an annuity for federal income tax purposes. We reserve the right to
modify the contract as necessary to comply with any new tax laws.
THE FIXED ACCOUNTS
GUARANTEE PERIOD ACCOUNTS
You may allocate purchase payments to one or more of the Guarantee Period
Accounts with Guarantee Periods ranging from two to ten years. These accounts
are not available in all states and are not offered after annuity payouts begin.
Each Guarantee Period Account pays an interest rate that is declared when you
allocate money to that account. That interest rate is then fixed for the
Guarantee Period that you chose. We will periodically change the declared
interest rate for any future allocations to these accounts, but we will not
change the rate paid on money currently in a Guarantee Period Account.
23
<PAGE>
The interest rates that we will declare as guaranteed rates in the future are
determined by us at our discretion. We will determine these rates based on
various factors, including, but not limited to, the interest rate environment,
returns available on investments backing these annuities, product design,
competition and American Enterprise Life's revenues and other expenses.
You may transfer money out of the Guarantee Period Accounts within 30 days
before the end of the Guarantee Period without receiving a MVA (see "Market
Value Adjustment (MVA)" below.) At that time you may choose to start a new
Guarantee Period of the same length, transfer the money to another Guarantee
Period Account, transfer the money to any of the subaccounts, or withdraw the
money from the contract (subject to applicable withdrawal provisions). If we do
not receive any instructions at the end of your Guarantee Period, we will
automatically transfer the money into the one-year fixed account.
We hold amounts you allocate to the Guarantee Period Accounts in a "nonunitized"
separate account we have established under the Indiana Insurance Code. This
separate account provides an additional measure of assurance that we will make
full payment of amounts due under the Guarantee Period Accounts. State insurance
law prohibits us from charging this separate account with liabilities of any
other separate account or of our general business. We own the assets of this
separate account as well as any favorable investment performance of those
assets. You do not participate in the performance of the assets held in this
separate account. We guarantee all benefits relating to your value in the
Guarantee Period Accounts.
We intend to construct and manage the investment portfolio relating to the
separate account using a strategy known as "immunization." Immunization seeks to
lock in a defined return on the pool of assets versus the pool of liabilities
over a specified time horizon. Since the return on the assets versus the
liabilities is locked in, it is "immune" to any potential fluctuations in
interest rates during the given time. We achieve immunization by constructing a
portfolio of assets with a price sensitivity to interest rate changes (i.e.,
price duration) that is essentially equal to the price duration of the
corresponding portfolio of liabilities. Portfolio immunization provides us with
flexibility and efficiency in creating and managing the asset portfolio, while
still assuring safety and soundness for funding liability obligations.
We must invest this portfolio of assets in accordance with requirements
established by applicable state laws regarding the nature and quality of
investments that life insurance companies may make and the percentage of their
assets that they may commit to any particular type of investment. Our investment
strategy will incorporate the use of a variety of debt instruments having price
durations tending to match the applicable Guarantee Periods. These instruments
include, but are not necessarily limited to, the following:
- - Securities issued by the U.S. government or its agencies or
instrumentalities, which issues may or may not be guaranteed by the U.S.
government;
- - Debt securities that have an investment grade, at the time of purchase,
within the four highest grades assigned by any of three nationally
recognized rating agencies - Standard & Poor's, Moody's Investors Service
or Duff and Phelp's - or are rated in the two highest grades by the
National Association of Insurance Commissioners;
- - Other debt instruments which are unrated or rated below investment grade,
limited to 10% of assets at the time of purchase; and
- - Real estate mortgages, limited to 45% of portfolio assets at the time of
acquisition.
In addition, options and futures contracts on fixed income securities will be
used from time to time to achieve and maintain appropriate investment and
liquidity characteristics on the overall asset portfolio.
While this information generally describes our investment strategy, we are not
obligated to follow any particular strategy except as may be required by federal
law and Indiana and other state insurance laws.
MARKET VALUE ADJUSTMENT (MVA)
You may choose to transfer money out of the Guarantee Period Accounts at anytime
after 60 days of transfer or payment allocation into the Account. Any amount
transferred or withdrawn will receive a MVA
24
<PAGE>
which will increase or decrease the actual amount transferred or withdrawn. We
calculate the MVA using the formula shown below and we base it on the current
level of interest rates compared to the rate of your Guarantee Period Account.
Amount transferred x ( l + i ) n/12
--------------------
( l + j + .001 )
Where: i = rate earned in the account from which funds
are being transferred
j = current rate for a new Guarantee Period equal
to the remaining term in the current Guarantee
Period
n = number of months remaining in the current
Guarantee Period (rounded up)
We will not make MVAs for amounts withdrawn for withdrawal charges, the annual
contract administrative charge or paid out as a death claim. We also will not
make MVAs on automatic transfers from the two year Guarantee Period Account. We
determine any applicable withdrawal charges based on the market value adjusted
withdrawals. In some states the MVA is limited.
THE ONE-YEAR FIXED ACCOUNT
You may also allocate purchase payments to the one-year fixed account. We back
the principal and interest guarantees relating to the one-year fixed account.
The value of the one-year fixed account increases as we credit interest to the
account. Purchase payments and transfers to the one-year fixed account become
part of our general account. We credit interest daily and compound it annually.
We will change the interest rates from time to time at our discretion. These
rates will be based on various factors including, but not limited to, the
interest rate environment, returns earned on investments backing annuities, the
interest rates currently in effect for new and existing company annuities,
product design, competition, and the company's revenues and expenses.
Interest in the one-year fixed account is not required to be registered with the
SEC. However, the Market Value Adjustment interests under the contracts are
registered with the SEC. The SEC staff does not review the disclosures in this
prospectus on the one-year fixed account (but the SEC does review the
disclosures in this prospectus on the Market Value Adjustment interests).
Disclosures regarding the one-year fixed account, however, may be subject to
certain generally applicable provisions of the federal securities laws relating
to the accuracy and completeness of statements made in prospectuses. (See
"Making the Most of Your Contract -- Transfer policies" for restrictions on
transfers involving the one-year fixed account.)
BUYING YOUR CONTRACT
You can fill out an application and send it along with your initial purchase
payment to our office. As the owner, you have all rights and may receive all
benefits under the contract. You can own a nonqualified annuity in joint tenancy
with rights of survivorship only in spousal situations. You cannot own a
qualified annuity in joint tenancy. You can buy a contract or become an
annuitant if you are 85 or younger. (The age limit may be younger for qualified
annuities in some states.)
When you apply, you may select (if available in your state):
- - the optional Maximum Anniversary Value Death Benefit Rider*;
- - an optional Guaranteed Minimum Income Benefit Rider**;
- - the optional Performance Credit Rider**
- - the one-year fixed account, Guarantee Period Accounts and/or subaccounts in
which you want to invest;
- - how you want to make purchase payments; and
- - a beneficiary.
* Available if both you and the annuitant are age 79 or younger. May not be
available in all states.
** You may select either the Guarantee Minimum Income Benefit Rider or the
Performance Credit Rider, but not both. Riders may not be available in all
states. The Guaranteed Minimum Income Benefit Rider is available if the
annuitant is age 75 or younger.
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<PAGE>
The contract provides for allocation of purchase payments to the subaccounts of
the variable account and/or to the fixed accounts in even 1% increments.
If your application is complete, we will process it and apply your purchase
payment to the fixed accounts and subaccounts you selected within two business
days after we receive it at our office. If we accept your application, we will
send you a contract. If we cannot accept your application within five business
days, we will decline it and return your payment. We will credit additional
purchase payments you make to your accounts on the valuation date we receive
them. We will value the additional payments at the next accumulation unit value
calculated after we receive your payments at our office.
You may make monthly payments to your contract under a Systematic Investment
Plan (SIP). To begin the SIP, you will complete and send a form and your first
SIP payment along with your application. There is no charge for SIP. You can
stop your SIP payments at any time.
In most states, you may make additional purchase payments to nonqualified and
qualified annuities until the retirement date.
THE RETIREMENT DATE
Annuity payouts are scheduled to begin on the retirement date. When we process
your application, we will establish the retirement date to the maximum age or
date described below. You can also select a date within the maximum limits. You
can align this date with your actual retirement from a job, or it can be a
different future date, depending on your needs and goals and on certain
restrictions. You also can change the date, provided you send us written
instructions at least 30 days before annuity payouts begin.
FOR NONQUALIFIED ANNUITIES AND ROTH IRAS, the retirement date must be:
- - no earlier than the 60th day after the contract's effective date; and
- - no later than the annuitant's 85th birthday or the tenth contract
anniversary, if purchased after age 75.
FOR QUALIFIED ANNUITIES (EXCEPT ROTH IRAS), to avoid IRS penalty taxes, the
retirement date generally must be:
- - on or after the date the annuitant reaches age 59 1/2; and
- - for IRAs and SEPs, by April 1 of the year following the calendar year when
the annuitant reaches age 70 1/2.
If you take the minimum IRA distribution as required by the Code from another
tax-qualified investment, or in the form of partial withdrawals from this
contract, annuity payouts can start as late as the annuitant's 85th birthday or
the tenth contract anniversary, if later.
BENEFICIARY
We will pay your named beneficiary the death benefit if it becomes payable
before the retirement date (while the contract is in force and before annuity
payouts begin). If there is no named beneficiary, then you or your estate will
be the beneficiary. (See "Benefits in Case of Death" for more about
beneficiaries.)
PURCHASE PAYMENTS
MINIMUM INITIAL PURCHASE PAYMENT (NOT
INCLUDING SIPS):
$5,000 for contracts sold in Pennsylvania,
Texas, Washington and South Carolina
$2,000 for contracts sold in other states
MINIMUM ADDITIONAL PURCHASE PAYMENTS:
If paying by SIP*: If paying by any other method:
$50 $100
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* Payments made using SIP must total $2,000 before you can make partial
withdrawals.
MAXIMUM TOTAL ALLOWABLE PURCHASE PAYMENTS** (WITHOUT PRIOR
APPROVAL): $1,000,000
** This limit applies in total to all American Enterprise Life annuities
you own. We reserve the right to increase the maximum limit. For qualified
annuities, the tax-deferred retirement plan's limits on annual
contributions also apply.
HOW TO MAKE PURCHASE PAYMENTS
1
BY LETTER: Send your check along with your name and contract number to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
2
BY SIP: Contact your sales representative to complete the necessary
SIP paperwork.
PURCHASE PAYMENT CREDITS
You will generally receive a purchase payment credit with any payment you make
to your contract that brings your total net payment (total payments less total
withdrawals) to $100,000 or more.
We apply this 1% credit to your contract based on your current payment. If you
make any future payments which cause the contract to be eligible for the credit,
we will add credits attributable to purchase payments. We apply this credit
immediately. We allocate the credit to the fixed accounts and subaccounts in the
same proportions as your purchase payment.
We fund the credit from our general account. We do not consider credits to be
"investments" for income tax purposes. (See "Taxes.")
We will reverse credits from the contract value for any purchase payment that is
not honored (if, for example, your purchase payment check is returned for
insufficient funds).
To the extent a death benefit or withdrawal payment includes purchase payment
credits applied within twelve months preceding: (1) the date of death that
results in a lump sum death benefit under this contract; or (2) a request for
withdrawal charge waiver due to "Contingent events" (see "Charges - Contingent
events"), we will assess a charge, similar to a withdrawal charge, equal to the
amount of the purchase payment credits. The amount we pay to you under these
circumstances will always equal or exceed your withdrawal value. The amount
returned to you under the free look provision also will not include any credits
applied to your contract.
Because of higher charges, there may be circumstances where you may be worse off
for having received the credit than in other contracts. All things being equal
(such as guarantee availability or fund performance and availability), this may
occur if you hold your contract for 15 years or more. This also may occur if you
make a full withdrawal in the first seven years. You should consider these
higher charges and other relevant factors before you buy this contract or before
you exchange a contract you currently own for this contract.
This credit is made available because of lower distribution and other expenses
associated with larger sized contracts and through revenue from higher
withdrawal charges and contract administrative charges than would otherwise be
charged. In general, we do not profit from the higher charges assessed to cover
the cost of the purchase payment credit. We use all the revenue from these
higher charges to pay for the cost of the credits. However, we could profit from
the higher charges if market appreciation is higher than expected or if contract
owners hold their contracts for longer than expected.
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<PAGE>
CHARGES
CONTRACT ADMINISTRATIVE CHARGE
We charge this fee for establishing and maintaining your records. We deduct
$40 from the contract value on your contract anniversary at the end of each
contract year. We prorate this charge among the subaccounts and the fixed
accounts in the same proportion your interest in each account bears to your
total contract value. Some states restrict the amount that can be allocated
to the fixed account.
We will waive this charge when your contract value is $50,000 or more on the
current contract anniversary.
If you take a full withdrawal from your contract, we will deduct this charge at
the time of withdrawal regardless of the contract value. We cannot increase the
annual contract administrative charge and it does not apply after annuity
payouts begin or when we pay death benefits.
VARIABLE ACCOUNT ADMINISTRATIVE CHARGE
We apply this charge daily to the subaccounts. It is reflected in the unit
values of your subaccounts and it totals 0.15% of their average daily net assets
on an annual basis. It covers certain administrative and operating expenses of
the subaccounts such as accounting, legal and data processing fees and expenses
involved in the preparation and distribution of reports and prospectuses. We
cannot increase the variable account administrative charge.
MORTALITY AND EXPENSE RISK FEE
We charge this fee daily to the subaccounts. The unit values of your subaccounts
reflect this fee. For qualified contracts, this fee totals 0.85% of their
average daily net assets on an annual basis. For non-qualified contracts, this
fee totals 1.10% of their average daily net assets on an annual basis. This fee
covers the mortality and expense risk that we assume. Approximately two-thirds
of this amount is for our assumption of mortality risk, and one-third is for our
assumption of expense risk. If you choose the optional Maximum Anniversary Value
Death Benefit Rider, we will charge an additional fee (see "Death Benefit Rider
fee" below). These fees do not apply to the fixed accounts. We cannot increase
these fees.
Mortality risk arises because of our guarantee to pay a death benefit and our
guarantee to make annuity payouts according to the terms of the contract, no
matter how long a specific annuitant lives and no matter how long our entire
group of annuitants live. If, as a group, annuitants outlive the life expectancy
we assumed in our actuarial tables, then we must take money from our general
assets to meet our obligations. If, as a group, annuitants do not live as long
as expected, we could profit from the mortality risk fee.
Expense risk arises because we cannot increase the contract administrative
charge or the variable account administrative charge and these charges may not
cover our expenses. We would have to make up any deficit from our general
assets. We could profit from the expense risk fee if future expenses are less
than expected.
The subaccounts pay us the mortality and expense risk fee they accrued as
follows:
- - first, to the extent possible, the subaccounts pay this fee from any
dividends distributed from the funds in which they invest;
- - then, if necessary, the funds redeem shares to cover any remaining fees
payable.
We may use any profits we realize from the subaccounts' payment to us of the
mortality and expense risk fee for any proper corporate purpose, including,
among others, payment of distribution (selling) expenses. We do not expect that
the withdrawal charge, discussed in the following paragraphs, will cover sales
and distribution expenses.
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER FEE
We charge a fee for this optional feature only if you choose this option. If
selected, we apply this fee daily to the subaccounts as part of the mortality
and expense risk fee. It is reflected in the unit values of the
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<PAGE>
subaccounts, and it totals 0.10% of their average daily net assets on an annual
basis. We cannot increase the Maximum Anniversary Value Death Benefit Rider fee.
GUARANTEED MINIMUM INCOME BENEFIT RIDER FEE
We charge a fee based on the adjusted contract value for this optional feature
only if you choose this option. If selected, we deduct the fee (currently 0.30%)
from the contract value on your contract anniversary at the end of each contract
year. We prorate this fee among the subaccounts and fixed accounts in the same
proportion your interest in each account bears to your total contract value.
We apply the fee on an adjusted contract value calculated as the contract value
plus the lesser of zero or (a) - (b), where:
(a)is the transfers from the subaccounts to the fixed accounts made in the
last six months,
(b)is the total contract value in the fixed accounts. This adjustment
allows us to base the charge largely on the subaccounts and not on the
fixed accounts.
We will deduct the fee, adjusted for the number of calendar days coverage was in
place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Guaranteed Minimum Income Benefit Rider fee after
the rider effective date and it does not apply after annuity payouts begin. We
can increase the Guaranteed Minimum Income Benefit Rider fee on new contracts up
to a maximum of 0.75%.
PERFORMANCE CREDIT RIDER FEE
We charge a fee for this optional feature if you choose this option. If
selected, we deduct the fee of 0.15% of your contract value on your contract
anniversary. We prorate this fee among the subaccounts and fixed accounts in the
same proportion as your interest bears to your total contract value.
We will deduct this fee, adjusted for the number of calendar days coverage was
in place, if the contract is terminated for any reason or when annuity payouts
begin. We cannot increase the Performance Credit Rider fee.
WITHDRAWAL CHARGE
If you withdraw all or part of your contract, you may be subject to a withdrawal
charge. A withdrawal charge applies if all or part of the withdrawal amount is
from purchase payments we received within seven years before withdrawal. The
withdrawal charge percentages that apply to you are shown in your contract. In
addition, amounts withdrawn from a Guarantee Period Account prior to the end of
the applicable Guarantee Period will be subject to a MVA. (See "The Fixed
Accounts - Market Value Adjustments (MVA).")
For purposes of calculating any withdrawal charge, we treat amounts withdrawn
from your contract value in the following order:
1. First, in each contract year, we withdraw amounts totaling up to 10% of
your prior anniversary contract value. (We consider your initial purchase
payment to be the prior anniversary contract value during the first
contract year.) We do not assess a withdrawal charge on this amount.
2. Next, we withdraw contract earnings, if any, that are greater than the
annual 10% free withdrawal amount described in number one above. Contract
earnings equal contract value less purchase payments received and not
previously withdrawn. We do not assess a withdrawal charge on contract
earnings.
NOTE: We determine contract earnings by looking at the entire contract value,
not the earnings of any particular subaccount or the fixed accounts.
3. Next we withdraw purchase payments received prior to the withdrawal charge
period shown in your contract. We do not assess a withdrawal charge on
these purchase payments.
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<PAGE>
4. Finally, if necessary, we withdraw purchase payments received that are
still within the withdrawal charge period shown in your contract. We
withdraw these payments on a first-in, first-out (FIFO) basis. We do assess
a withdrawal charge on these payments.
We determine your withdrawal charge by multiplying each of your payments
withdrawn by the applicable withdrawal charge percentage, and then adding the
total withdrawal charges.
The withdrawal charge percentage depends on the number of years since you made
the payments that are withdrawn:
<TABLE>
<CAPTION>
YEARS FROM PURCHASE PAYMENT WITHDRAWAL CHARGE
RECEIPT PERCENTAGE
<S> <C>
1 8%
2 8
3 7
4 7
5 6
6 5
7 3
Thereafter 0
</TABLE>
For a partial withdrawal that is subject to a withdrawal charge, the amount
deducted for the withdrawal charge will be a percentage of the total amount
withdrawn. We will deduct the charge from the value remaining after we pay you
the amount you requested. Example: Assume you request a withdrawal of $1,000 and
there is a 7% withdrawal charge. The withdrawal charge is $75.26 for a total
withdrawal amount of $1075.26. This charge represents 7% of the total amount
withdrawn and we deduct it from the contract value remaining after we pay you
the $1,000 you requested. If you make a full withdrawal of your contract, we
will deduct the applicable contract administrative charge.
WITHDRAWAL CHARGE UNDER ANNUITY PAYOUT PLAN E: Payouts for a specified period.
Under this payout plan, you can choose to take a withdrawal. The amount that you
can withdraw is the present value of any remaining variable payouts. With a
qualified annuity, the discount rate we use in the calculation will be 4.86% if
the assumed investment rate is 3.5% and 6.36% if the assumed investment rate is
5%. With a nonqualified annuity, the discounted rate we use in the calculation
will be 5.11% if the assumed investment rate is 3.5% and 6.61% if the assumed
investment rate is 5%. The withdrawal charge is equal to the difference in
discount values using the above discount rates and the assumed investment rate.
The withdrawal charge will not be greater than 9% of the amount available for
payouts under the plan.
WITHDRAWAL CHARGE CALCULATION EXAMPLE:
The following is an example of the calculation we would make to determine the
withdrawal charge on a contract with this history:
- - The contract date is Jan. 1, 2000 with a contract year of Jan. 1 through
Dec. 31 and with an anniversary date of Jan. 1 each year; and
- - We received these payments
- $10,000 Jan. 1, 2000;
- $8,000 Feb. 28, 2007; and
- $6,000 Feb. 20, 2008; and
- - You withdraw the contract for its total withdrawal value of $38,101 on
Aug. 5, 2010 and did not make any other withdrawals during that contract
year; and
- - The prior anniversary Jan. 1, 2009 contract value was $38,488.
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<TABLE>
<CAPTION>
Withdrawal Charge Explanation
<S> <C>
$ 0 $3,848.80 is 10% of the prior anniversary contract
value withdrawn without withdrawal charge; and
0 $10,252.20 is contract earnings in excess of the 10%
free withdrawal amount withdrawn without withdrawal
charge; and
0 $10,000 Jan. 1, 2000 payment was received seven or
more years before withdrawal and is withdrawn
without withdrawal charge; and
560 $8,000 Feb. 28, 2007 payment is in its fourth year
from receipt, withdrawn with a 7% withdrawal charge;
and
420 $6,000 Feb. 20, 2008 payment is in its third year
--- from receipt withdrawn with a 7% withdrawal charge.
$980
</TABLE>
WAIVER OF WITHDRAWAL CHARGES
We do not assess withdrawal charges for:
- - withdrawals of any contract earnings;
- - withdrawals of amounts totaling up to 10% of your prior contract
anniversary contract value to the extent it exceeds contract earnings;
- - required minimum distributions from a qualified annuity (for those amounts
required to be distributed from the contract described in this prospectus);
- - contracts settled using an annuity payout plan;
- - withdrawals made as a result of one of the "Contingent events"* described
below to the extent permitted by state law (see your contract for
additional conditions and restrictions);
- - amounts we refund to you during the free look period;* and
- - death benefits.*
*However, we will reverse certain purchase payment credits up to the
maximum withdrawal charge. (See "Buying Your Contract - Purchase payment
credits.")
CONTINGENT EVENTS
- - Withdrawals you make if you or the annuitant are confined to a hospital or
nursing home and have been for the prior 60 days. Your contract will
include this provision when the owner and annuitant are under age 76 on the
date we issue the contract. You must provide proof satisfactory to us of
the confinement as of the date you request the withdrawal.
- - To the extent permitted by state law, withdrawals you make if you or the
annuitant are diagnosed in the second or later contract years as disabled
with a medical condition that with reasonable medical certainty will result
in death within 12 months or less from the date of the licensed physician's
statement. You must provide us with a licensed physician's statement
containing the terminal illness diagnosis and the date the terminal illness
was initially diagnosed.
POSSIBLE GROUP REDUCTIONS: In some cases we may incur lower sales and
administrative expenses due to the size of the group, the average contribution
and the use of group enrollment procedures. In such cases, we may be able to
reduce or eliminate the contract administrative and withdrawal charges. However,
we expect this to occur infrequently.
PREMIUM TAXES
Certain state and local governments impose premium taxes on us (up to 3.5%).
These taxes depend upon your state of residence or the state in which the
contract was sold. Currently, we any applicable premium
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tax when annuity payouts begin, but we reserve the right to deduct this tax at
other times such as when you make purchase payments or when you make a full
withdrawal from your contract.
VALUING YOUR INVESTMENT
We value your accounts as follows:
FIXED ACCOUNTS
We value the amounts you allocated to the fixed accounts directly in dollars.
The value of a fixed account equals:
- - the sum of your purchase payments and transfer amounts allocated to the
one-year fixed account and the Guarantee Period Accounts;
- - plus any purchase payment credits allocated to the fixed accounts;
- - plus interest credited;
- - minus the sum of amounts withdrawn after the MVA (including any applicable
withdrawal charges) and amounts transferred out;
- - minus any prorated contract administrative charge;
- - minus any prorated portion of the Guaranteed Minimum Income Benefit Rider
fee (if applicable); and
- - minus any prorated portion of the Performance Credit Rider (if applicable).
SUBACCOUNTS
We convert amounts you allocated to the subaccounts into accumulation units.
Each time you make a purchase payment or transfer amounts into one of the
subaccounts or we apply any purchase payment credits, we credit a certain number
of accumulation units to your contract for that subaccount. Conversely, each
time you take a partial withdrawal, transfer amounts out of a subaccount, or we
assess a contract administrative charge or the Guaranteed Minimum Income Benefit
Rider fee, we subtract a certain number of accumulation units from your
contract.
The accumulation units are the true measure of investment value in each
subaccount during the accumulation period. They are related to, but not the same
as, the net asset value of the fund in which the subaccount invests. The dollar
value of each accumulation unit can rise or fall daily depending on the variable
account expenses, performance of the fund and on certain fund expenses.
Here is how we calculate accumulation unit values:
NUMBER OF UNITS: to calculate the number of accumulation units for a particular
subaccount, we divide your investment by the current accumulation unit value.
ACCUMULATION UNIT VALUE: the current accumulation unit value for each subaccount
equals the last value times the subaccount's current net investment factor.
WE DETERMINE THE NET INVESTMENT FACTOR BY:
- - adding the fund's current net asset value per share, plus the per share
amount of any accrued income or capital gain dividends to obtain a current
adjusted net asset value per share; then
- - dividing that sum by the previous adjusted net asset value per share; and
- - subtracting the percentage factor representing the mortality and expense
risk fee, the variable account administrative charge, any death benefit
rider fee (if selected) from the result.
Because the net asset value of the fund may fluctuate, the accumulation unit
value may increase or decrease. You bear all the investment risk in a
subaccount.
FACTORS THAT AFFECT SUBACCOUNT ACCUMULATION UNITS: accumulation units may change
in two ways - in number and in value.
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The number of accumulation units you own may fluctuate due to:
- - additional purchase payments you allocate to the subaccounts;
- - any purchase payment credits allocated to the subaccounts;
- - transfers into or out of the subaccounts;
- - partial withdrawals;
- - withdrawal charges;
- - prorated portions of the contract administrative charge;
- - prorated portions of the Guaranteed Minimum Income Benefit Rider fee (if
selected); and/or
- - prorated portion of the Performance Credit Rider fee (if selected).
Accumulation unit values will fluctuate due to:
- - changes in funds' net asset value;
- - dividends distributed to the subaccounts;
- - capital gains or losses of funds;
- - fund operating expenses; and/or
- - mortality and expense risk fee, the variable account administrative charge,
the Maximum Anniversary Value Death Benefit Rider fee (if selected).
MAKING THE MOST OF YOUR CONTRACT
AUTOMATED DOLLAR-COST AVERAGING
Currently, you can use automated transfers to take advantage of dollar-cost
averaging (investing a fixed amount at regular intervals). For example, you
might transfer a set amount monthly from a relatively conservative subaccount to
a more aggressive one, or to several others, or from the one-year fixed account
or the two-year Guarantee Period Account to one or more subaccounts. The three
to ten year Guarantee Period Accounts are not available for automated transfers.
You can also obtain the benefits of dollar-cost averaging by setting up regular
automatic SIP payments. There is no charge for dollar-cost averaging.
This systematic approach can help you benefit from fluctuations in accumulation
unit values caused by fluctuations in the market values of the funds. Since you
invest the same amount each period, you automatically acquire more units when
the market value falls and fewer units when it rises. The potential effect is to
lower your average cost per unit.
<TABLE>
<CAPTION>
HOW DOLLAR-COST AVERAGING WORKS
<S> <C> <C> <C> <C>
By investing an AMOUNT ACCUMULATION UNIT NUMBER OF UNITS
equal number of MONTH INVESTED VALUE PURCHASED
dollars each month... Jan $100 $20 5.00
Feb 100 18 5.56
you automatically buy Mar 100 17 5.88
more units when the Apr 100 15 6.67
per unit market price May 100 16 6.25
is low... Jun 100 18 5.56
Jul 100 17 5.88
and fewer units when Aug 100 19 5.26
the per unit market Sept 100 21 4.76
price is high. Oct 100 20 5.00
</TABLE>
You paid an average price of only $17.91 per unit over the 10 months, while the
average market price actually was $18.10.
Dollar-cost averaging does not guarantee that any subaccount will gain in value
nor will it protect against a decline in value if market prices fall. Because
dollar-cost averaging involves continuous investing, your success will depend
upon your willingness to continue to invest regularly through periods of low
price
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<PAGE>
levels. Dollar-cost averaging can be an effective way to help meet your
long-term goals. For specific features contact your sales representative.
ASSET REBALANCING
You can ask us in writing to automatically rebalance the subaccount portion of
your contract 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
contract 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 accounts. There is no
charge for asset rebalancing. The contract value must be at least $2,000.
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 contract 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.
TRANSFERRING MONEY BETWEEN ACCOUNTS
You may transfer money from any one subaccount, or the fixed accounts, to
another subaccount before annuity payouts begin. (Certain restrictions apply to
transfers involving the fixed accounts.) We will process your transfer on the
valuation date we receive your request. We will value your transfer at the next
accumulation unit value calculated after we receive your request. There is no
charge for transfers. Before making a transfer, you should consider the risks
involved in switching investments. Transfers out of the Guarantee Period
Accounts will be subject to a MVA if done more than 30 days before the end of
the Guarantee Period.
We may suspend or modify transfer privileges at any time. Excessive trading
activity can disrupt fund management strategy and increase expenses, which are
borne by all contract owners who allocated purchase payments to the fund
regardless of their transfer activity. We may apply modifications or
restrictions in any reasonable manner to prevent transfers we believe will
disadvantage other contract owners.
These modifications could include, but not be limited to:
- - requiring a minimum time period between each transfer;
- - not accepting transfer requests of an agent acting under power of attorney
on behalf of more than one contract owner; or
- - limiting the dollar amount that a contract owner may transfer at any one
time.
For information on transfers after annuity payments begin, see "Transfer
policies" below.
TRANSFER POLICIES
- - Before annuity payouts begin, you may transfer contract values between the
subaccounts, or from the subaccounts to the fixed accounts at any time.
However, if you made a transfer from the one-year fixed account to the
subaccounts, you may not make a transfer from any subaccount back to the
one-year fixed account for six months following that transfer.
- - You may transfer contract values from the one-year fixed account to the
subaccounts or the Guarantee Period Accounts once a year on or within 30
days before or after the contract anniversary (except for automated
transfers, which can be set up at any time for certain transfer periods
subject to certain minimums). Transfers from the one-year fixed account are
not subject to a MVA.
- - You may transfer contract values from a Guarantee Period Account anytime
after 60 days of transfer or payment allocation to the Account. Transfers
made before the end of the Guarantee Period will receive a MVA, which may
result in a gain or loss of contract value.
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<PAGE>
- - If we receive your request on or within 30 days before or after the
contract anniversary date, the transfer from the one-year fixed account to
the subaccounts or the Guarantee Period Accounts will be effective on the
valuation date we receive it.
- - We will not accept requests for transfers from the one-year fixed account
at any other time.
- - Once annuity payouts begin, you may not make transfers to or from the
one-year fixed account, but you may make transfers once per contract year
among the subaccounts. During the annuity payout period, we reserve the
right to limit the number of subaccounts in which you may invest.
- - Once annuity payouts begin, you may not make any transfers to the Guarantee
Period Accounts.
HOW TO REQUEST A TRANSFER OR WITHDRAWAL
1 Send your name, contract number, Social Security Number
BY LETTER: or Taxpayer Identification Number and signed request
for a transfer or withdrawal to:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
MINIMUM AMOUNT
Transfers or
withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers or
withdrawals: Contract value or entire account balance
2 Your sales representative can help you set up automated
BY AUTOMATED transfers or partial withdrawals among your subaccounts or
TRANSFERS AND fixed accounts.
AUTOMATED PARTIAL You can start or stop this service by written request or
WITHDRAWALS: other method acceptable to us.
You must allow 30 days for us to change any instructions
that are currently in place.
- Automated transfers from the one-year fixed account to
any one of the subaccounts may not exceed an amount
that, if continued, would deplete the one-year fixed
account within 12 months.
- Automated withdrawals may be restricted by applicable
law under some contracts.
- You may not make additional purchase payments if
automated partial withdrawals are in effect.
- Automated partial withdrawals may result in IRS taxes
and penalties on all or part of the amount withdrawn.
MINIMUM AMOUNT
Transfers or
withdrawals: $100 monthly
$250 quarterly, semi-annually or annually
35
<PAGE>
3 Call between 8 a.m. and 6 p.m. Central time:
BY PHONE:
1-800-333-3437
MINIMUM AMOUNT
Transfers or
withdrawals: $500 or entire account balance
MAXIMUM AMOUNT
Transfers: Contract value or entire account balance
Withdrawals: $25,000
We answer telephone requests promptly, but you may experience delays when the
call volume is unusually high. If you are unable to get through, use the mail
procedure as an alternative.
We will honor any telephone transfer or withdrawal requests that we believe are
authentic and we will use reasonable procedures to confirm that they are. This
includes asking identifying questions and tape recording calls. We will not
allow a telephone withdrawal within 30 days of a phoned-in address change. As
long as we follow the procedures, we (and our affiliates) will not be liable for
any loss resulting from fraudulent requests.
Telephone transfers and withdrawals are automatically available. You may request
that telephone transfers and withdrawals NOT be authorized from your account by
writing to us.
GUARANTEED MINIMUM INCOME BENEFIT RIDER
An optional Guaranteed Minimum Income Benefit Rider may be available in many
jurisdictions for a separate annual charge (see "Charges - Guaranteed Minimum
Income Rider fee"). You cannot select this rider if you select the Performance
Credit Rider. The rider guarantees a minimum amount of fixed annuity lifetime
income during the annuity payout period if your contract has been in force for
at least seven years, subject to the conditions described below. The rider also
provides you the option of variable annuity payouts, with a guaranteed minimum
initial payment.
In some instances, we may allow you to add this rider if it was not available
when you initially purchased your contract. In these instances, we would add
this rider at the next contract anniversary and all conditions of the rider
would use this date as the effective date.
This rider does not create contract value or guarantee the performance of any
investment option. Fixed annuity payouts under the terms of this rider will
occur at the guaranteed annuity purchase rates stated in the contract. We base
first year payments from the variable annuity payout option offered under this
rider on the same factors as the fixed annuity payout option. We base subsequent
payments on the initial payment and an assumed annual return of 5%. Because this
rider is based on guaranteed actuarial factors for the fixed option, the level
of fixed lifetime income it guarantees may be less than the level that would be
provided by applying the then current annuity factors. Likewise, for the
variable annuity payout option, we base the rider on more conservative factors
resulting in a lower initial payment and lower lifetime payments than those
provided otherwise if the same benefit base were used. However, the Guaranteed
Income Benefit Base described below establishes a floor, which when higher than
the contract value, can result in a higher annuity payout level. Thus, the rider
is a guarantee of a minimum amount of annuity income.
The Guaranteed Income Benefit Base is equal to the benefit provided by the
Maximum Anniversary Value Death Benefit Rider.
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<PAGE>
The Guaranteed Income Benefit Base, less any applicable premium tax, is the
value that will be used to determine minimum annuity payouts if the rider is
exercised.
We reserve the right to exclude subsequent payments and purchase payment credits
paid in the last five years before exercise of the benefit, in the calculation
of the Guaranteed Income Benefit Base. We would do so only if such payments and
credits total $50,000 or more or if they are 25% or more of total payments and
credits paid into the contract.
If we exclude such payments and credits, the Guaranteed Minimum Income Benefit
Base would be calculated as the greatest of:
(a) contract value less "market value adjusted prior five years of payments and
purchase payment credits";
(b) total payments and purchase payment credits less prior five years of
payments and purchase payment credits, less adjusted partial withdrawals;
or
(c) Maximum Anniversary Value immediately preceding the date of settlement,
plus payments and credits and minus adjusted partial withdrawals since that
anniversary, less the "market value adjusted prior five years of payments
and purchase payment credits";
"Market value adjusted prior five years of payments and purchase payment
credits" are calculated as the sum of each such payment or credit, multiplied by
the ratio of the current contract value over the estimated contract value on the
anniversary prior to such payment or credit. The estimated contract value at
such anniversary is calculated by assuming that payments, credits and partial
withdrawals occurring in a contract year take place at the beginning of the year
for that anniversary and every year after that to the current contract year.
CONDITIONS ON ELECTION OF THE RIDER:
- you must elect the rider at the time you purchase your contract along
with the corresponding death benefit rider option, and
- the annuitant must be age 75 or younger on the contract date.
FUND SELECTION TO CONTINUE THE RIDER: You may allocate your purchase payments to
any of the subaccounts or the fixed accounts. However, we reserve the right to
limit the amount in the AXP(SM) Variable Portfolio - Cash Management Fund to 10%
of the total amount in the subaccounts. If we are required to activate this
restriction, and you have more than 10% of your subaccount value in this fund,
we will send you notice and ask that you reallocate your contract value so that
the limitation is satisfied within 60 days. If after 60 days the limitation is
not satisfied, the rider will be terminated.
EXERCISING THE RIDER:
- you may only exercise the rider within 30 days after any contract
anniversary following the expiration of the 7 year waiting period from
the effective date of the rider,
- the annuitant on the retirement date must be between 50 and 86 years
old, and
- you can only take an annuity payout in one of the following annuity
payout plans:
- Plan A -- Life Annuity - no refund
- Plan B -- Life Annuity with ten years certain
- Plan D -- Joint and last survivor life annuity - no refund
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<PAGE>
TERMINATING THE RIDER:
- You may terminate the rider within 30 days after the first anniversary
of the effective date of the rider.
- You may terminate the rider any time after the end of the seven year
waiting period of the rider.
- The rider will terminate on the date you make a full withdrawal from
the contract, or annuity payouts begin, or on the date that a death
benefit is payable.
- The rider will terminate on the contract anniversary after the
annuitant's 86th birthday.
EXAMPLE:
- The contract is purchased with a payment of $100,000 on Jan. 1, 2000,
and a $1,000 purchase payment credit is added to the contract.
- There are no additional purchase payments and no partial withdrawals.
- The money is fully allocated to the subaccounts.
- The annuitant is male and age 55 on the contract date. For the joint
and last survivor option (annuity payout Plan D), the joint annuitant
is female and age 55 on the contract date.
- The Maximum Anniversary Value is $180,000 on the 10th anniversary and
$220,000 on the 15th anniversary.
- The contract is within 30 days after contract anniversary.
If the Guaranteed Minimum Income Benefit Rider is exercised, the minimum fixed
annuity monthly payout or the first year variable annuity monthly payout would
be:
<TABLE>
<CAPTION>
Fixed Annuity Payout Options
Minimum Guaranteed Annual Income
CONTRACT ANNIVERSARY AT EXERCISE MINIMUM GUARANTEED BENEFIT BASE PLAN A -- PLAN B -- PLAN D --
- -------------------------------- ------------------------------- --------- --------- ---------
<S> <C> <C> <C> <C>
10 $180,000 $ 937.80 $ 912.60 $ 747.00
15 $220,000 $1,311.20 $1,249.60 $1,014.20
</TABLE>
After the first year payments, lifetime income payments on a variable annuity
payout option will depend on the investment performance of the subaccounts you
select. The payments will be higher if investment performance is greater than a
5% annual return and lower if investment performance is less than a 5% annual
return.
PERFORMANCE CREDIT RIDER
If this rider is available in your state, you may choose to add this benefit to
your contract at issue. You cannot select this rider if you select the
Guaranteed Minimum Income Benefit Rider. This feature provides certain benefits
if your contract value has not reached or exceeded a Target Value on the rider's
tenth anniversary.
If, on the tenth rider anniversary, your contract value has not reached the
Target Value (as defined below) you can choose either of the following benefits:
(a) You may choose to accept a credit to your contract equal to 5% of your
purchase payments and purchase payment credits, less adjusted partial
withdrawals and less purchase payments and purchase payment credits made in
the prior five years. Such credit is made at the tenth rider anniversary
and allocated according to your current purchase payment allocations.
(b) you may choose to begin receiving annuity payouts (only with lifetime
income plans; you may not chose Annuity Payout Plan E) within 60 days of
the tenth rider anniversary and receive an additional 5% credit (for a
total of 10% credit) as calculated in (a).
Following your tenth rider anniversary, we will inform you if your contract
value did not meet or exceed the Target Value. We will assume that you have
elected (a) unless we receive your request to begin a lifetime annuity payout
plan within 60 days after the tenth rider anniversary.
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<PAGE>
On the tenth rider anniversary and every ten years thereafter while you have the
contract, the ten year calculation period restarts if you elect (a). We use the
contract value (after any credits) on that anniversary as the initial purchase
payment for the calculation of the Target Value and any credit. Additional
credits may then be made at the end of each ten year period as described above.
TARGET VALUE: the Target Value at each anniversary is equal to the Target Value
at the prior anniversary plus any purchase payments, purchase payment credits,
and less adjusted partial withdrawals made during the year, accumulated at an
effective annual rate of 7.2%.
ADJUSTED PARTIAL WITHDRAWALS: we calculate the adjusted partial withdrawals for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of partial withdrawal (including any applicable
withdrawal charge) to the contract value on the date of (but prior to) the
partial withdrawal, and
(b) is the Target Value on the date of (but prior to) the partial withdrawal.
RESET OPTION: you can elect to lock in the growth in your contract by restarting
the ten-year period on any contract anniversary. If you elect to restart the
calculation period, the contract value on the restart date is used as the
initial purchase payment for the calculation of the target value and any credit.
The next ten year calculation period will then restart at the end of the new ten
year period from the most recent restart date. We must receive your request to
restart the calculation period within 30 days after an anniversary.
FUND SELECTION EFFECT ON TARGET VALUE: you may allocate your purchase payments
to any of the subaccounts or the fixed accounts. However, we reserve the right
to limit the aggregate amount in the fixed accounts and the AXP(SM) Variable
Portfolio - Cash Management Fund to 10% of the contract value. If we are
required to activate this restriction and you have more than 10% of your
contract value in these accounts, we will send you notice and ask you that you
reallocate your contract value so that the limitation is satisfied in 60 days.
If after 60 days, the limitation is not satisfied, we will terminate the rider.
TERMINATING THE RIDER:
- You may terminate the rider within 30 days following the first
anniversary after the effective date of the rider.
- You may terminate the rider within 30 days following the tenth
anniversary of the effective date of the rider.
- The rider will terminate on the date you make a full withdrawal from
the contract, or annuity payouts begin, or on the date that a death
benefit is payable.
EXAMPLE:
- You purchase the contract with a payment of $100,000 on January 1,
2000 and we add a $1,000 purchase payment credit to the contract
- There are no additional purchase payments and no partial withdrawals
- On January 1, 2010, the contract value is $200,000
- We determine the performance credit on January 1, 2010 as:
<TABLE>
<S><C>
10
Target Value on January 1, 2010 = 101,000 x (1.072)^ = 101,000 x 2.00423 = 202,427
</TABLE>
As the target value of $202,427 is greater than the contract value of
$200,000, we add a performance credit to the contract equal to $5,050
(or 5% of the purchase payment and purchase payment credits of
$101,000). Your total contract value on January 1, 2010 would be
$205,050.
39
<PAGE>
On February 1, 2010, the contract value is $210,000 and you choose to
begin receiving annuity payouts under a lifetime income plan. We would
use the value of $215,050 ($210,000 + another performance credit of
$5,050) to determine your monthly income.
If the contract continues and annuity payouts are not started, the
benefit restarts on January 1, 2010 with the "initial purchase
payment" equal to $205,050 and the performance credit determination
made on January 1, 2020.
WITHDRAWALS
You may withdraw all or part of your contract at any time before annuity
payouts begin by sending us a written request or calling us. We will process
your withdrawal request on the valuation date we receive it. For total
withdrawals, we will compute the value of your contract at the next
accumulation unit value calculated after we receive your request. We may ask
you to return the contract. You may have to pay charges (see "Charges -
Withdrawal charge") and IRS taxes and penalties (see "Taxes"). You cannot
make withdrawals after annuity payouts begin except under Plan E (see "The
Annuity Payout Period - Annuity payout plans").
WITHDRAWAL POLICIES
If you have a balance in more than one account and you request a partial
withdrawal, we will withdraw money from all your subaccounts and/or the fixed
accounts in the same proportion as your value in each account correlates to your
total contract value, unless you request otherwise.
RECEIVING PAYMENT
By regular or express mail:
- - payable to owner;
- - mailed to address of record.
NOTE: We will charge you a fee if you request express mail delivery.
Normally, we will send the payment within seven days after receiving your
request. However, we may postpone the payment if:
- -- the withdrawal amount includes a purchase payment check that has not cleared;
- -- the NYSE is closed, except for normal holiday and weekend closings;
- -- trading on the NYSE is restricted, according to SEC rules;
- -- an emergency, as defined by SEC rules, makes it impractical to sell
securities or value the net assets of the accounts; or
- -- the SEC permits us to delay payment for the protection of security holders.
CHANGING OWNERSHIP
You may change ownership of your nonqualified annuity at any time by completing
a change of ownership form we approve and sending it to our office. The change
will become binding upon us when we receive and record it. We will honor any
change of ownership request that we believe is authentic and we will use
reasonable procedures to confirm authenticity. If we follow these procedures, we
will not take any responsibility for the validity of the change.
If you have a nonqualified annuity, you may incur income tax liability by
transferring, assigning or pledging any part of it. (See "Taxes.")
If you have a qualified annuity, you may not sell, assign, transfer, discount or
pledge your contract as collateral for a loan, or as security for the
performance of an obligation or for any other purpose except as required or
permitted by the Code. However, if the owner is a trust or custodian, or an
employer acting in a similar capacity, ownership of a contract may be
transferred to the annuitant.
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<PAGE>
BENEFITS IN CASE OF DEATH
We will pay the death benefit to your beneficiary upon the earlier of your death
or the annuitant's death. We will base the benefit paid on the death benefit
coverage you selected when you purchased the contract. If a contract has more
than one person as the owner, we will pay benefits upon the first to die of any
owner or the annuitant. If you own the contract in joint tenancy with rights of
survivorship, we will pay benefits upon the first to die of either you or the
annuitant.
RETURN OF PREMIUM DEATH BENEFIT
We require this option if either you or the annuitant are age 80 or above.
Under this option, if you or the annuitant die before annuity payouts begin
while this contract is in force, we will pay the beneficiary the greater of the
following less any purchase payment credits added to the contract in the last 12
months:
1. the contract value; or
2. the total purchase payments paid plus purchase payments credits and less
any "adjusted partial withdrawals."
ADJUSTED PARTIAL WITHDRAWALS: We calculate an "adjusted partial withdrawal" for
each partial withdrawal as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including
any applicable withdrawal charge) to the contract value on the date of
(but prior to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
EXAMPLE:
- - You purchase the contract with a payment of $25,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 you make an additional purchase payment of $5,000.
- - On March 1, 2001 the contract value falls to $28,000. You take a $1,500
partial withdrawal leaving a contract value of $26,500.
- - On March 1, 2002 the contract value falls to $25,000.
We calculate the death benefit on March 1, 2002 as follows:
<TABLE>
<S><C>
Total payments paid: $30,000.00
minus any "adjusted partial withdrawals"
calculated as: 1,500 X 30,000 = - 1,607.14
-------------- ----------
28,000
for a death benefit of: $28,392.86
</TABLE>
MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT RIDER
If this rider is available in your state and both you and the annuitant are age
79 or younger on the contract date, you may choose to add this benefit to your
contract. This rider provides that if you or the annuitant die before annuity
payouts begin while this contract is in force, we will pay the beneficiary the
greatest of the following amounts less any purchase payment credits added in the
last 12 months:
1. the contract value; or
2. the total purchase payments paid plus purchase payment credits and less any
"adjusted partial withdrawals"; or
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<PAGE>
3. the "maximum anniversary value" immediately preceding the date of death
plus the dollar amount of any payments since that anniversary plus purchase
payment credits and minus any "adjusted partial withdrawals" since that
anniversary.
MAXIMUM ANNIVERSARY VALUE: Each contract anniversary prior to the earlier of
your or the annuitant's 81st birthday, we calculate the anniversary value which
is the greater of:
(a) the contract value on that anniversary; or
(b) total purchase payments made to the contract plus purchase payment credits
and minus any "adjusted partial withdrawals."
The "maximum anniversary value" is equal to the greatest of these anniversary
values.
After the earlier of your or the annuitant's 81st birthday, the death benefit
continues to be the death benefit value as of that date, plus any subsequent
payments and purchase payment credits and minus any "adjusted partial
withdrawals."
EXAMPLE:
- - You purchase the contract with a payment of $20,000 on Jan. 1, 2000.
- - On Jan. 1, 2001 (the first contract anniversary) the contract value grows
to $24,000.
- - On March 1, 2001 the contract value falls to $22,000, at which point you
take a $1,500 partial withdrawal, leaving a contract value of $20,500.
We calculate the death benefit on March 1, 2001 as follows:
<TABLE>
<S><C>
The "maximum anniversary value" : $24,000.00
(the greatest of the anniversary values which
was the contract value on Jan. 1, 2001)
plus any purchase payments paid since that anniversary: +0.00
minus any "adjusted partial withdrawal" taken since that
anniversary, calculated as: 1,500 X 24,000 = - 1,636.36
---------------- ----------
22,000
for a death benefit of: $22,363.64
</TABLE>
TERMINATING THE RIDER:
- - You may terminate the rider within 30 days after the first anniversary of
the effective date of the rider.
- - You may terminate the rider any time after the end of the seven year
waiting period of the rider.
- - The rider will terminate on the date you make a full withdrawal from the
contract, or annuity payouts begin, or on the date that a death benefit is
payable.
- - The rider will terminate on the contract anniversary after the annuitant's
86th birthday.
IF YOUR SPOUSE IS SOLE BENEFICIARY and you die before the retirement date, your
spouse may keep the contract as owner. To do this your spouse must, within 60
days after we receive proof of death, give us written instructions to keep the
contract in force. The Guaranteed Minimum Income Benefit Rider, if selected, is
then terminated.
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<PAGE>
PAYMENTS: Under a nonqualified annuity, we will pay the beneficiary in a single
sum unless you give us other written instructions. We must fully distribute the
death benefit within five years of your death. However, the beneficiary may
receive payouts under any annuity payout plan available under this contract if:
- - the beneficiary asks us in writing within 60 days after we receive proof of
death; and
- - payouts begin no later than one year after your death, or other date as
permitted by the Code; and
- - the payout period does not extend beyond the beneficiary's life or life
expectancy.
When paying the beneficiary, we will process the death claim on the valuation
date our death claim requirements are fulfilled. We will determine the
contract's value at the next accumulation unit value calculated after our death
claim requirements are fulfilled. We pay interest, if any, from the date of
death at a rate no less than required by law. We will mail payment to the
beneficiary within seven days after our death claim requirements are fulfilled.
Other rules may apply to qualified annuities. (See "Taxes.")
THE ANNUITY PAYOUT PERIOD
As owner of the contract, you have the right to decide how and to whom annuity
payouts will be made starting at the retirement date. You may select one of the
annuity payout plans outlined below, or we may mutually agree on other payout
arrangements. We do not deduct any withdrawal charges under the payout plans
listed below.
You also decide whether we will make annuity payouts on a fixed or variable
basis, or a combination of fixed and variable. The amounts available to purchase
payouts under the plan you select is the contract value on your retirement date
(less any applicable premium tax). You may reallocate this contract value to the
one-year fixed account to provide fixed dollar payouts and/or among the
subaccounts to provide variable annuity payouts. During the annuity payout
period, we reserve the right to limit the number of subaccounts in which you may
invest. The Guarantee Period Accounts are not available during this payout
period.
Amounts of fixed and variable payouts depend on:
- - the annuity payout plan you select;
- - the annuitant's age and, in most cases, sex;
- - the annuity table in the contract; and
- - the amounts you allocated to the accounts at settlement.
In addition, for variable payouts only, amounts depend on the investment
performance of the subaccounts you select. These payouts will vary from month to
month because the performance of the funds will fluctuate. (In the case of fixed
annuities, payouts remain the same from month to month.)
For information with respect to transfers between accounts after annuity payouts
begin, see "Making the Most of Your Contract -- Transfer policies."
ANNUITY TABLE
The annuity table in your contract shows the amount of the first monthly payment
for each $1,000 of contract value according to the age and, when applicable, the
sex of the annuitant. (Where required by law, we will use a unisex table of
settlement rates.) The table assumes that the contract value is invested at the
beginning of the annuity payout period and earns a 5% rate of return, which is
reinvested and helps to support future payouts.
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<PAGE>
SUBSTITUTION OF 3.5% TABLE
If you ask us at least 30 days before the retirement date, we will substitute an
annuity table based on an assumed 3.5% investment rate for the 5% table in the
contract. The assumed investment rate affects both the amount of the first
payout and the extent to which subsequent payouts increase or decrease. Using
the 5% table results in a higher initial payment, but later payouts will
increase more slowly when annuity unit values rise and decrease more rapidly
when they decline.
ANNUITY PAYOUT PLANS
You may choose any one of these annuity payout plans by giving us written
instructions at least 30 days before contract values are used to purchase the
payout plan:
- - PLAN A -- LIFE ANNUITY - NO REFUND: We make monthly payouts until the
annuitant's death. Payouts end with the last payout before the annuitant's
death. We will not make any further payouts. This means that if the
annuitant dies after we made only one monthly payout, we will not make any
more payouts.
- - PLAN B -- LIFE ANNUITY WITH FIVE, TEN OR 15 YEARS CERTAIN: We make monthly
payouts for a guaranteed payout period of five, ten or 15 years that you
elect. This election will determine the length of the payout period to the
beneficiary if the annuitant should die before the elected period expires.
We calculate the guaranteed payout period from the retirement date. If the
annuitant outlives the elected guaranteed payout period, we will continue
to make payouts until the annuitant's death.
- - PLAN C -- LIFE ANNUITY - INSTALLMENT REFUND: We make monthly payouts until
the annuitant's death, with our guarantee that payouts will continue for
some period of time. We will make payouts for at least the number of months
determined by dividing the amount applied under this option by the first
monthly payout, whether or not the annuitant is living.
- - PLAN D -- JOINT AND LAST SURVIVOR LIFE ANNUITY - NO REFUND: We make monthly
payouts while both the annuitant and a joint annuitant are living. If
either annuitant dies, we will continue to make monthly payouts at the full
amount until the death of the surviving annuitant. Payouts end with the
death of the second annuitant.
- - PLAN E -- PAYOUTS FOR A SPECIFIED PERIOD: We make monthly payouts for a
specific payout period of ten to 30 years that you elect. We will make
payouts only for the number of years specified whether the annuitant is
living or not. Depending on the selected time period, it is foreseeable
that an annuitant can outlive the payout period selected. During the payout
period, you can elect to have us determine the present value of any
remaining variable payouts and pay it to you in a lump sum. We determine
the present value of the remaining annuity payouts which are assumed to
remain level. The discount rate we use in the calculation will vary between
4.86% and 6.61% depending on the mortality and expense risk charge and the
applicable assumed investment rate. (See "Charges-Withdrawal charge under
Annuity Payout Plan E.") You can also take a portion of the discounted
value once a year. If you do so, your monthly payouts will be reduced by
the proportion of your withdrawal to the full discounted value. A 10% IRS
penalty tax could apply if you take a withdrawal. (See "Taxes.")
RESTRICTIONS FOR SOME TAX-DEFERRED RETIREMENT PLANS: If you purchased a
qualified annuity, you may be required to select a payout plan that provides for
payouts:
- - over the life of the annuitant;
- - over the joint lives of the annuitant and a designated beneficiary;
- - for a period not exceeding the life expectancy of the annuitant; or
- - for a period not exceeding the joint life expectancies of the annuitant and
a designated beneficiary.
You have the responsibility for electing a payout plan that complies with your
contract and with applicable law.
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<PAGE>
IF WE DO NOT RECEIVE INSTRUCTIONS: You must give us written instructions for the
annuity payouts at least 30 days before the annuitant's retirement date. If you
do not, we will make payouts under Plan B, with 120 monthly payouts guaranteed.
Contract values that you allocated to the one-year fixed account will provide
fixed dollar payouts and contract values that you allocated among the
subaccounts will provide variable annuity payouts.
IF MONTHLY PAYOUTS WOULD BE LESS THAN $20: We will calculate the amount of
monthly payouts at the time the contract value is used to purchase a payout
plan. If the calculations show that monthly payouts would be less than $20, we
have the right to pay the contract value to you in a lump sum or to change the
frequency of the payouts.
DEATH AFTER ANNUITY PAYOUTS BEGIN
If you or the annuitant die after annuity payouts begin, we will pay any amount
payable to the beneficiary as provided in the annuity payout plan in effect.
TAXES
Generally, under current law, your contract has a tax deferral feature. This
means any increase in the value of the fixed accounts and/or subaccounts in
which you invest is taxable to you only when you receive a payout or withdrawal
(see detailed discussion below). Any portion of the annuity payouts and any
withdrawals you request that represent ordinary income normally are taxable. We
will send you a tax information reporting form for any year in which we made a
taxable distribution according to our records. Roth IRAs may grow and be
distributed tax free if you meet certain distribution requirements.
ANNUITY PAYOUTS UNDER NONQUALIFIED ANNUITIES: A portion of each payout will be
ordinary income and subject to tax, and a portion of each payout will be
considered a return of part of your investment and will not be taxed. All
amounts you receive after your investment in the contract is fully recovered
will be subject to tax.
Tax law requires that all nonqualified deferred annuity contracts issued by the
same company (and possibly its affiliates) to the same owner during a calendar
year be taxed as a single, unified contract when you take distributions from any
one of those contracts.
QUALIFIED ANNUITIES: Your contract may be used to fund a tax-deferred retirement
plan that is already tax-deferred under the Code. The contract will not provide
any necessary or additional tax deferral if it is used to fund a retirement plan
that is tax-deferred. Special rules apply to these retirement plans. Your rights
to benefits may be subject to the terms and conditions of these retirement plans
regardless of the terms of the contract.
Adverse tax consequences may result if you do not ensure that contributions,
distributions and other transactions under the contract comply with the law.
Qualified annuities have minimum distribution rules that govern the timing and
amount of distributions during your life (except for Roth IRAs) and after your
death. You should refer to your retirement plan or adoption agreement or consult
a tax advisor for more information about your distribution rules.
ANNUITY PAYOUTS UNDER QUALIFIED ANNUITIES (EXCEPT ROTH IRAS): Under a qualified
annuity, the entire payout generally is includable as ordinary income and is
subject to tax except to the extent that contributions were made with after-tax
dollars. If you or your employer invested in your contract with deductible or
pre-tax dollars as part of a tax-deferred retirement plan, such amounts are not
considered to be part of your investment in the contract and will be taxed when
paid to you.
PURCHASE PAYMENT CREDITS AND CREDITS UNDER THE PERFORMANCE CREDIT RIDER: These
are considered earnings and are taxed accordingly.
WITHDRAWALS: If you withdraw part or all of your contract before your annuity
payouts begin, your withdrawal payment will be taxed to the extent that the
value of your contract immediately before the
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withdrawal exceeds your investment. You also may have to pay a 10% IRS penalty
for withdrawals you make before reaching age 59 1/2 unless certain exceptions
apply. For qualified annuities, other penalties may apply if you withdraw your
contract before your plan specifies that you can receive payouts.
DEATH BENEFITS TO BENEFICIARIES: The death benefit under a contract (except a
Roth IRA) is not tax-exempt. Any amount your beneficiary receives that
represents previously deferred earnings within the contract is taxable as
ordinary income to the beneficiary in the years he or she receives the payments.
The death benefit under a Roth IRA generally is not taxable as ordinary income
to the beneficiary if certain distribution requirements are met.
ANNUITIES OWNED BY CORPORATIONS, PARTNERSHIPS OR TRUSTS: For nonqualified
annuities any annual increase in the value of annuities held by such entities
generally will be treated as ordinary income received during that year. This
provision is effective for purchase payments made after Feb. 28, 1986. However,
if the trust was set up for the benefit of a natural person only, the income
will remain tax-deferred.
PENALTIES: If you receive amounts from your contract before reaching age 59 1/2,
you may have to pay a 10% IRS penalty on the amount includable in your ordinary
income. However, this penalty will not apply to any amount received by you or
your beneficiary:
- - because of your death;
- - because you become disabled (as defined in the Code);
- - if the distribution is part of a series of substantially equal periodic
payments, made at least annually, over your life or life expectancy (or
joint lives or life expectancies of you and your beneficiary); or
- - if it is allocable to an investment before Aug. 14, 1982 (except for
qualified annuities).
For a qualified annuity, other penalties or exceptions may apply if you make
withdrawals from your contract before your plan specifies that payouts can be
made.
WITHHOLDING, GENERALLY: If you receive all or part of the contract value, we may
deduct withholding against the taxable income portion of the payment. Any
withholding represents a prepayment of your tax due for the year. You take
credit for these amounts on your annual tax return.
If the payment is part of an annuity payout plan, we generally compute the
amount of withholding using payroll tables. You may provide us with a statement
of how many exemptions to use in calculating the withholding. As long as you've
provided us with a valid Social Security Number or Taxpayer Identification
Number, you can elect not to have any withholding occur.
If the distribution is any other type of payment (such as a partial or full
withdrawal), we compute withholding using 10% of the taxable portion. Similar to
above, as long as you have provided us with a valid Social Security Number or
Taxpayer Identification Number, you can elect not to have this withholding
occur.
Some states also impose withholding requirements similar to the federal
withholding described above. If this should be the case, we may deduct state
withholding from any payment from which we deduct federal withholding. The
withholding requirements may differ if we are making payment to a non-U.S.
citizen or if we deliver the payment outside the United States.
TRANSFER OF OWNERSHIP OF A NONQUALIFIED ANNUITY: If you transfer a nonqualified
annuity without receiving adequate consideration, the transfer is a gift and
also may be a withdrawal for federal income tax purposes. If the gift is a
currently taxable event for income tax purposes, the original owner will be
taxed on the amount of deferred earnings at the time of the transfer and also
may be subject to the 10% IRS penalty discussed earlier. In this case, the new
owner's investment in the contract will be the value of the contract at the time
of the transfer.
COLLATERAL ASSIGNMENT OF A NONQUALIFIED ANNUITY: If you collaterally assign or
pledge your contract, earnings on purchase payments you made after Aug. 13, 1982
will be taxed to you like a withdrawal.
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IMPORTANT: Our discussion of federal tax laws is based upon our understanding of
current interpretations of these laws. Federal tax laws or current
interpretations of them may change. For this reason and because tax consequences
are complex and highly individual and cannot always be anticipated, you should
consult a tax advisor if you have any questions about taxation of your contract.
TAX QUALIFICATION: We intend that the contract qualify as an annuity for federal
income tax purposes. To that end, the provisions of the contract are to be
interpreted to ensure or maintain such tax qualification, in spite of any other
provisions of the contract. We reserve the right to amend the contract to
reflect any clarifications that may be needed or are appropriate to maintain
such qualification or to conform the contract to any applicable changes in the
tax qualification requirements. We will send you a copy of any amendments.
VOTING RIGHTS
As a contract owner with investments in the subaccounts, you may vote on
important fund policies until annuity payouts begin. Once they begin, the person
receiving them has voting rights. We will vote fund shares according to the
instructions of the person with voting rights.
Before annuity payouts begin, the number of votes you have is determined by
applying your percentage interest in each subaccount to the total number of
votes allowed to the subaccount.
After annuity payouts begin, the number of votes you have is equal to:
- - the reserve held in each subaccount for your contract;
- - divided by the net asset value of one share of the applicable fund.
As we make annuity payouts, the reserve for the contract decreases; therefore,
the number of votes also will decrease.
We calculate votes separately for each subaccount. We will send notice of
shareholders' meetings, proxy materials and a statement of the number of votes
to which the voter is entitled. We will vote shares for which we have not
received instructions in the same proportion as the votes for which we received
instructions. We also will vote the shares for which we have voting rights in
the same proportion as the votes for which we received instructions.
SUBSTITUTION OF INVESTMENTS
We may substitute the funds in which the subaccounts invest if:
- - laws or regulations change,
- - existing funds become unavailable, or
- - in our judgment, the funds no longer are suitable for the subaccounts.
If any of these situations occur and if we believe it is in the best interest of
persons having voting rights under the contract, we have the right to substitute
funds other than those currently listed in this prospectus for other funds.
We may also:
- - add new subaccounts;
- - combine any two or more subaccounts;
- - add subaccounts investing in additional funds;
- - transfer assets to and from the subaccounts or the variable account; and
- - eliminate or close any subaccounts.
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In the event of substitution or any of these changes, we may amend the contract
and take whatever action is necessary and appropriate without your consent or
approval. However, we will not make any substitution or change without the
necessary approval of the SEC and state insurance departments. We will notify
you of any substitution or change.
ABOUT THE SERVICE PROVIDERS
PRINCIPAL UNDERWRITER
American Express Financial Advisors Inc. (AEFA) serves as the principal
underwriter for the contract. Its office are located at 200 AXP Financial
Center, Minneapolis, MN 55474. AEFA is a wholly-owned subsidiary of American
Express Financial Corporation (AEFC) which is a wholly-owned subsidiary of
American Express Company.
The contracts will be distributed by broker-dealers which have entered into
distribution agreements with AEFA and American Enterprise Life.
We pay commissions for sales of the contracts of up to 7% of purchase payments
to insurance agencies or broker-dealers that are also insurance agencies.
Sometimes we pay the commissions as a combination of a certain amount of the
commission at the time of sale and a trail commission (which, when totaled,
could exceed 7% of purchase payments). In addition, we may pay certain sellers
additional compensation for selling and distribution activities under certain
circumstances. From time to time, we will pay or permit other promotional
incentives, in cash or credit or other compensation.
Other contracts issued by American Enterprise Life that are not described in
this prospectus may be available through your sales representative. The
features, investment options, sales charges and expenses of the other contracts
are different than those of this contract. Therefore, the contract values under
the other contracts may be different than your contract value under this
contract. In addition, sales commissions for the other contracts may be higher
or lower than sales commissions for this contract.
ISSUER
American Enterprise Life issues the annuities. American Enterprise Life is a
wholly-owned subsidiary of IDS Life, which is a wholly-owned subsidiary of AEFC.
AEFC is a wholly-owned subsidiary of American Express Company. American Express
Company is a financial services company principally engaged through subsidiaries
(in addition to AEFC) in travel related services, investment services and
international banking services.
American Enterprise Life is a stock life insurance company organized in 1981
under the laws of the state of Indiana. Its administrative offices are located
at 829 AXP Financial Center, Minneapolis, MN 55474. Our statutory address is 100
Capitol Center South, 201 North Illinois Street, Indianapolis, IN 46204.
American Enterprise Life conducts a conventional life insurance business.
LEGAL PROCEEDINGS
A number of lawsuits have been filed against life and health insurers in
jurisdictions in which American Enterprise Life and its affiliates do business
involving insurers' sales practices, alleged agent misconduct, failure to
properly supervise agents and other matters. IDS Life is a defendant in three
class action lawsuits of this nature. American Enterprise Life is a named
defendant in one of these suits, RICHARD W. AND ELIZABETH J. THORESEN VS.
AMERICAN EXPRESS FINANCIAL CORPORATION, AMERICAN CENTURION LIFE ASSURANCE
COMPANY, AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, AMERICAN PARTNERS LIFE
INSURANCE COMPANY, IDS LIFE INSURANCE COMPANY AND IDS LIFE INSURANCE COMPANY OF
NEW YORK , which was commenced in Minnesota State Court in October, 1998. The
action was brought by individuals who purchased an annuity in a qualified plan.
The plaintiffs 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.
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American Enterprise Life is included as a party to a preliminary settlement of
all three class action lawsuits. We believe this approach will put these cases
behind us and provide a fair outcome for our clients. Our decision to settle
does not include any admission of wrongdoing. We do not anticipate that this
proposed settlement, or any other lawsuits in which American Enterprise Life is
a defendant, will have a material adverse effect on our financial condition.
ADDITIONAL INFORMATION ABOUT AMERICAN ENTERPRISE LIFE
SELECTED FINANCIAL DATA
The following selected financial data for American Enterprise Life should be
read in conjunction with the financial statements and notes.
<TABLE>
<CAPTION>
Years ended Dec. 31, (thousands)
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net investment income $ 322,746 $ 340,219 $ 332,268 $ 271,719 $ 223,706
Net gain/loss on 6,565 (4,788) (509) (5,258) (1,154)
investments
Other 8,338 7,662 6,329 5,753 4,214
----- ----- ----- ----- -----
Total revenues $ 337,649 $ 343,093 $ 338,088 $ 272,214 $ 226,766
========== ========== ========== ========== ==========
Income before income taxes $ 50,662 $ 36,421 $ 44,958 $ 35,735 $ 33,440
========== ========== ========== ========== ==========
Net income $ 33,987 $ 22,026 $ 28,313 $ 22,823 $ 21,748
========== ========== ========== ========== ==========
Total assets $4,603,343 $4,885,621 $4,973,413 $4,425,837 $3,570,960
========== ========== ========== ========== ==========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
1999 COMPARED TO 1998:
Net income increased 54 percent to $34 million in 1999, compared to $22 million
in 1998. Earnings growth resulted primarily net realized gains of $6.6 million
in 1999, compared to net realized losses of $4.8 in 1998.
Income before income taxes totaled $51 million in 1999, compared with $36
million in 1998.
Total investment contract deposits received decreased to $336 million in 1999,
compared with $348 million in 1998. This decrease is primarily due to a decrease
in sales of variable annuities in 1999.
Total revenues decreased to $338 million in 1999, compared with $343 million in
1998. The decrease is primarily due to decreased net investment income which was
partially offset by an increase in realized gain on investments. Net investment
income, the largest component of revenues, decreased 5 percent from the prior
year, reflecting decreases in investments owned and investment yields.
Contractholder charges decreased 5 percent to $6.1 million in 1999, compared
with $6.4 million in 1998, reflecting a decrease in fixed annuities inforce. The
Company receives mortality and expense risk fees from the separate accounts.
Mortality and expense risk fees increased 77 percent to $2.3 million in 1999,
compared with $1.3 million in 1998, this reflects the increase in separate
account assets.
Net realized gain on investments was $6.6 million in 1999, compared to a net
realized loss on investments of $4.8 million in 1998. The net realized gains
were primarily due to the sale of available for sale fixed maturity investments
at a gain as well as a decrease in the allowance for mortgage loan losses based
on management's regular evaluation of allowance adequacy.
Total benefits and expenses decreased slightly to $287 million in 1999. The
largest component of expenses, interest credited on investment contracts,
decreased to $209 million, reflecting a decrease in fixed annuities
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in force and lower interest rates. Amortization of deferred policy acquisition
costs decreased to $43 million, compared to $54 million in 1998. This decrease
was due primarily to decreased aggregate amounts in force, as well as the impact
of changing prospective assumptions in 1998 based on actual lapse experience on
certain fixed annuities.
Other operating expenses increased 46 percent to $35 million in 1999, compared
to $24 million in 1998. This increase is primarily reflects technology costs
related to growth initiatives.
1998 COMPARED TO 1997:
Net income decreased 22 percent to $22 million in 1998, compared to $28 million
in 1997. The decrease in earnings resulted primarily from increases in
amortization of deferred policy acquisition costs.
Income before income taxes totaled $36 million in 1998, compared with $45
million in 1997.
Total premiums and investment contract deposits received decreased to $348
million in 1998, compared with $802 million in 1997. This decrease is primarily
due to a decrease in sales of fixed annuities in 1998, reflecting the low
interest rate environment.
Total revenues increased to $343 million in 1998, compared with $338 million in
1997. The increase is primarily due to increases in net investment income and
contractholder charges. Net investment income, the largest component of
revenues, increased 2 percent from the prior year, reflecting increases in
investments owned and investment yields.
Contractholder charges, increased 12 percent to $6.4 million in 1998, compared
with $5.7 million in 1997. The Company receives mortality and expense risk fees
from the separate accounts.
Total benefits and expenses increased 4.6 percent to $307 million in 1998,
compared with 293 million in 1997. The largest component of expenses, interest
credited on contractholders investment contracts, decreased to $229 million,
reflecting a decrease in fixed annuities in force and lower interest rates.
Amortization of deferred policy acquisition costs increased to $54 million,
compared to $37 million in 1997. This increase was due primarily to the impact
of changing prospective assumptions based on actual lapse experience on certain
fixed annuities.
RISK MANAGEMENT
The sensitivity analysis of the test of market risk discussed below estimates
the effects of hypothetical sudden and sustained changes in the applicable
market conditions on the ensuing year's earnings based on year-end positions.
The market changes, assumed to occur as of year-end, is a 100 basis point
increase in market interest rates. Computations of the prospective effects of
hypothetical interest rate change based on numerous assumptions, including
relative levels of market interest rates as well as the levels of assets and
liabilities. The hypothetical changes and assumptions will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by management if the hypothetical market
changes actually occurred over time. As a result, actual earnings effects in the
future will differ from those quantified below.
The Company primarily invests in fixed income securities over a broad range of
maturities for the purpose of providing fixed annuity clients with a competitive
rate of return on their investments while minimizing risk, and to provide a
dependable and targeted spread between the interest rate earned on investments
and the interest rate credited to contractholders' accounts. The Company does
not invest in securities to generate trading profits.
The Company has an investment committee that holds regularly scheduled meetings
and, when necessary, special meetings. At these meetings, the committee reviews
models projecting different interest rate scenarios and their impact on
profitability. The objective of the committee is to structure the investment
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security portfolio based upon the type and behavior of products in the liability
portfolio so as to achieve targeted levels of profitability.
Rates credited to contractholders' accounts are generally reset at shorter
intervals than the maturity of underlying investments. Therefore, margins may be
negatively impacted by increases in the general level of interest rates. Part of
the committee's strategy includes the purchase of some types of derivatives,
such as interest rate caps, swaps and floors, for hedging purposes. These
derivatives protect margins by increasing investment returns if there is a
sudden and severe rise in interest rates, thereby mitigating the impact of an
increase in rates credited to contractholders' accounts.
The negative effect on the Company's pretax earnings of a 100 basis point
increase in interest rates, which assumes repricings and customer behavior based
on the application of proprietary models to the book of business at December 31,
1999, would be approximately $4.2 million.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company are met by funds provided by annuity
considerations, investment income, proceeds from sales of investments as well as
maturities and periodic repayments of investment principal.
The primary uses of funds are policy benefits, commissions and operating
expenses, policy loans, and investment purchases.
The Company has an available line of credit with American Express Financial
Corporation aggregating $50 million. The line of credit is used strictly as a
short-term source of funds. No borrowings were outstanding under the agreement
at December 31, 1999. At December 31, 1999, outstanding reverse repurchase
agreements totaled $26 million.
At December 31, 1999, investments in fixed maturities comprised 81 percent of
the Company's total invested assets. Of the fixed maturity portfolio,
approximately 32 percent is invested in GNMA, FNMA and FHLMC mortgage-backed
securities which are considered AAA/Aaa quality.
At December 31, 1999, approximately 14 percent of the Company's investments in
fixed maturities were below investment grade bonds. These investments may be
subject to a higher degree of risk than the investment grade issues because of
the borrower's generally greater sensitivity to adverse economic conditions,
such as recession or increasing interest rates, and in certain instances, the
lack of an active secondary market. Expected returns on below investment grade
bonds reflect consideration of such factors. The Company has identified those
fixed maturities for which a decline in fair value is determined to be other
than temporary, and has written them down to fair value with a charge to
earnings.
At December 31, 1999, net unrealized appreciation on fixed maturities held to
maturity included $6.3 million of gross unrealized appreciation and $29 million
of gross unrealized depreciation. Net unrealized appreciation on fixed
maturities available for sale included $9.3 million of gross unrealized
appreciation and $117 million of gross unrealized depreciation.
At December 31, 1999, the Company had an allowance for losses for mortgage loans
totaling $6.7 million.
The economy and other factors have caused a number of insurance companies to
go under regulatory supervision. This circumstance has resulted in
assessments by state guaranty associations to cover losses to policyholders
of insolvent or rehabilitated companies. Some assessments can be partially
recovered through a reduction in future premium taxes in certain states. The
Company established an asset for guaranty association assessments paid to
those states allowing a reduction in future premium taxes over a reasonable
period of time. The asset is being amortized as premium taxes are reduced.
The Company has also estimated the
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potential effect of future assessments on the Company's financial position and
results of operations and has established a reserve for such potential
assessments. The Company has adopted Statement of Position 97-3 providing
guidance when an insurer should recognize a liability for guaranty fund
assessments. The SOP is effective for fiscal years beginning after December 15,
1998. Adoption did not have a material impact on the Company's results of
operations or financial condition.
The National Association of Insurance Commissioners has established risk-based
capital standards to determine the capital requirements of a life insurance
company based upon the risks inherent in its operations. These standards require
the computation of a risk-based capital amount which is then compared to a
company's actual total adjusted capital. The computation involves applying
factors to various statutory financial data to address four primary risks: asset
default, adverse insurance experience, interest rate risk and external events.
These standards provide for regulatory attention when the percentage of total
adjusted capital to authorized control level risk-based capital is below certain
levels. As of December 31, 1999, the Company's total adjusted capital was well
in excess of the levels requiring regulatory attention.
YEAR 2000 ISSUE
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. All of the major systems used by American Enterprise
Life and the variable account are maintained by AEFC and are utilized by
multiple subsidiaries and affiliates of AEFC. American Enterprise Life's and the
variable account's businesses are heavily dependent upon AEFC's computer systems
and have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to American Enterprise Life and the variable account,
was conducted to identify the major systems that could be affected by the Year
2000 issue. Steps were taken to resolve potential problems including
modification to existing software and the purchase of new software. As of Dec.
31, 1999, AEFC had completed its program of corrective measures on its internal
systems and applications, including Year 2000 compliance testing. As of Dec. 31,
1999, AEFC had also completed an evaluation of the Year 2000 readiness of other
third parties whose system failures could have an impact on American Enterprise
Life's and the variable account's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency plans
for all key business units. Business continuation plans, which address business
continuation in the event of a system disruption, are in place for all key
business units. As of Dec. 31, 1999, these plans had been amended to include
specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since Jan. 1, 2000, management believes no material adverse consequences were
experienced, and there was no material effect on American Enterprise Life's and
the variable account's business, results of operations, or financial condition
as a result of the Year 2000 issue.
RESERVES
In accordance with the insurance laws and regulations under which we operate, we
are obligated to carry on our books, as liabilities, actuarially determined
reserves to meet our obligations on our outstanding annuity contracts. We base
our reserves for deferred annuity contracts on accumulation value and for fixed
annuity contracts in a benefit status on established industry mortality tables.
These reserves are computed amounts that will be sufficient to meet our policy
obligations at their maturities.
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<PAGE>
INVESTMENTS
Our total investments of $4,107,559 at Dec. 31, 1999, 29% was invested in
mortgage-backed securities, 53% in corporate and other bonds, 19% in primary
mortgage loans on real estate and the remaining less than 1% in other
investments.
COMPETITION
We are engaged in a business that is highly competitive due to the large number
of stock and mutual life insurance companies and other entities marketing
insurance products. There are over 1,600 stock, mutual and other types of
insurers in the life insurance business. BEST'S INSURANCE REPORTS, Life-Health
edition 1998, assigned us one of its highest classifications, A+ (Superior).
EMPLOYEES
As of Dec. 31, 1999, we had no employees.
PROPERTIES
We occupy office space in Minneapolis, MN, which is rented by AEFC. We reimburse
AEFC for rent based on direct and indirect allocation methods. Facilities
occupied by us are believed to be adequate for the purposes for which they are
used and well maintained.
STATE REGULATION
American Enterprise Life is subject to the laws of the State of Indiana
governing insurance companies and to the regulations of the Indiana Department
of Insurance. An annual statement in the prescribed form is filed with the
Indiana Department of Insurance each year covering our operation for the
preceding year and its financial condition at the end of such year. Regulation
by the Indiana Department of Insurance includes periodic examination to
determine American Enterprise's contract liabilities and reserves so that the
Indiana Department of Insurance may certify that these items are correct. The
Company's books and accounts are subject to review by the Indiana Department of
Insurance at all times. Such regulation does not, however, involve any
supervision of the account's management or the company's investment practices or
policies. In addition, American Enterprise Life is subject to regulation under
the insurance laws of other jurisdictions in which it operates. A full
examination of American Enterprise Life's operations is conducted periodically
by the National Association of Insurance Commissioners.
Under insurance guaranty fund laws, in most states, insurers doing business
therein can be assessed up to prescribed limits for policyholder losses incurred
by insolvent companies. Most of these laws do provide however, that an
assessment may be excused or deferred if it would threaten an insurer's own
financial strength.
DIRECTORS AND EXECUTIVE OFFICERS*
The directors and principal executive officers of American Enterprise Life and
the principal occupation of each during the last five years is as follows:
DIRECTORS
JAMES E. CHOAT
Born in 1947
Director, president and chief executive officer since 1996; Senior vice
president - Institutional Products Group, AEFA, 1994 to 1997.
RICHARD W. KLING
Born 1940
Director and chairman of the board since March 1989.
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PAUL S. MANNWEILER**
Born in 1949
Director since 1986; Partner at Locke Reynolds Boyd & Weisell since 1980.
PAULA R. MEYER
Born in 1954
Director and executive vice president since 1998; vice president, AEFC since
1998; Piper Capital Management (PCM) President from Oct. 1997 to May 1998; PCM
Director of Marketing from June 1995 to Oct. 1997; PCM Director of Retail
Marketing from Dec. 1993 to June 1995.
WILLIAM A. STOLTZMANN
Born in 1948
Director since Sept. 1989; vice president, general counsel and secretary since
1985.
OFFICERS OTHER THAN DIRECTORS
JEFFREY S. HORTON
Born 1961
Vice president and treasurer since Dec. 1997; vice president and corporate
treasurer, AEFC, since Dec. 1997; controller, American Express Technologies -
Financial Services, AEFC, from July 1997 to Dec. 1997; controller, Risk
Management Products, AEFC, from May 1994 to July 1997; director of finance and
analysis, Corporate Treasury, AEFC, from June 1990 to May 1994.
PHILIP C. WENTZEL
Born in 1961
Vice president and controller since 1998; vice president - Finance, Risk
Management Products, AEFC since 1997; and director of financial reporting and
analysis from 1992 to 1997.
*The address for all of the directors and principal officers is: 200 AXP
Financial Center, Minneapolis, MN 55474, except for Mr. Mannweiler who is an
independent director.
**Mr. Mannweiler's address is: 201 No. Illinois Street, Indianapolis, IN 46204
EXECUTIVE COMPENSATION
Our executive officers also may serve one or more affiliated companies. The
following table reflects cash compensation paid to the five most highly
compensated executive officers as a group for services rendered in the most
recent year to us and our affiliates. The table also shows the total cash
compensation paid to all our executive officers, as a group, who were executive
officers at any time during the most recent year.
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<TABLE>
<CAPTION>
NAME OF INDIVIDUAL OR
NUMBER IN GROUP POSITION HELD CASH COMPENSATION
<S> <C> <C>
Five most highly compensated $7,960,888
executive officers as a group:
Richard W. Kling Chairman of the Board
James E. Choat President and CEO
Stuart A. Sedlacek Executive Vice President
Lorraine R. Hart Vice President, Investments
Deborah L. Pederson Assistant Vice President, Investments
All executive officers as a group $11,535,043
(11)
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT
Our directors and officers do not beneficially own any outstanding shares of
stock of the company. All of our outstanding shares of stock are beneficially
owned by IDS Life. The percentage of shares of IDS Life owned by any director,
and by all our directors and officers as a group, does not exceed 1% of the
class outstanding.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the financial statements
of American Enterprise Life Insurance Company at Dec. 31, 1999 and 1998, and for
each of the three years in the period ended Dec. 31, 1999, and the individual
and combined financial statements of American Enterprise variable Annuity
Account (comprised of subaccounts PCMG1, PMGD1, PNDM1, PSCA1, PCAP1, PVAL1,
PMDC1, PSMC1, PMSS1, PNDS1, PTRS1 and PGIN1) as of Dec. 31, 1999, and the
periods indicated therein as set forth in their reports. We've included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
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AMERICAN ENTERPRISE LIFE INSURANCE COMPANY FINANCIAL INFORMATION
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, 1999 and 1998, and the related statements of income,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Enterprise Life
Insurance Company at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Ernst & Young LLP
Ernst & Young LLP
February 3, 2000
Minneapolis, Minnesota
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
BALANCE SHEETS
December 31,
($ thousands, except share amounts)
<TABLE>
<S> <C> <C>
ASSETS 1999 1998
- ------ ----------- -----------
Investments:
Fixed maturities:
Held to maturity, at amortized cost (fair value:
1999, $984,103; 1998, $1,126,732) $1,006,349 $1,081,193
Available for sale, at fair value (amortized cost:
1999, $2,411,799; 1998, $2,526,712) 2,304,487 2,594,858
----------- -----------
3,310,836 3,676,051
Mortgage loans on real estate 785,253 815,806
Other investments 11,470 12,103
----------- -----------
Total investments 4,107,559 4,503,960
Accounts receivable 316 214
Accrued investment income 56,676 61,740
Deferred policy acquisition costs 180,288 196,479
Deferred income taxes 37,501 --
Other assets 9 43
Separate account assets 220,994 123,185
----------- -----------
Total assets $4,603,343 $4,885,621
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits for fixed annuities $3,921,513 $4,166,852
Policy claims and other policyholders' funds 12,097 7,389
Deferred income taxes -- 23,199
Amounts due to brokers 25,215 54,347
Other liabilities 17,436 24,500
Separate account liabilities 220,994 123,185
----------- -----------
Total liabilities 4,197,255 4,399,472
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 (loss) income:
Net unrealized securities (losses) gains (69,753) 44,295
Retained earnings 190,969 156,982
----------- -----------
Total stockholder's equity 406,088 486,149
----------- -----------
Total liabilities and stockholder's equity $4,603,343 $4,885,621
========== ==========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF INCOME
Years ended December 31,
($ thousands)
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
--------- --------- ---------
Revenues:
Net investment income $322,746 $340,219 $332,268
Contractholder charges 6,069 6,387 5,688
Mortality and expense risk fees 2,269 1,275 641
Net realized gain (loss) on investments 6,565 (4,788) (509)
--------- --------- ---------
Total revenues 337,649 343,093 338,088
--------- --------- ---------
Benefits and expenses:
Interest credited on investment contracts 208,583 228,533 231,437
Amortization of deferred policy acquisition costs 43,257 53,663 36,803
Other operating expenses 35,147 24,476 24,890
--------- --------- ---------
Total benefits and expenses 286,987 306,672 293,130
--------- --------- ---------
Income before income taxes 50,662 36,421 44,958
Income taxes 16,675 14,395 16,645
--------- --------- ---------
Net income $ 33,987 $ 22,026 $ 28,313
========= ========= =========
</TABLE>
<PAGE>
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF STOCKHOLDER'S EQUITY
Three years ended December 31, 1999
($ thousands)
<TABLE>
<CAPTION>
Accumulated
Other
Total Additional Comprehensive
Stockholder's Capital Paid-In (Loss) Income, Retained
Equity Stock Capital Net of Tax Earnings
------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $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 IDS Life 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
of ($588) 1,093 -- -- 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
Comprehensive loss:
Net income 33,987 -- -- -- 33,987
Unrealized holding losses arising
during the year, net of taxes of $(59,231) (110,001) -- -- (110,001) --
Reclassification adjustment for gains
included in net income, net of tax (4,047) (4,047) --
of $(2,179) ------------- ------------
Other comprehensive loss (114,048) -- -- (114,048) --
-------------
Comprehensive loss (80,061)
------------- -------- ------------ ------------ -------------
Balance, December 31, 1999 $406,088 $2,000 $282,872 $(69,753) $190,969
============= ======== ============ ============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
See accompanying notes.
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
Years ended December 31,
($ thousands)
<S> <C> <C> <C>
1999 1998 1997
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 33,987 $ 22,026 $ 28,313
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Change in accrued investment income 5,064 (2,152) (8,017)
Change in accounts receivable (102) 349 9,304
Change in deferred policy acquisition costs, net 16,191 28,022 (21,276)
Change in other assets 34 74 4,840
Change in policy claims and other policyholders' funds 4,708 (3,939) (16,099)
Deferred income tax (benefit) provision 711 (9,591) (2,485)
Change in other liabilities (7,064) 7,595 1,255
Amortization of premium (accretion of discount), net 2,315 122 (2,316)
Net realized (gain) loss on investments (6,565) 4,788 509
Other, net (1,562) 2,544 959
----------- ----------- -----------
Net cash provided by (used in) operating activities 47,717 49,838 (5,013)
Cash flows from investing activities:
Fixed maturities held to maturity:
Purchases -- -- (1,996)
Maturities 65,705 73,601 41,221
Sales 8,466 31,117 30,601
Fixed maturities available for sale:
Purchases (593,888) (298,885) (688,050)
Maturities 248,317 335,357 231,419
Sales 469,126 48,492 73,366
Other investments:
Purchases (28,520) (161,252) (199,593)
Sales 57,548 78,681 29,139
Change in amounts due to brokers (29,132) 19,412 (53,796)
----------- ----------- ------------
Net cash provided by (used in) investing activities 197,622 126,523 (537,689)
Cash flows from financing activities:
Activity related to investment contracts:
Considerations received 299,899 302,158 783,339
Surrenders and other benefits (753,821) (707,052) (552,903)
Interest credited to account balances 208,583 228,533 231,437
Capital contribution from parent -- -- 40,000
----------- ----------- -----------
Net cash (used in) provided by financing activities (245,339) (176,361) 501,873
----------- ----------- -----------
Net decrease in cash and cash equivalents -- -- (40,829)
Cash and cash equivalents at beginning of year -- -- 40,829
----------- ----------- -----------
Cash and cash equivalents at end of year $ -- $ -- $ --
=========== =========== ==========
See accompanying notes.
</TABLE>
<PAGE>
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 accounting principles generally accepted in the United
States 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 accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Investments
Fixed maturities that the Company has both the positive intent and the
ability to hold to maturity are classified as held to maturity and carried
at amortized cost. All other fixed maturities are classified as available
for sale and carried at fair value. Unrealized gains and losses on
securities classified as available for sale are reported as a separate
component of accumulated other comprehensive (loss) income, net of deferred
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:
1999 1998 1997
---- ----- ----
Cash paid during the year for:
Income taxes $22,007 $19,035 $19,456
Interest on borrowings 2,187 5,437 1,832
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.
Amortization of deferred policy acquisition costs requires the use of
assumptions including interest margins, mortality margins, persistency
rates, maintenance expense levels and, for variable products, separate
account performance. For universal life-type insurance and deferred
annuities, actual experience is reflected in the Company's amortization
models monthly. As actual experience differs from the current assumptions,
management considers the need to change key assumptions underlying the
amortization models prospectively. The impact of changing prospective
assumptions is reflected in the period that such changes are made and is
generally referred to as an unlocking adjustment. During 1998, unlocking
adjustments resulted in a net increase in amortization of $11 million. Net
unlocking adjustments in 1999 and 1997 were not significant.
Liabilities for future policy benefits
Liabilities for universal-life type insurance and fixed and variable
deferred annuities are accumulation values.
Federal income taxes
The Company's taxable income is included in the consolidated federal income
tax return of American Express Company. The Company provides for income
taxes on a separate return basis, except that, under an agreement between
AEFC and American Express Company, tax benefit is recognized for losses to
the extent they can be used on the consolidated tax return. It is the
policy of AEFC and its subsidiaries that AEFC will reimburse subsidiaries
for all tax benefits.
Included in other liabilities at December 31, 1999 and 1998 are $2,147 and
$3,504, respectively, payable to 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.
<PAGE>
1. Summary of significant accounting policies (continued)
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
American Institute of Certified Public Accountants (AICPA) Statement of
Position (SOP) 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use" became effective January 1, 1999. The SOP
requires the capitalization of certain costs incurred after the date of
adoption to develop or obtain software for internal use. Software utilized
by the Company is owned by AEFC and capitalized by AEFC. As a result, the
new rule did not have a material impact on the Company's results of
operations or financial condition.
Effective January 1, 1999, the Company adopted AICPA SOP 97-3, "Accounting
by Insurance and Other Enterprises for Insurance-Related Assessments,"
providing guidance for the timing of recognition of liabilities related to
guaranty fund assessments. The Company had historically carried balance in
other liabilities on the balance sheet for potential guaranty fund
assessment exposure. Adoption of the SOP did not have a material impact on
the Company's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective January 1, 2001.
This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of
the derivative and the resulting designation. The ultimate financial effect
of the new rule will be measured based on the derivatives in place at
adoption and cannot be estimated at this time.
<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, 1999 are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
U.S. Government agency obligations $ 7,514 $ 23 $ 431 $ 7,106
State and municipal obligations 3,002 44 -- 3,046
Corporate bonds and obligations 816,826 5,966 23,311 799,482
Mortgage-backed securities 179,007 296 4,834 174,469
---------- -------- -------- ----------
$1,006,349 $ 6,329 $ 28,576 $ 984,103
========== ======== ======== ==========
Available for sale
U.S. Government agency obligations $ 2,047 $ -- $ 47 $ 1,999
State and municipal obligations 2,250 -- 190 2,060
Corporate bonds and obligations 1,419,150 7,445 90,703 1,335,892
Mortgage-backed securities 988,352 1,929 25,746 964,536
------------ -------- -------- ----------
$2,411,799 $ 9,374 $116,686 $2,304,487
========== ======== ======== ==========
The amortized cost, gross unrealized gains and losses and fair value of
investments in fixed maturities at December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Held to maturity Cost Gains Losses Value
---------------- ---------- -------- -------- ----------
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>
<PAGE>
2. Investments (continued)
The amortized cost and fair value of investments in fixed maturities at
December 31, 1999 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.
Amortized Fair
Held to maturity Cost Value
Due in one year or less $ 26,214 $ 26,334
Due from one to five years 412,533 408,638
Due from five to ten years 331,187 320,146
Due in more than ten years 57,408 54,516
Mortgage-backed securities 179,007 174,469
------------- -------------
$ 1,006,349 $ 984,103
=========== ============
Amortized Fair
Available for sale Cost Value
Due in one year or less $ 46,937 $ 47,236
Due from one to five years 75,233 73,525
Due from five to ten years 1,037,001 980,633
Due in more than ten years 264,276 238,557
Mortgage-backed securities 988,352 964,536
------------ ------------
$2,411,799 $2,304,487
During the years ended December 31, 1999, 1998 and 1997, fixed maturities
classified as held to maturity were sold with amortized cost of $8,466,
$31,117 and $29,561, 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 1999 with
proceeds of $469,126 and gross realized gains and losses of $10,374 and
$4,147 respectively. 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.
At December 31, 1999, bonds carried at $3,277 were on deposit with various
states as required by law.
<PAGE>
2. Investments (continued)
At December 31, 1999, investments in fixed maturities comprised 81 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 $486 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:
Rating 1999 1998
---------------------- ----------- -----------
Aaa/AAA $1,168,144 $1,242,301
Aa/AA 42,859 45,526
Aa/A 52,416 60,019
A/A 422,668 422,725
A/BBB 189,072 228,656
Baa/BBB 995,152 1,030,874
Baa/BB 64,137 79,687
Below investment grade 483,700 498,117
------------ ------------
$3,418,148 $3,607,905
At December 31, 1999, approximately 94 percent of the securities rated
Aaa/AAA were GNMA, FNMA and FHLMC mortgage-backed securities. No holdings
of any other issuer were greater than one percent of the Company's total
investments in fixed maturities.
At December 31, 1999, approximately 19 percent of the Company's invested
assets were mortgage loans on real estate. Summaries of mortgage loans by
region of the United States and by type of real estate are as follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
On Balance Commitments On Balance Commitments
Region Sheet to Purchase Sheet to Purchase
---------------------------------- ----------- ----------- ---------- -----------
South Atlantic $194,325 $ -- $198,552 $ 651
Middle Atlantic 118,699 -- 129,284 520
East North Central 126,243 -- 134,165 2,211
Mountain 103,751 -- 113,581 --
West North Central 125,891 513 119,380 9,626
New England 43,345 802 46,103 --
Pacific 41,396 -- 43,706 --
West South Central 31,153 -- 32,086 --
East South Central 7,100 -- 7,449 --
----------- ------------ ----------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- ------------ ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ======== ======== =======
<PAGE>
2. Investments (continued)
December 31, 1999 December 31, 1998
------------------------------ ------------------------------
On Balance Commitments On Balance Commitments
Property type Sheet to Purchase Sheet to Purchase
---------- -------------- ---------- ------------
Department/retail stores $232,449 $ 1,315 $253,380 $ 781
Apartments 181,346 -- 186,030 2,211
Office buildings 202,132 -- 206,285 9,496
Industrial buildings 83,186 -- 82,857 520
Hotels/Motels 43,839 -- 45,552 --
Medical buildings 32,284 -- 33,103 --
Nursing/retirement homes 6,608 -- 6,731 --
Mixed Use 10,059 -- 10,368 --
---------- -------------- ---------- ------------
791,903 1,315 824,306 13,008
Less allowance for losses 6,650 -- 8,500 --
----------- -------------- ----------- ------------
$785,253 $ 1,315 $815,806 $13,008
======== ========== ======== =======
</TABLE>
Mortgage loan fundings are restricted by state insurance regulatory
authorities to 80 percent or less of the market value of the real estate at
the time of origination of the loan. The Company holds the mortgage
document, which gives it the right to take possession of the property if
the borrower fails to perform according to the terms of the agreement.
Commitments to purchase mortgages are made in the ordinary course of
business. The fair value of the mortgage commitments is $nil.
At December 31, 1999, the Company's recorded investment in impaired loans
was $5,200 with an allowance of $1,250. At December 31, 1998, the Company's
recorded investment in impaired loans was $1,932 with an allowance of $500.
During 1999 and 1998, the average recorded investment in impaired loans was
$5,399 and $2,736, respectively.
The Company recognized $136, $251 and $nil of interest income related to
impaired loans for the years ended December 31, 1999, 1998 and 1997,
respectively.
The following table presents changes in the allowance for investment losses
related to all loans:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Balance, January 1 $8,500 $3,718 $2,370
Provision (reduction) for investment losses (1,850) 4,782 1,805
Loan payoffs -- -- (457)
------ --------- -------
Balance, December 31 $6,650 $8,500 $3,718
====== ====== ======
Net investment income for the years ended December 31 is summarized as
follows:
1999 1998 1997
----- ----- ----
Interest on fixed maturities $265,199 $285,260 $278,736
Interest on mortgage loans 63,721 65,351 55,085
Interest on cash equivalents 534 137 704
Other (1,755) (2,493) 1,544
---------- ---------- ----------
327,699 348,255 336,069
Less investment expenses 4,953 8,036 3,801
--------- ---------- ----------
$322,746 $340,219 $332,268
======== ======== ========
</TABLE>
<PAGE>
2. Investments (continued)
Net realized gain (loss) on investments for the years ended December 31 is
summarized as follows:
<TABLE>
<S> <C> <C> <C>
1999 1998 1997
---- ---- ----
Fixed maturities $ 6,534 $ 863 $ 1,638
Mortgage loans (1,650) (4,816) (1,348)
Other investments (1,819) (835) (799)
--------- -------- -------
$ 3,065 $(4,788) $ (509)
========= ======= =======
Changes in net unrealized appreciation (depreciation) of investments for
the years ended December 31 are summarized as follows:
1999 1998 1997
----- ----- ----
Fixed maturities available for sale $(175,458) $(8,032) $57,188
3. Income taxes
The Company qualifies as a life insurance company for federal income tax
purposes. As such, the Company is subject to the Internal Revenue Code
provisions applicable to life insurance companies.
The income tax expense (benefit) for the years ended December 31, consists
of the following:
1999 1998 1997
---- ---- ----
Federal income taxes:
Current $ 15,531 $ 23,227 $17,668
Deferred 711 (9,591) (2,485)
-------- -------- -------
16,242 13,636 15,183
State income taxes-current 433 759 1,462
-------- -------- -------
Income tax expense $ 16,675 $ 14,395 $16,645
======== ======== =======
</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>
1999 1998 1997
------------------ ------------------ ---------------------
Provision Rate Provision Rate Provision Rate
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income taxes based
on the statutory rate $17,731 35.0% $13,972 35.0% $15,735 35.0%
Increases (decreases) are
attributable to:
Tax-excluded interest (14) -- (35) (0.1) (41) (0.1)
State tax, net of federal benefit 281 0.5 493 1.2 956 2.1
Reduction of mortgage loss
reserve (1,225) (2.4) -- -- -- --
Other, net (98) (0.2) (35) -- (5) --
------ ----- -------- ------ ---- ------
Total income taxes $16,675 32.9 % $14,395 36.1% $16,645 37.0%
======= ===== ======= ==== ======= ====
</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:
Deferred income tax assets: 1999 1998
------- -------
Policy reserves $46,243 $51,298
Unrealized losses on investments 39,678 --
Other 1,070 2,214
-------- --------
Total deferred income tax assets 86,991 53,512
-------- --------
Deferred income tax liabilities:
Deferred policy acquisition costs 49,490 52,908
Unrealized gains on investments -- 23,803
-------- --------
Total deferred income tax liabilities 49,490 76,711
-------- --------
Net deferred income tax assets (liabilities) $37,501 ($23,199)
======= ========
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 $58,223 and $45,716 as of December
31, 1999 and 1998, respectively. In addition, dividends in excess of
$15,241 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:
1999 1998 1997
--------- --------- -------
Statutory net income $ 15,241 $ 37,902 $ 23,589
Statutory stockholder's equity 343,094 330,588 302,264
5. Related party transactions
The Company has 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 $8,258 and
$6,651 at December 31, 1999 and 1998, 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 $38,931, $28,482 and $24,535 for the
years ended December 31, 1999, 1998 and 1997, 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 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, 1999 or 1998.
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, 1999 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
<S> <C> <C> <C> <C>
Assets:
Interest rate caps $ 900,000 $ 3,212 $ 4,437 $ 4,437
Interest rate floors 2,000,000 8,258 2,251 2,251
Off balance sheet assets:
Interest rate swaps 2,000,000 -- 18,274 18,274
--------- -------- --------
$11,470 $24,962 $24,962
======= ======= =======
<PAGE>
7. Derivative financial instruments (continued)
Notional Carrying Fair Total Credit
December 31, 1998 Amount Amount Value Exposure
----------------- -------- -------- ------ ------------
Assets:
Interest rate caps $ 900,000 $ 5,452 $ 1,518 $ 1,518
Interest rate floors 1,000,000 6,651 17,798 17,798
Off balance sheet liabilities:
Interest rate swaps 1,000,000 -- (33,500) --
--------- ---------- --------
$12,103 ($ 14,184) $19,316
======= =========== =======
</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 2006.
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,
1999 1998
-------------------------- --------------------------
Carrying Fair Carrying Fair
Financial Assets Amount Value Amount Value
---------------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Investments:
Fixed maturities (Note 2):
Held to maturity $1,006,349 $984,103 $1,081,193 $1,126,732
Available for sale 2,304,487 2,304,487 2,594,858 2,594,858
Mortgage loans on real estate (Note 2) 785,253 770,095 815,806 874,064
Derivative financial instruments (Note 7) 11,470 24,962 12,103 19,316
Separate account assets (Note 1) 220,994 220,994 123,185 123,185
Financial Liabilities
Future policy benefits for fixed annuities $3,905,849 $3,778,945 $4,152,059 $4,000,789
Separate account liabilities 220,994 209,942 123,185 115,879
Derivative financial instruments (Note 7) -- -- -- 33,500
</TABLE>
At December 31, 1999 and 1998, the carrying amount and fair value of future
policy benefits for fixed annuities exclude life insurance-related
contracts carried at $15,633 and $14,793, respectively. The fair value of
these benefits is based on the status of the annuities at December 31, 1999
and 1998.
<PAGE>
8. Fair values of financial instruments (continued)
The fair values of deferred annuities and separate account liabilities are
estimated as the carrying amount less applicable surrender charges. The
fair value for annuities in non-life contingent payout status is estimated
as the present value of projected benefit payments at rates appropriate for
contracts issued in 1999 and 1998.
9. Commitments and contingencies
In January 2000, AEFC reached an agreement in principle to settle three
class-action lawsuits. The Company had been named as a co-defendant in one
of these lawsuits. It is expected the settlement will provide $215 million
of benefits to more than 2 million participants. The agreement in principle
to settle also provides for release by class members of all insurance and
annuity market conduct claims dating back to 1985 and is subject to a
number of contingencies including a definitive agreement and court
approval. The portion of the settlement allocated to the Company did not
have a material impact on the Company's financial position or results from
operations.
10. YEAR 2000 ISSUE (unaudited)
The Year 2000 issue is the result of computer programs having been written
using two digits rather than four to define a year. Any programs that have
time-sensitive software may recognize a date using "00" as the year 1900
rather than 2000. This could result in the failure of major systems or
miscalculations, which could have a material impact on the operations of
the Company. All of the major systems used by the Company are maintained by
AEFC and are utilized by multiple subsidiaries and affiliates of AEFC. The
Company's businesses are heavily dependent upon AEFC's computer systems and
have significant interaction with systems of third parties.
A comprehensive review of AEFC's computer systems and business processes,
including those specific to the Company, was conducted to identify the
major systems that could be affected by the Year 2000 issue. Steps were
taken to resolve potential problems including modification to existing
software and the purchase of new software. As of December 31, 1999, AEFC
had completed its program of corrective measures on its internal systems
and applications, including Year 2000 compliance testing. As of December
31, 1999, AEFC had also completed an evaluation of the Year 2000 readiness
of other third parties whose system failures could have an impact on the
Company's operations.
AEFC's Year 2000 project also included establishing Year 2000 contingency
plans for all key business units. Business continuation plans, which
address business continuation in the event of a system disruption, are in
place for all key business units. At December 31, 1999, these plans had
been amended to include specific Year 2000 considerations.
In assessing its Year 2000 initiatives and the results of actual production
since January 1, 2000, management believes no material adverse consequences
were experienced, and there was no material effect on the Company's
business, results of operations, or financial condition as a result of the
Year 2000 issue.
<PAGE>
TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION
Performance Information.............................p.
Calculating Annuity Payouts.........................p.
Rating Agencies.....................................p.
Principal Underwriter...............................p.
Independent Auditors................................p.
Financial Statements
<PAGE>
Please check the appropriate box to receive a copy of the Statement of
Additional Information for:
[ ] American Express New Solutions Variable Annuity(SM)
[ ] American Express(R) Variable Portfolio Funds
[ ] AIM Variable Insurance Funds
[ ] Alliance variable Products Series Fund
[ ] Evergreen Variable Annuity Trust
[ ] Fidelity Variable Insurance Products Funds - Service Class
[ ] Franklin Templeton Variable Insurance Products Trust
[ ] MFS(R) Variable Insurance Trust(SM)
[ ] Putnam Variable Trust - Class IB shares
MAIL YOUR REQUEST TO:
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
We will mail your request to:
Your name ___________________________________________________________________
Address _____________________________________________________________________
City ___________________________________State _________________Zip __________
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The expenses of the issuance and distribution of the interests in the
Guarantee Period Accounts of the Contract to be registered, other than
commissions on sales of the Contracts, are to be borne by the
registrant.
Item 14. Indemnification
The By-Laws of the depositor provide that the Corporation shall have
the power to indemnify a director, officer, agent or employee of the
Corporation pursuant to the provisions of applicable statues or
pursuant to contract.
The Corporation may purchase and maintain insurance on behalf of any
director, officer, agent or employee of the Corporation against any
liability asserted against or incurred by the director, officer,
agent or employee in such capacity or arising out of the director's,
officer's, agent's or employee's status as such, whether or not the
Corporation would have the power to indemnify the director, officer,
agent or employee against such liability under the provisions of
applicable law.
The By-Laws of the depositor provide that it shall indemnify a
director, officer, agent or employee of the depositor pursuant to the
provisions of applicable statutes or pursuant to contract.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities
None
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1. Not applicable.
2. Not applicable.
3.1 Amendment and Restatement of Articles of Incorporation of American
Enterprise Life dated July 29, 1986, filed electronically as Exhibit
6.1 to the Initial Registration Statement No. 33-54471, filed on or
about July 5, 1994, is incorporated by reference.
<PAGE>
3.2 Amended By-laws of American Enterprise Life, filed electronically as
Exhibit 6.2 to the Initial Registration Statement No. 33-54471, filed
on or about July 5, 1994, is incorporated by reference.
3.3 Consent in writing in lieu of a meeting of the Board of Directors of
American Enterprise Life Insurance Company establishing the American
Enterprise MVA Account dated Aug. 18, 1999, filed electronically as
Exhibit 3.3 to Initial Registration Statement No. 333-86297, filed on
or about Aug. 31, 1999, is incorporated by reference.
4.1 Form of Deferred Annuity Contract for the American Express Signature
One Variable AnnuitySM (form 240180), filed electronically as Exhibit
4.1 to American Enterprise Variable Annuity Account's Post-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Dec. 7, 1999, is incorporated by reference.
4.2 Form of Deferred Annuity Contract for the Wells Fargo AdvantageSM
Variable Annuity (form 44209), filed electronically as Exhibit 4.1 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or
about Nov. 4, 1999, is incorporated by reference.
4.3 Form of Deferred Annuity Contract for the Wells Fargo AdvantageSM
Builder Variable Annuity (form 44210), filed electronically as Exhibit
4.2 to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Nov. 4, 1999, is incorporated by reference.
4.4 Form of Deferred Annuity Contract for the American Express New
Solutions Variable Annuity SM (form 240343) filed electronically as
Exhibit 4.1 to American Enterprise Variable Annuity Account's
Pre-Effective Amendment No. 1 to Registration Statement No. 333-92297
on Form N-4, filed on or about Feb. 11, 2000, is incorporated by
reference.
4.5 Form of Deferred Annuity Contract for American Express Signature
Variable Annuity SM (form 43431) filed electronically as Exhibit 4.1
to Pre-Effective Amendment No. 1 to Registration Statement No.
333-74865 on form N-4, filed on or about Aug. 4, 1999, is incorporated
by reference.
4.6 Form of Enhanced Death Benefit Rider for the Wells Fargo AdvantageSM
Variable Annuity and the Wells Fargo AdvantageSM Builder Variable
Annuity (form 44213), filed electronically as Exhibit 4.3 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement No. 333-85567 on form N-4, filed on or about
Nov. 4, 1999, is incorporated by reference.
4.7 Form of Guaranteed Minimum Income Benefit Rider for the American
Express Signature Variable AnnuitySM and the American Express Signature
One Variable AnnuitySM (6% Accumulation Benefit Base) (form 240186),
filed electronically as Exhibit 4.2 to American Enterprise Variable
Annuity Account's Post-Effective Amendment No. 3 to Registration
Statement No. 333-85567 on form N-4, filed on or about Feb. 11, 2000,
is incorporated by reference.
4.8 Form of Guaranteed Minimum Income Benefit Rider for the American
Express New Solutions Variable Annuity SM (form 240350), filed
electronically as Exhibit 4.4 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement No.
333-92297 on Form N-4, filed on or about Feb. 11, 2000, is incorporated
by reference.
4.9 Form of Guaranteed Minimum Income Benefit Rider for the Wells Fargo
AdvantageSM Variable Annuity and the Wells Fargo AdvantageSM Builder
Variable Annuity (form 44214), filed electronically as Exhibit 4.4 to
American Enterprise Variable Annuity Account's Pre-Effective Amendment
No. 1 to Registration Statement No. 333-85567 on form N-4, filed on or
about Nov. 4, 1999, is incorporated by reference.
<PAGE>
4.10 Form of 5% Accumulation Death Benefit Rider for the American Express
Signature Variable AnnuitySM and the American Express Signature One
Variable AnnuitySM (form 240183), filed electronically as Exhibit 4.3
to American Enterprise Variable Annuity Account's Post-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Dec. 8, 1999, is incorporated by reference.
4.11 Form of Value Option Return of Purchase Payment Death Benefit Rider for
the American Express Signature One Variable AnnuitySM (form 240182),
filed electronically herewith.
4.12 Form of 8% Performance Credit Rider for the American Express Signature
Variable AnnuitySM and the American Express Signature One Variable
AnnuitySM (form 240187), filed electronically as Exhibit 4.4 to
American Enterprise Variable Annuity Account's Post-Effective Amendment
No. 2 to Registration Statement No. 333-85567 on form N-4, filed on or
about Dec. 30, 1999, is incorporated by reference.
4.13 Form of Performance Credit Rider for the American Express New Solutions
Variable Annuity SM (form 240349), filed electronically as Exhibit 4.2
to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-92297 on Form N-4,
filed on or about Feb. 11, 2000, is incorporated by reference.
4.14 Form of Roth IRA Endorsement for the Wells Fargo AdvantageSM Variable
Annuity, Wells Fargo AdvantageSM Builder Variable Annuity, American
Express Signature Variable AnnuitySM, American Express Signature One
Variable AnnuitySM and American Express New Solutions Variable
AnnuitySM (form 43094), filed electronically as Exhibit 4.2 to American
Enterprise Variable Annuity Account's Pre-Effective Amendment No. 1 to
Registration Statement No. 333-74865 on form N-4, filed on or about
Aug. 4, 1999, are incorporated by reference.
4.15 Form of SEP-IRA for the Wells Fargo AdvantageSM Variable Annuity, Wells
Fargo AdvantageSM Builder Variable Annuity, and American Express
Signature One Variable AnnuitySM (form 43412), filed electronically as
Exhibit 4.3 to American Enterprise Variable Annuity Account's
Pre-Effective Amendment No. 1 to Registration Statement No. 333-72777
on form N-4, filed on or about July 8, 1999, is incorporated by
reference.
4.16 Form of SEP-IRA for the American Express Signature Variable AnnuitySM
and the American Express New Solutions Variable AnnuitySM (form 43433)
filed electronically as Exhibit 4.3 to American Enterprise Variable
Annuity Account's Pre-Effective Amendment No. 1 to Registration
Statement No. 333-74865 on form N-4, filed on or about Aug. 4, 1999, is
incorporated by reference.
4.17 Form of Disability Waiver of Withdrawal Charges Rider for the Wells
Fargo AdvantageSM Variable Annuity and the Wells Fargo AdvantageSM
Builder Variable Annuity (form 44215), filed electronically as Exhibit
4.5 to American Enterprise Variable Annuity Account's Pre-Effective
Amendment No. 1 to Registration Statement No. 333-85567 on form N-4,
filed on or about Nov. 4, 1999, is incorporated by reference.
4.18 Form of Unemployment Waiver of Withdrawal Charges Rider for the Wells
Fargo AdvantageSM Variable Annuity and the Wells Fargo AdvantageSM
Builder Variable Annuity (form 44216), to American Enterprise Variable
Annuity Account's Pre-Effective No. 1 Amendment to Registration
Statement No. 333-85567 on form N-4, filed on or about Nov. 4, 1999, is
incorporated by reference.
4.19 Form of TSA Endorsement for the Wells Fargo AdvantageSM Variable
Annuity, the Wells Fargo AdvantageSM Builder Variable Annuity and the
American Express Signature Variable AnnuitySM (form 43413), filed
electronically as Exhibit 4.4 to American Enterprise Variable Annuity
Account's Pre-Effective Amendment No. 1 to Registration Statement No.
333-72777 on form N-4, filed on or about July 8, 1999, is incorporated
by reference.
<PAGE>
5. Opinion of Counsel and consent to its use as to the securities being
registered for the Wells Fargo Advantage SM Variable Annuity, the
Wells Fargo Advantage SM Builder Variable Annuity, the American
Express Signature One Variable Annuity,SM American Express Signature
Variable AnnuitySM and American Express New Solutions Variable
AnnuitySM, dated April 28, 2000, filed electronically herewith.
8. Not applicable.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
15. Not applicable.
16. Not applicable.
21. Not applicable.
22. Not applicable.
23. Consent of Independent Auditors for the Wells Fargo AdvantageSM
Variable Annuity, the Wells Fargo AdvantageSM Builder Variable
Annuity, the American Express Signature One Variable AnnuitySM, the
American Express Signature AnnuitySM and the American Express New
Solutions Variable AnnuitySM, dated April 24, 2000, filed
electronically herewith.
24. Power of Attorney to sign this Registration Statement, dated July 29,
1999, filed electronically as Exhibit 15 to American Enterprise
Variable Annuity Account's Initial Registration Statement No.
333-85567 on Form N-4, filed on or about Aug. 19, 1999, is
incorporated by reference.
25. Not applicable.
26. Not applicable.
27. None.
Item 17. Undertakings
Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
<PAGE>
(iv) Registrant represents that it is relying upon the no-action
assurance given to the American Council of Life Insurance
(pub. Avail. Nov. 28, 1998). Further, Registrant represents
that it has complied with the provisions of paragraphs (1) -
(4) of that no-action letter.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American Enterprise
Life Insurance Company, on behalf of the Registrant, has duly caused this
Registration Statement to be signed on its behalf by the undersigned, duly
authorized in the City of Minneapolis, and State of Minnesota on the 28th day of
April, 2000.
American Enterprise Life Insurance Company
(Registrant)
By American Enterprise Life Insurance Company
By /s/ James E. Choat*
James E. Choat
President and Chief Executive Officer
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities indicated on the 28th day of
April, 2000.
Signature Title
/s/ James E. Choat* Director, President and
James E. Choat Chief Executive Officer
/s/ Jeffrey S. Horton* Vice President and Treasurer
Jeffrey S. Horton
/s/ Richard W. Kling* Chairman of the Board
Richard W. Kling
/s/ Paul S. Mannweiler* Director
Paul S. Mannweiler
/s/ Paula R. Meyer* Director and Executive Vice
Paula R. Meyer President-Assured Assets
/s/ William A. Stoltzmann* Director, Vice President,
William A. Stoltzmann General Counsel and Secretary
/s/ Philip C. Wentzel* Vice President and Controller
Philip C. Wentzel
*Signed pursuant to Power of Attorney, dated July 29, 1999, filed electronically
as Exhibit 15 to American Enterprise Variable Annuity Account's Initial
Registration Statement No. 333-85567 on Form N-4, filed on or about Aug. 19,
1999, is incorporated by reference.
By: /s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Exhibit 4.11: Form of Value Option Return Rider (form 240182).
Exhibit 5: Opinion of Counsel, dated April 28, 2000.
Exhibit 23: Auditors Consent, dated April 24, 2000.
VALUE OPTION RETURN OF PURCHASE PAYMENT DEATH BENEFIT RIDER
The "Death Benefits Before Annuitization" provision of the annuity contract to
which this rider is attached is hereby deleted and replaced with the following.
Death Benefits Before Annuitization
A death benefit is payable to the beneficiary upon the earlier death of you or
the annuitant while this contract is in force and prior to annuitization.
We will pay the beneficiary the greatest of the following amounts, less any
purchase payment credits that have not vested;
1. the contract value; or
2. the total payments and purchase payment credits made to the contract minus
"adjustments for partial withdrawals".
Adjustments for Partial Withdrawals
Adjustments for partial withdrawals are calculated for each partial withdrawal
as the product of (a) times (b) where:
(a) is the ratio of the amount of the partial withdrawal (including any
withdrawal charges) to the contract value on the date of (but prior
to) the partial withdrawal; and
(b) is the death benefit on the date of (but prior to) the partial
withdrawal.
Any amounts payable or applied by us as described in the sections below will be
based on the contract values as of the valuation date on or next following the
date on which due proof of death is received at our administrative office.
This Rider is effective as of the contract date of this contract unless a
different date is shown here.
American Enterprise Life Insurance Company
Secretary
April 28, 2000
American Enterprise Life Insurance Company
829 AXP Financial Center
Minneapolis, MN 55474
RE: American Enterprise MVA Account
Wells Fargo AdvantageSM Variable Annuity
Wells Fargo AdvantageSM Builder Variable Annuity
American Express Signature Variable AnnuitySM
American Express Signature One Variable AnnuitySM
American Express New Solutions Variable AnnuitySM
Post-Effective Amendment No. 5 on Form S-1
File No.: 333-86297
Ladies and Gentlemen:
I am familiar with the establishment of the American Enterprise MVA Account
("Account"), which is a separate account of American Enterprise Life Insurance
Company ("Company") established by the Company's Board of Directors according to
applicable insurance law. I also am familiar with the above-referenced
Registration Statement filed by the Company on behalf of the Account with the
Securities and Exchange Commission.
I have made such examination of law and examined such documents and records as
in my judgment are necessary and appropriate to enable me to give the following
opinion:
1. The Company is duly incorporated, validly existing and in good standing
under applicable state law and is duly licensed or qualified to do business
in each jurisdiction where it transacts business. The Company has all
corporate powers required to carry on its business and to issue the
contracts.
2. The Account is a validly created and existing separate account of the
Company and is duly authorized to issue the securities registered.
3. The contracts issued by the Company, when offered and sold in accordance
with the prospectus contained in the Registration Statement and in
compliance with applicable law, will be legally issued and represent
binding obligations of the Company in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Sincerely,
/s/ Mary Ellyn Minenko
Mary Ellyn Minenko
Vice President and Group Counsel
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Prospectuses and to the use of our report dated February 3,2000 with respect to
the financial statements of American Enterprise Life Insurance Company in
Post-Effective Amendment No. 5 to the Registration Statement (Form S-1, No.
333-86297) and related Prospectuses for the registration of the Wells Fargo
AdvantageSM Variable Annuity Contracts, Wells Fargo AdvantageSM Builder Variable
Annuity Contracts, American Express Signature One Variable AnnuitySM Contracts,
American Express Signature Variable AnnuitySM Contracts and American Express New
Solutions Variable AnnuitySM Contracts, to be offered by American Enterprise
Life Insurance Company.
/s/ KPMG LLP
ERNST & YOUNG LLP
Minneapolis, Minnesota
April 24, 2000
April 28, 2000
VIA EDGAR
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549-1004
ATTN: Document Control - EDGAR
RE: American Enterprise MVA Account
Wells Fargo AdvantageSM Variable Annuity
Wells Fargo AdvantageSM Builder Variable Annuity
American Express Signature Variable AnnuitySM
American Express Signature One Variable AnnuitySM
American Express New Solutions Variable AnnuitySM
Post-Effective Amendment No. 5 on Form S-1
File No. 333-86297
Dear Commissioners:
American Enterprise MVA Account, the Registrant, has filed Post-Effective
Amendment No. 5, to the above referenced Form S-1 Registration Statement.
Pursuant to Rule 461, the Underwriter, American Express Financial Advisors Inc.,
now respectfully requests that the effective date of the Registration be
accelerated and that the Registration Statement be declared effective on May 1,
2000.
Yours truly,
American Express Financial Advisors Inc.
By: /s/ William A. Stoltzmann
William A. Stoltzmann
Vice President and Assistant General Counsel
